Is Now the Time to Buy Watches of Switzerland Group PLC (LON:WOSG)? A Contrarian's Play on Luxury Retail Recovery

The luxury goods sector has faced turbulence in recent years, with macroeconomic headwinds and shifting consumer preferences testing even the most storied brands. Amid this backdrop, Watches of Switzerland Group PLC (LON:WOSG) has emerged as a compelling contrarian opportunity. Despite enduring margin pressures and operational challenges, the company's recent financial recoveries, strategic acquisitions, and sector tailwinds position it for a rebound. For investors with a long-term horizon, the current valuation—driven by undervalued multiples and improving fundamentals—presents a rare entry point.

Financial Turnaround: Navigating Headwinds to Growth

Watches of Switzerland's H1 FY25 results underscore a critical inflection point. While adjusted EBIT margins dipped to 8.4% from 9.6% in H1 FY24 due to product mix shifts (e.g., higher jewelry sales, which carry lower margins) and fixed cost challenges, the company's revenue growth remains robust. Total revenue rose 4% in constant currency to £785 million, with the U.S. market surging 11% in constant currency. This momentum, fueled by the integration of Roberto Coin and the stabilization of U.K. sales, aligns with management's full-year guidance of 9–12% revenue growth.

Crucially, management has reaffirmed its target of margin expansion in FY25, with a 0.2–0.6% improvement over FY24. The H2 pipeline—featuring flagship Rolex boutiques in London and Texas, and a new Audemars Piguet Town House in Manchester—should further leverage economies of scale, easing margin pressures. Meanwhile, free cash flow is projected to hit £105 million for FY25, a 49% recovery from H1's £28 million, as working capital strains ease.

Strategic Acquisitions: Building a Luxury Ecosystem

The acquisition of Roberto Coin in late 2023 has proven transformative. The brand contributed £51 million in H1 FY25 revenue, with plans to open standalone boutiques and deepen its digital footprint via Hodinkee, another WOSG acquisition. This synergy is already paying dividends: Roberto Coin's jewelry sales surged 104% in constant currency, while Hodinkee's traffic redirected to WOSG's U.S. website has boosted online sales.

Equally promising is the growth of the pre-owned segment, where Rolex Certified Pre-Owned (RCPO) now ranks as the second-largest luxury watch brand for the group. With demand for authenticated pre-owned luxury goods surging globally, WOSG's strategy to expand RCPO displays in showrooms and online platforms positions it to capture a high-margin, recession-resistant niche.

Sector Tailwinds: Luxury's Resilience and WOSG's Niche

The luxury goods sector remains a bastion of stability. Bain & Company forecasts global personal luxury goods sales to grow at a 4–5% CAGR through 2030, driven by Asia-Pacific's affluent consumers and the U.S. market's recovery from post-pandemic volatility. WOSG is uniquely positioned to capitalize on this:

1. U.S. Market Dominance: The U.S. now accounts for 45% of WOSG's revenue, with flagship openings and Roberto Coin's expansion fueling growth.
2. Pre-Owned Luxury Surge: Bain estimates the pre-owned watch market could reach €5 billion by 2030, a segment where WOSG's RCPO brand is already a leader.
3. Digital Integration: Hodinkee's content-driven platform is redefining how luxury watches are marketed, drawing younger, tech-savvy buyers to WOSG's physical stores.

Valuation: A Contrarian's Bargain

WOSG's valuation metrics scream undervaluation. Its P/E ratio has dropped to 16.0x (May 2025) from a peak of 30.9x in early 2025, making it cheaper than peers like The Swatch Group (16x) and Burberry (13x). Meanwhile, its EV/EBITDA multiple of 1.4x (based on FY24 EBITDA of £87 million) is a fraction of luxury retail averages, reflecting pessimism around near-term margins.

At a market cap of £1.28 billion and with net debt of £120 million, WOSG's free cash flow yield of 3.6% offers a compelling entry point. Even a modest 10% margin recovery would propel earnings higher, unlocking significant upside.

Risks: Navigating the Rough Patches

No investment is without risks. WOSG faces:
- Margin Volatility: Jewelry's lower margins could persist if Rolex and other high-margin watches face supply constraints.
- Economic Uncertainty: A U.S. recession or Chinese tourism slowdown could dent demand.
- Integration Challenges: Roberto Coin's standalone boutiques require execution precision to avoid diluting brand equity.

Yet these risks are mitigated by WOSG's fortress balance sheet (despite net debt, liquidity remains ample) and the secular tailwinds of luxury's pre-owned and digital trends.

Conclusion: A Clockwork Opportunity

Watches of Switzerland Group is a company at a pivotal crossroads. Its recent financial resilience, strategic acquisitions, and alignment with luxury's evolving consumer trends suggest that the worst is behind it. At current valuations, the stock offers a rare chance to buy a premium retailer at a discount—a contrarian's dream.

For investors willing to look past near-term noise, WOSG's improving fundamentals and undervalued multiples make it a compelling buy. The clock is ticking—act now before the market catches on.

This article is for informational purposes only. Always conduct your own research or consult a financial advisor before making investment decisions.