The worsening economic slowdown in China, a massive market for luxury goods such as watches and handbags, weighed on top luxury stocks in Europe on Monday. Shares of Swiss watchmakers and other luxury companies are under the most pressure.
Swatch Group AG, whose brands include Omega, Blancpain, and jeweler Harry Winston, reported a stunning 70% plunge in operating profit and a 14.3% plunge in sales for the first six months of the year compared with the same period last year.
Here are the highlights of the earnings report for the first six months of the year
Swatch shares in Zurich trading plunged as much as 11%, the most since March 2020, when governments worldwide began locking down economies over a virus likely from a Chinese lab.
Shares are back to Covid lows.
Largest daily decline since the first round of Covid lockdowns in early 2020.
For the second half of the year, Swatch warned, "The Chinese market (including Hong Kong SAR and Macau SAR) to remain challenging for the entire luxury goods industry until the end of the year."
Swatch Group Chief Executive Nick Hayek told Bloomberg that the downturn in demand for luxury goods is mainly centered in China. "The big impact is really mainly China," he said.
RBC analyst Piral Dadhania said Swatch's results are worse than expected. He expects "material earnings downgrades" are incoming.
More from Dadhania (courtesy of Bloomberg):
Here's what other Wall Street analysts are saying:
Vontobel’s Jean-Philippe Bertschy (hold, PT CHF220)
ZKB’s Patrik Schwendimann (market perform)
Meanwhile, luxury companies have faced sliding demand for watches and handbags due to China's slowing economy, as consumers in the world's second-largest economy pull back on spending.
The latest economic data from China shows that gross domestic product expanded by 4.7% in the second quarter compared with the same period a year earlier, missing forecasts despite Beijing's countless efforts to boost economic growth and, most importantly, consumer confidence.
Also, on Monday, Burberry's shares plunged more than 15% after the company replaced its CEO. The British luxury clothing brand also warned about first-half losses as it continues to suffer waning demand from its China unit.