Swiss luxury watchmaker faces sharp profit decline as weak Chinese demand and currency challenges impact global sales
Three Key Facts
- EBIT forecast slashed 36% as JPMorgan cuts Swatch Group’s full-year 2025 earnings expectations, with adjusted EPS dropping from CHF 5.22 to CHF 3.15, marking a 37% reduction below Bloomberg consensus.
- H1 sales expected to decline 5% to CHF 3.27 billion year-on-year, with operating profit forecast to plummet 36% to CHF 131 million, driven by weak Chinese demand and adverse forex effects.
- Shares fall over 1% following JPMorgan’s Negative Catalyst Watch designation, extending year-to-date losses to 20% and 12-month declines to over 31%.
Introduction
JPMorgan places Swatch Group on its Negative Catalyst Watch list as the Swiss luxury watchmaker faces mounting pressure ahead of its first-half earnings report. The investment bank cuts estimates across all metrics, anticipating weak performance driven by declining Swiss watch exports and persistent softness in key Asian markets.
Swatch shares drop more than 1% in early trading as investors react to the downgraded outlook. The company faces significant headwinds as Chinese consumer spending remains subdued and forex effects weigh on profitability.
Key Developments
JPMorgan analysts led by Chiara Battistini expect Swatch’s net sales to fall 5% year-on-year to CHF 3.27 billion in the first half. Operating profit faces a steeper decline, with EBIT forecast to drop 36% to CHF 131 million, landing 30% below consensus estimates.
The revision extends beyond the immediate reporting period. JPMorgan slashes its full-year 2025 EBIT forecast by 36%, with subsequent years seeing reductions of 12% for fiscal 2026 and 6-7% for following periods.
Group margins face particular pressure, with overall margins expected to compress by 190 basis points year-on-year to 4%. The Watches & Jewellery division sees margins falling to 5.8% as the company maintains production capacity despite weaker demand.
Market Impact
Swatch shares decline over 1% in Swiss trading following the analyst downgrade, extending a difficult period for the luxury watchmaker. The stock has fallen 20% year-to-date and over 31% in the past 12 months, reflecting broader challenges in the luxury goods sector.
JPMorgan reduces its December 2026 price target from CHF 125 to CHF 118 while maintaining an Underweight rating. The bank’s revised forecasts paint a challenging picture, with FY25 EBIT margins expected at just 3.9% and adjusted EPS growth of -15.9%.
Swiss watch exports face broader headwinds, with the sector expected to decline approximately 3% in 2024. This industry-wide weakness amplifies concerns about Swatch’s near-term performance and margin sustainability.
Strategic Insights
Swatch Group confronts structural challenges that extend beyond cyclical market weakness. JPMorgan identifies the company’s reliance on mid-range segments, Chinese markets, and wholesale channels as key vulnerabilities in the current environment.
The geographic mix presents particular difficulties, with JPMorgan describing it as “the most unfavourable” within its coverage universe. Persistent weakness in China and Southeast Asia contrasts sharply with stronger performance in the USA, Japan, India, and the Middle East.
Despite immediate pressures, Swatch maintains production capacity and employment levels, prioritizing long-term industrial capabilities over short-term profitability. This strategic decision weighs on current margins but positions the company for potential market recovery.
Expert Opinions and Data
“Overall, we expect soft H1 results,” state JPMorgan analysts, highlighting the confluence of factors pressuring the watchmaker’s performance. The bank expects margins “to come under material pressure” due to declining exports and negative forex impacts.
The company’s recent fiscal 2024 results underscore these challenges. Net sales fell 12.2% at constant exchange rates to CHF 6.74 billion, while operating profit plummeted from CHF 1.19 billion to CHF 304 million. Operating margins compressed dramatically from 15.1% to 4.5%.
According to Investing.com, individual brand performance varies significantly within the portfolio. Luxury brands Breguet and Blancpain face particular pressure, while Harry Winston and Omega demonstrate resilience alongside mid-range performers Rado, Longines, and Tissot.
“Still, with likely a soft reporting in July, and expecting very large negative earnings revisions around it, we place Swatch on Negative Catalyst Watch into the H1 update,” JPMorgan analysts conclude. The bank anticipates continued top-line and margin pressure as market conditions remain challenging.
Conclusion
Swatch Group enters its first-half earnings period facing significant headwinds as market conditions deteriorate and geographic dependencies create vulnerability. The company’s decision to maintain production capacity demonstrates long-term strategic thinking but weighs heavily on immediate financial performance.
JPMorgan’s comprehensive estimate reductions reflect broader challenges in the luxury watch sector, where Chinese market weakness and forex pressures create a difficult operating environment. The investment bank’s Negative Catalyst Watch designation signals expectations for substantial earnings revisions when results emerge at month-end.
