Watches of Switzerland jumps after affirming H1 outlook, playing down tariff risks

Watches of Switzerland (WOSG) reported strong trading for the first 18 weeks of FY26, confirming it remains on track for a good first half in line with expectations, sending shares up approximately 7%. The luxury retailer highlighted robust performance, particularly in the U.S., despite increased tariffs on Swiss imports, attributing this to increased brand partner inventories limiting material H1 impact. While analysts like Deutsche Bank downplay long-term tariff risks, citing limited exposure to vulnerable segments, Jefferies noted potential for H2 margin attrition once inventory cover depletes, leading to a slight price target trim, though the overall update is viewed as reassuring.

Analysis

Watches of Switzerland (WOSG) provided a reassuring trading update for the first 18 weeks of fiscal 2026, confirming it is on track to meet first-half guidance and triggering an approximate 7% rise in its share price. The company reported consistently strong trading, particularly in the U.S., despite the announcement of increased tariffs on Swiss imports, and noted continued stability in the U.K. market. Management attributes the resilience to U.S. tariffs in H1 to brand partners increasing inventory, which is supported by a cited 45% year-over-year jump in Swiss watch exports in July. However, analyst outlook is bifurcated regarding the medium-term impact. Jefferies expressed caution, trimming its price target to 440p from 490p due to the "imponderables" of potential margin attrition in the second half of the fiscal year when inventory cover is expected to run out. Conversely, Deutsche Bank views the market as overstating the downside, arguing the primary risk is confined to non-supply-constrained brands which account for only about 12% of the group's gross profit, suggesting that even in a harsh scenario the stock's valuation would remain attractive.

Key Decisions for Investors

• Investors may find the reassuring H1 FY26 guidance and strong underlying demand, evidenced by expanding interest lists, as a positive catalyst that counters recent softer sentiment.
• The key risk to monitor is margin performance in H2 FY26, as the current inventory buffer protecting against U.S. tariffs will diminish, creating uncertainty around profitability.
• Consider the valuation floor argument; analysis suggests that even under a significant stress test involving price hikes and volume decline, the stock would trade at a modest 9x earnings multiple, potentially offering a margin of safety for long-term holders.