The Watches of Switzerland Group: Strategic Update: Margin opportunity emerging

Research evidence excerpt

The Watches of Switzerland Group: Strategic Update: Margin opportunity emerging

uxury watches.

UBS Cons.

04/27E 0.50 0.51

Margin expansion opportunity as market conditions normalise 04/28E 0.59 0.56

Management sounded upbeat describing FY20-25 as a period of navigating volatility 04/29E 0.67 0.62

and FY26+ as a return to “normal good market conditions”. With UK operations

Zuzanna Pusz, CFArationalised and the business model significantly strengthened, attention is shifting

Analyst

towards earnings growth through: (1) higher-margin jewellery, and especially Roberto zuzanna.pusz@ubs.com

Coin; (2) continued growth in CPO (target >10% of sales vs. 8% today); (3) scaling +39 027 2100 226

currently dilutive US e-commerce; (4) operating leverage from a largely fixed cost base;

Robert Krankowskiand (5) recovery of UK profitability towards historical levels.

robert.krankowski@ubs.com

Growth drivers increasingly supportive of profitability +44-20-7568 1152

Jewellery was highlighted as the largest medium-term growth opportunity. Roberto

Coin is expected to grow faster than the core business and be margin accretive,

supported by expanded distribution, shop-in-shops and strong demand for branded

jewellery. In the US, a highly fragmented market continues to provide a sizeable M&A

opportunity, while CPO remains an attractive customer acquisition channel (77% of

customers are new to WOSG). Management also remains positive on US hard luxury

demand, supported by wealth creation outpacing growth in the luxury watch market.

Valuation:

WOSG trades on 14.7x and 12.6x CY26E and CY27E P/E, respectively, for 3-year sales

and EPS (pre-IFRS 16) CAGRs of +8% and +14% (FY26E–FY29E).

Highlights (£m) 04/24 04/25 04/26 04/27E 04/28E 04/29E 04/30E 04/31E