RBC cuts Watches of Switzerland estimates on tough market dynamics

RBC Capital Markets has slashed its target price for Watches of Switzerland Group ahead of its full-year trading update next month, projecting a "tough" luxury watch market.

The broker cut its target for the shares from 475p to 425p after reducing next year's revenue and EBIT estimates by 9% and 11%, respectively. However, it kept an 'outperform' rating on the stock.

RBC expects WOSG to deliver on lowered guidance for the year ending 30 April when it reports its pre-close trading update on 16 May, though it predicts revenues will be at the bottom end of the guided range of £1.53-1.55bn "due to a slight moderation in US trends for non supply constrained watches (based on Swiss watch exports data YTD)". The broker is also pencilling in EBIT of £147m at a margin of 9.6%.

For the next financial year, the broker reckons WOSG will guide to revenues of £1.60-1.65bn excluding the impact of acquisitions, with EBIT at £161m and broadly flat EBIT margin guidance due to fewer and later store openings.

"For FY25E we expect to see cautious revenue guide with limited/no margin expansion, given tough cyclical dynamics in luxury watches which will likely continue for 1H25E," RBC said.

"Sentiment remains low in WOSG, although we view its supplier relationships as more valuable than the market currently ascribes."

The stock was up 3.4% at 356.6p by 1136 BST.