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Watches of Switzerland Group Plc’s profit margin will potentially be hit by US import tariffs this year, as watchmakers raise prices and demand resellers absorb some of the pain in the key market.
The UK-based luxury watch retailer said its margin on earnings before interest and taxes risks slipping by as much as 100 basis points compared with the previous 12 months. That scenario assumes the US keeps tariffs at 10 percent when President Donald Trump’s deadline to conclude trade deals expires next week — well below the 31% he outlined for Switzerland before pausing to allow for talks.
Shares of Watches of Switzerland fell as much as 10 percent in early trading in London — the most since the beginning of April when Trump announced his so-called ‘Liberation Day’ tariffs — before paring some of the drop.
The watch industry has been upended by trade tensions and uncertainty around the tariffs, with watchmakers rushing to get products into the US earlier this year to avoid the potential fallout of a full-blown trade war. The turmoil has come on top of a wider luxury slowdown in China that has hurt demand.
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Watches of Switzerland, the biggest Rolex reseller in the UK, said its brand partners in the US have increased prices by the mid-single digits, while reducing distributors’ margin percentage.
The impact would likely be more severe if the US imposes higher tariffs after July 9. Trump’s proposed 31 percent levy on Swiss watches could mean retail prices rise by 15 percent, Yanmei Tang, an analyst at research firm Third Bridge, said Wednesday before Watches of Switzerland’s results. The retailer also faces pressure from rising gold prices and a weaker US dollar, Tang said.
Watches of Switzerland had warned in May that US tariff announcements were fuelling consumer uncertainty. Nearly half of its sales last year came from the US, where it surpassed $1 billion in revenue for the first time.
Still, the company forecast revenue growth of between 6 percent and 10 percent this year in constant currency terms, ahead of analyst estimates.
US demand rebounded from a “wobble” around Trump’s tariff announcement, Jefferies analyst James Grzinic said in a note raising the broker’s price target on the stock. That reflects a “more sanguine view of US demand,” he said.
By Elliot Burrin
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