Swiss Watchmakers Aren't Doing So Well

According to the latest Credit Suisse retailer survey, Swiss watchmakers are still struggling in a challenging environment. Analyst Guillaume Gauville said that even Credit Suisse was surprised by how bad the survey results were, particularly in China.

“After seeing watch exports to HK down >20% continuously since February 2015, we and some investors thought the stock situation could be getting better and we could potentially be reaching the bottom,” Gauville explained. “However, our analysis shows that stock turns in HK/China are deteriorating further.”

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Gauville highlighted three major takeaways from the survey:

1. Hong Kong sales could remain down double digits in the second half of 2016 with further downside possible in 2017.
2. Excess stocks in Hong Kong/China could currently represent six months of COGS.
3. Most retailers outside of Hong Kong/China reported high stock levels and inventories of 250 days or greater.

Although Gauville’s report focused on downgrades of European-listed stocks Richemont and Swatch Group, U.S. watchmakers Movado Group, Inc (NYSE: MOV) and Fossil Group Inc (NYSE: FOSL) are also suffering from the weak watch market. It certainly doesn’t help that Apple Inc. (NASDAQ: AAPL)’s Apple Watch and other smartwatches have eaten into the market share of traditional watch makers.

In the past year, the stocks of Movado and Fossil are down 12.8 percent and 55.5 percent, respectively.

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Disclosure: The author holds no position in the stocks mentioned.