Watches of Switzerland Navigates Growth Amid Tariff Headwinds

The Watches of Switzerland Group (WOSGF) has emerged as a key player in the luxury watch and jewelry sector, but its fiscal year 2025 results underscore the delicate balance between capitalizing on premium demand and navigating macroeconomic headwinds. While the company delivered robust revenue growth and margin expansion, looming tariff pressures and inventory challenges cast a shadow over its fiscal 2026 outlook. Investors must weigh its strategic strengths against these risks to assess its long-term appeal.

The group's FY25 performance demonstrated resilience, with revenue hitting €1.652 billion, a 8% rise in constant currency. The U.S. market, now contributing nearly half of total revenue, grew 16%, while the UK rebounded with a 20% expansion since 2022. The adjusted EBIT margin improved to 9.1%, driven by disciplined pricing and the success of its certified pre-owned (CPO) program, which met surging demand for rare timepieces.

. Yet, these gains came against a backdrop of rising costs. Inventory climbed 14%, largely due to acquisitions of Roberto Coin and Hedinki, while U.S. tariffs forced mid-single-digit price increases on brands like Rolex and Patek Philippe.

Growth Catalysts: Expansion and Brand Diversification
Watches of Switzerland's strategic moves—such as its 15 new showroom projects and acquisitions—highlight its focus on long-term dominance. The Roberto Coin brand, now with mono-brand boutiques in New York and Miami, exemplifies its push into luxury jewelry, a sector with strong crossover appeal among watch collectors. The CPO program, which outperformed expectations, also signals innovation in addressing secondary market demand. Meanwhile, capital expenditures of £65–75 million in FY26 will fund further expansions, including flagship Rolex boutiques in high-end markets like Connecticut and Texas.

This expansion strategy is underpinned by a thriving luxury market. Global personal luxury goods sales grew 9% in 2023, per Bain & Company, with watches and jewelry outperforming apparel and accessories. Watches of Switzerland's positioning as a trusted purveyor of high-end brands like Audemars Piguet and Vacheron Constantin positions it to capitalize on this trend.

Risks: Tariffs, Inventory, and Macroeconomic Volatility
The company's FY26 guidance, however, reveals caution. Revenue growth is projected at 6–10%, but adjusted EBIT margins could dip by up to 100 basis points due to tariff-related margin pressures. The U.S. levies on Swiss watches, which average 3% but can reach 11% for certain models, have already forced price hikes that risk deterring price-sensitive buyers. Meanwhile, inventory management remains a challenge, as rising stockpiles test turnover efficiency.

The UK market, too, faces lingering post-pandemic volatility. While 2023 sales rose 20%, inflation and consumer caution could disrupt momentum. The group's net debt-to-EBITDA ratio of 0.6x is manageable, but further leverage from acquisitions or capital spending could strain liquidity.

Investment Considerations
For investors, Watches of Switzerland presents a compelling, albeit nuanced, opportunity. Its premium brand portfolio and strategic expansions into jewelry and CPO services align with secular trends in luxury consumption. The share buyback program, with £11 million executed in FY25, also signals confidence in its balance sheet.

However, near-term risks are material. Tariff uncertainty could pressure margins, and inventory overhangs may require discounts that erode profitability. Investors should monitor brand partner negotiations on tariff costs and the efficacy of new boutiques in driving foot traffic.

Conclusion
Watches of Switzerland's FY25 results reflect both its operational discipline and the structural challenges facing luxury retailers. While its long-term prospects hinge on its ability to dominate niche markets like CPO and high-end jewelry, short-term profitability faces a gauntlet of external pressures. For investors with a multi-year horizon, the stock's exposure to a growing luxury sector remains attractive. Yet, near-term volatility necessitates a cautious stance until tariff risks abate and inventory metrics stabilize. As the group invests in its FY26 growth pipeline, patience may reward those who bet on its premium positioning in a world where luxury remains a symbol of enduring wealth.