London - Swatch Group, the world's largest watch manufacturer, said yesterday that first-half profit rose 22 percent as sales of luxury watches, including Omega and Blancpain, in Asia and the US increased.
Net income climbed to Sf264 million (R1.34 billion), or Sf0.91 a share, from Sf217 million, or Sf0.74, a year earlier, the Swiss-based company said in a statement. Sales gained 6.1 percent to Sf2.08 billion.
Chief executive Nick Hayek is stepping up marketing in Asia and building a $110 million (R713.6 million) flagship store in Tokyo to increase luxury sales as demand for the company's $50 plastic watches stagnates.
Swatch was also cutting US distribution 30 percent to focus on selling to "top-end, high-quality" stores, Hayek said.
Scilla Huang Sun, who manages a $100 million luxury goods fund for Clariden Bank in Zurich, said the results "show again that high-end luxury is doing better than the mass market, where margins are lower, competition is tougher and you have less pricing power".
Hayek said sales in Europe had been sluggish, particularly in Germany, the UK and Italy. However, there had been signs of a rebound in the region and that should help the company in the second half, he added.
Shares of Swatch, which also makes watch components, fell Sf0.34 to Sf37.40 before midday in Zurich yesterday. The shares have gained 11 percent this year. Shares of Richemont, the world's second-largest luxury goods company and the maker of Cartier watches, have gained 26 percent.
Analysts were expecting Swatch to earn Sf254 million, according to the median of six estimates. The year-earlier figures were restated to comply with International Financial Reporting Standards.
First-half sales excluding the effect of currency fluctuations rose 7.5 percent, Swatch said. Sales in China, Hong Kong, Japan and Taiwan were the strongest, it said, without being more specific.
The number of millionaires climbed twice as much in Asia last year as in Europe and rose at more than double the pace in the US, Merrill Lynch and Cap Gemini Ernst & Young announced in June.
Hayek, who two-and-a-half years ago took over the company founded by his father in the 1980s, said Swatch was seeing "healthy growth" in the Middle East and India, and was growing "very strongly" in the US.
Hayek is using Omega, which last year replaced the Swatch brand as the official timekeeper of the Olympics until the end of the 2010 winter games, to drive profit growth in new markets such as China, the host of the 2008 Olympics.
Asia is Swatch's second-biggest market, accounting for a third of revenue in 2004.
Hayek, who like his father is often seen wearing two or three watches at a time, is also considering jewellery acquisitions.
"We have been looking at some brands, but what is available in the market at the moment is not of big value to us," he said. "Or if it is of big value and we would like to have it, it's not available."
Huang Sun said that Swatch "has a big cash pile" to make acquisitions. "If there's a good target, why not?"
Sales of Swatch watches dipped during March, the company said, as competition from lower-price manufacturers increased and as a weaker dollar made watches sold in the US and in Asia's dollar-pegged economies worth less when converted into Swiss francs.
After losing 8.3 percent of its value in the year to January, the dollar has gained 7.5 percent against the Swiss currency in the past four months.
Swatch was created when Nick Hayek senior, who is now chairman, was hired to help advise two Swiss watch makers on the verge of bankruptcy amid strong competition from cheaper, Japanese-made watches.
Hayek recommended that the companies merge and then mass produce and sell low-cost, plastic watches.
The new combined company had sales of $1.1 billion in 1983, and Hayek became a Swiss business hero.