Swatch warns profit to dive, French attack darkens outlook

[ZURICH] Swatch Group, the world's largest watchmaker, warned investors that profit would at least halve in the first half of the year after sales fell in Hong Kong and Europe, pushing its shares down almost 12 per cent.

Swiss watchmakers are grappling with weak demand as fewer Chinese tourists shop in Hong Kong and Europe where they have been deterred by the fear of Islamist attacks. A strong Swiss franc also pushes up the production cost for Swiss watches.

A deadly attack in the French city of Nice on Thursday night when a truck ploughed into crowds celebrating Bastille Day killing more than 80 people added to the pressure on luxury goods and travel companies. "France looks difficult and is likely to stay difficult,"Swatch Group CEO Nick Hayek told Reuters in a telephone interview. "It is an important market. That is where tourists start their tours to most European countries."

Paris, hit by deadly Islamist attacks last November, is an important shopping destination for tourists, many from China, and the Swatch profit warning marked the start of what is likely to be a downbeat earnings season for the luxury industry. "Nice is going to further hurt the sector. Tourists just won't want to come to Europe and particularly France during the summer," Kepler Cheuvreux analyst Jon Cox said.

Shares in Swatch, whose brands also include Omega and Longines, slid 11.6 per cent to 256 Swiss francs by 0844 GMT, on top of a 17 per cent fall so far this year and a 21 percent drop last year. Peer Richemont also fell 3.9 per cent.

Overall net sales at Swatch are likely to have dropped around 12 per cent in the first half of 2016, the group said in a statement, dragging operating and net income down by 50-60 per cent.

Adding to the pressure on margins, Swatch said it had no plans to cut staff and also planned to maintain investments in new products and marketing. Swatch employs more than 36,000 in over 50 countries.

REUTERS