Is Swatch sounding a false alarm?

The watchmaker's pessimistic earnings alert has a familiar ring to it.

By Jonathan Berr Sep 27, 2012 1:42PM
Businessman checking watch, copyright Gerard Launet, PhotoAlto Agency RF, Getty ImagesSwatch Group, the world's largest watchmaker, warned investors Thursday that it will need to "fight" to meet its ambitious sales goal for the year of 8 billion Swiss francs ($8.5 billion), given the stagnant economy in Europe and the slowdown in China.

The remarks, by CEO Nick Hayek, as reported by Reuters, are puzzling. Is he trying to warn investors that he won't meet the target? Or is he purposely trying to depress expectations so that he can "surprise" investors with an earnings beat? Was the forecast low to start with so that Swatch could garner the maximum positive publicity when it exceeded it? 

It isn't clear what Hayek is up to, though an analyst quoted by the news service said the CEO has said the same thing before. In fact, investors have heard similar comments from many executives this year. 

Both Tiffany & Co. (TIF) and Coach (COH) recently reported disappointing earnings, citing the same reasons as Swatch, prompting investors to fret about the state of high-end consumers.
  
Then Michael Kors (KORS) reported much better-than-expected earnings, prompting some analysts to speculate that the wealthy are spending their money only selectively. That trend may be playing out at Swatch as well.

The company owns 18 watch brands. Perhaps consumers are less willing to shell out more than $2,000 for a Longines when a $50 plastic Swatch tells the same time -- along with even the most basic of cellphones. Maybe it's not cool to splurge on something so basic as a watch while the economy recovers from the worst slowdown since the Great Depression. That wouldn't be such a bad thing. 

The lesson investors can learn from Swatch is that companies sometimes blame the economy for problems that they may have brought on themselves.

Jonathan Berr, along with nearly everyone else, last owned a Swatch sometime in the 1980s. He does not own shares of the listed stocks. Follow him on Twitter@jdberr.


1Comment
Sep 28, 2012 1:58AM
avatar
Well I can tell you are not a fine watch fan. It takes a bit of style to appreciate a watch that does not take a battery. Which you seem to be lacking.
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