Watches of Switzerland Group record year performance in FY20

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Watches of Switzerland Group PLC (LON:WOSG) has provided the following financial results for the 52 weeks ending 26 April 2020 (FY20) and an unaudited trading update for the 13 weeks ending 26 July 2020 (Q1 FY21).

Brian Duffy, Chief Executive Officer, said:
“I am delighted with our achievements during FY20, our first year as a public company. We delivered a strong performance during the first 46 weeks of the year before adapting with speed and agility to the challenges presented by the COVID-19 pandemic. Momentum accelerated in our US business adding to the positive performance in the UK and we remain confident in our strategy to drive profitable growth in both markets.
I am extremely proud of the dedication and enthusiasm of our teams who have remained highly engaged and continued to deliver impressive results. We are pleased to have maintained full job security and salaries for all our staff in the UK and in the US during the lockdown period. We will continue to prioritise the health and wellbeing of our colleagues and customers throughout this challenging time.
While we began FY21 with our global store portfolio closed due to the pandemic, we were well prepared for the re-opening of our stores during Q1 and trading has exceeded our expectations in both the UK and the US. The UK has been driven by continued strong ecommerce sales and domestic demand in regional stores, partly offsetting greater declines in London (due to reduced tourism) and our airport stores. The US continued to gain momentum during the period with all re-opened stores performing strongly versus the prior year. This continued strong performance is testament to our long-standing brand partnerships, focus on exceptional customer experience, well-established multi-channel leadership and the strong fundamentals of the luxury watch category in our markets, where demand continues to exceed supply. Our encouraging Q1 sales performance underpins the strength of our supply-driven business model and provides the basis on which we provide FY21 guidance.
Looking ahead, we will continue to invest in delivering on our strategic priorities to leverage our leading position in the UK and to become a leader in the US luxury watch market. We are confident that we are well positioned to emerge even stronger from these uncertain and challenging times.”

FY20 Highlights

Record year of sales and profit despite COVID-19 impact

· FY20 Group revenue +5.9% to £819.3 million (£810.5 million after reclassifications)

Strong trading during 46 weeks to 15 March 2020 (pre-lockdown) with Group revenue +15.8%, across both UK +9.4% and US +36.4%, driven by luxury watches +19.3% vs prior year

COVID-19 related closures of all stores in the UK and US impacted the final 6 weeks of the year

UK +0.6% (-0.5% after reclassifications) and US +22.9% (+21.4% after reclassifications)

· Adjusted EBITDA increased +13.6% to £78.1 million, at the top end of revised guidance

· Operating profit increased +6.2% to £48.3 million (FY19: £45.5 million)

· Capital expenditure of £23.4 million (FY19: £35.3 million), with five new stores opened (FY19: eight), six relocated stores (FY19: three) and nine refurbishments (FY19: nine) , expansions and relocations; some projects delayed into FY21 due to COVID-19 (Knightsbridge expansion, Rolex boutique Glasgow and Tudor boutique White City)

· Four stores acquired from Fraser Hart in March 2020

· Return on capital employed increased to 15.8% (FY19: 14.7%)

· Net debt reduced to £129.7 million as at 26 April 2020 (28 April 2019: £240.6 million) reflecting disciplined cash management and proceeds from the IPO

Q1 FY21 Trading Update

Increased domestic demand offsets tourism decline; July sales +7.4% vs prior year

· Colleagues’ job security and salaries maintained in full and strong communication with colleagues throughout

· Group revenue for the 13 weeks to 26 July 2020 (Q1 FY21) was ahead of management expectations with June/July positive:

Q1 -27.6% to £151.6 million (Q1 FY20: £209.4 million), impacted by store closures during the period

Stores traded for c.38% of potential trading hours due to COVID-19 related lockdown

The majority of stores re-opened during the quarter with a strong performance during the month of July +7.4% vs prior year, the first full month when the majority of the network was re-opened (June +0.3%, May -83.0%)

Since re-opening, traffic to the Group’s stores has been low but offset by higher conversion rates, good supply of key brands and new technology to further enhance clientelling initiatives

Continued strong ecommerce performance with Q1 sales +79.3%

Luxury watch sales increased to 86.8% of Group revenue (Q1 FY20: 84.8%) with key brands outperforming

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· UK revenue -30.1% to £108.3 million (Q1 FY20: £155.0 million)

Stores traded for c.35% of potential trading hours, beginning to reopen from mid-June

Strong UK domestic sales during Q1 +20.4% offsetting lower tourism and airport business -92.8%

Post re-opening, regional stores outperformed London and airport stores, which remain adversely impacted by a lack of tourism and travel business

Sales by month vs prior year: July +1.1%, June +1.4%, May -86.8%

· US revenue -20.4% to £43.3 million (Q1 FY20: £54.4 million)

Stores traded for c.44% of potential trading hours, beginning to reopen during May

Post re-opening, all areas of the business performed strongly driven by enhanced clientelling and good product availability

Sales by month vs prior year: July +27.0%, June -2.7%, May -72.7%

· Luxury watches are a considered purchase, with less browsing store traffic and high conversion rates from discerning shoppers for the category; these characteristics enabled the Group to introduce the necessary health and safety measures in its stores with relative ease

· Enhanced digital activities include exclusive product launches, introduction of automated remote selling, new digital campaigns, enhanced social and digital media, virtual events and virtual PR launches

· Mono-brand boutique network further expanded with a new Rolex boutique opened in Glasgow at the end of Q1, the brand’s first mono-brand store in Scotland, and three new TAG Heuer boutiques opened in Watford, Kingston and Oxford; in addition a Grand Seiko pop-up store was opened in Soho, New York

· The Group renegotiated contracts for its airport stores and agreed a short-term extension to the end of FY21 on revised terms reflecting reduced traffic expectations

· Net debt at 26 July 2020 of £91.2 million with financial headroom of £161.1 million

· As previously stated, new £45.0 million facility agreement secured during May 2020, further strengthening liquidity position

Outlook

Supply-driven business model forms key consideration behind FY21 guidance

· Despite the macroeconomic uncertainties, the Group is providing guidance for FY21 on the basis of a continued strong luxury watch market in the UK and US

· The Group’s Q1 sales performance since re-opening underpins the strength of its supply-driven business model which forms a key consideration behind the FY21 guidance

· The FY21 outlook is based on the assumption that there are no further national lockdowns in the UK or the US impacting the Group’s sales or in Switzerland impacting the Group’s brand partners’ production during the period; localised disruption is expected to continue for the balance of the financial year

· During FY21, whilst the Group expects domestic demand to remain buoyant in both the UK and the US, it anticipates limited but improving airport traffic and foreign tourism in the UK and limited domestic tourism in the US, with gradual and moderate improvement throughout the financial year

· The Group provides the following guidance for FY21 pre-IFRS 16 adjustments and based on a 53-week period: