City broker downgrades Watches of Switzerland as US prices set to rise
A City broker has downgraded its price target for Watches of Switzerland by a fifth, citing lower spending and higher prices as the retailer’s challenges.
Peel Hunt downgraded the target price for the luxury watch firm from 500p to 400p.
Shares in the retailer were trading at 335p as of midday on April 7, having fallen 2.8 per cent on Monday and nearly 20 per cent since ‘Liberation Day’ on April 2.
“With uncertainty so high, we are not attracted to the shares even after their fall,” Peel Hunt said.
Peel Hunt warned that US watch prices could increase by 10 to 15 per cent – a bad prognosis for a sector struggling with demand.
“While there’s not much price elasticity on Rolex and Patek products, other brands could see volumes impacted,” the broker said. Rolex and Patek Philippe account for around 60 per cent of Watches of Switzerland’s sales.
“Our forecasts have most of the group’s growth coming from the US. We will wait until the economic backdrop calms and see how the US consumer responds… but the risk is clearly to the downside,” Peel Hunt said.
“The likelihood is that the US consumer, crucial to the growth story here, will remain nervous for some time,” the broker added.
A second issue is that many of the watches sold by the retailers are made in Switzerland, which faces a tariff of 31 per cent (although some products are sourced locally in America from distributors).
Switzerland was singled out by Trump as one of the worst culprits of unfair trade with America. Last year, the US had a CHF 38.5bn (£33.9bn) trade deficit with the European nation.