Watches of Switzerland shares fall 6% after record revenue, flat FY26 outlook

Watches of Switzerland Group (WOSG) reported record FY25 revenue of £1.65 billion (+7%) and an 11% rise in adjusted EBIT to £150 million, with adjusted EPS exceeding consensus, driven by strong U.S. growth and a robust second half. Despite this, shares fell over 6% as statutory profit declined 18% and the company shifted to net debt, with market concern focusing on FY26 guidance for flat to 100 basis point adjusted EBIT margin contraction, overshadowing projected 6-10% constant currency revenue growth. This outlook for limited or declining profitability improvement, despite strong top-line performance, appears to be the key concern for investors.

Analysis

Watches of Switzerland Group (WOSG) reported conflicting fiscal 2025 results, leading to a share price decline of over 6%. While the company achieved record revenue of £1.65 billion, up 7% on a reported basis, and adjusted EBIT growth of 11%, statutory metrics revealed significant weakness. Statutory profit before tax declined 18% to £76 million, and the balance sheet deteriorated, shifting from £1 million in net cash to £96 million in net debt. The top-line growth was driven by a strong second half and robust U.S. performance, where revenue grew 14% to account for 48% of the group's total. However, the market's negative reaction was primarily fueled by the forward-looking guidance for fiscal 2026. Despite projecting continued revenue growth of 6% to 10%, WOSG guided for its adjusted EBIT margin to be flat or contract by up to 100 basis points, partly due to an assumed 10% U.S. tariff. This outlook for stagnating or declining profitability overshadowed the revenue performance and an adjusted EPS figure that beat consensus, signaling to investors that cost pressures and external risks are expected to offset growth in the year ahead.

Key Decisions for Investors

• Investors should closely monitor the company's ability to manage profitability, as the FY26 guidance for flat-to-declining adjusted EBIT margins is the primary headwind despite projected revenue growth.
• The balance sheet deterioration, marked by a shift to a £96 million net debt position and rising inventories, requires careful scrutiny of free cash flow conversion and working capital management in subsequent quarters.
• With U.S. sales now representing 48% of revenue, any developments regarding the assumed 10% U.S. tariff are critical, as this is a key factor already pressuring the margin outlook.
• The sharp share price decline on guidance that analysts deemed 'broadly in-line' may signal a valuation opportunity, but near-term volatility is likely to persist until there is greater clarity on the path to margin improvement.