Watches of Switzerland Group: Time is Money

An indirect way to invest in an iconic brand embedded w/in a private/family-owned company. While Rolex may not always be WOSG's highest ASP brand, it is the best-selling of the "constrained supply" brands, contributing ~50% of their watch revenues. Rolex underpins WOSG'S fast-growing used watch business (known as certified pre-owned), and Rolex's perpetual client waiting list provides built-in inventory de-risking. Rolex is a luxury brand that can raise prices at will w/out impacting demand to offset things like CHF appreciation or gold prices. WOSG is well positioned to benefit from Rolex's commitment to expand its production capacity (USD 1bn in a new production facility in Bulle, Switzerland).

Despite only entering the US in 2017, after just 7 years, WOSG has managed to expand their US revenue base by 8x to >GBP 800 million or 45% of their overall revenues. Showrooms in the US have grown from 20 in 2018 to ~60 at YE25. The US is where WOSG is expected to allocate most of its future growth capex and targeted M&A budget, meaning investors will likely reward them for investing in the US vs the UK. The US market is where WOSG is keen to expand their luxury jewelry business via M&A - in line with the $100m acquisition of Roberto Coin's North American business in 2024.

This is captured in WOSG LN's current <10x PE Adj. PE and ~5x EV/EBITDA valuation, which discounts: their strong capital allocation track record (generating >20% return on capital employed); their long range strategic plan that earmarks GBP 350-500mil for growth capex and M&A over 2024-28; the recent surprise announcement of a GBP 25 million share buyback in March 2025. The Roberto Coin US acquisition, in particular, seems a good one for WOSG shareholders, with accretive 20% EBIT margins. Net debt is very manageable at 0.7x Adj. EBITDA, with ample borrowing capacity on hand. WOSG's free cashflow generation is underpinned by >18% 4-Wall EBITDA margins and 65-70% conversion.

Revenue growth driven by roll-out of used watch business

The used watch market has become a viable 2nd product line for WOSG. The Rolex-certified pre-owned segment, which commenced in 2023, is experiencing substantial growth (+50% in 1H25) and will end up being a big chunk of their watch sales (>25%). Rolex CPOs are now online and in 45 showrooms, and the ASP levels are currently above average for new watches brought to market.

Showroom expansion and bolt-on M&A

WOSG relies on a brick-and-mortar showroom store for much of its distribution. Showroom expansion is expected to continue at a strong base (~20 a year to the 233 base they had at 1H25) in line with their plan for GBP 60-70m of growth capex invested per year. Showroom CapEx relates to new sites and refurb on existing spaces. New footprint expansion involves both multi-brand and mono-brand formats, although it could lean to the former (especially in the US).

Upcoming showroom pipeline in 2025 includes the Old Bond Street Rolex flagship space (7K SQFT), the AP House in Manchester, and a big Rolex boutique in Atlanta (3K SQFT). WOSG is expected to remain active bolting on acquisitions, a strategic initiative that has brought on board several impactful business additions in the past 12 months (Roberto Coin, Hodinkee, Ernest Jones).

Set for a stock re-rating as WOSG becomes more of a US luxury retailer

If all goes according to plan, the robust growth trajectory of their US-based business should eventually push this to become the company's dominant revenue region (~70%), up from its current 45% share of revenue. The US market is set up well for WOSG to create value -with ASPs in the US much higher for both watches and jewelry and with acquisition possibilities wide open given the "mom & pop" fragmented US luxury market. The current <10x PE & 5x EV/EBITDA valuation could position WSOG LN shares well for a "US driven" re-rating when the time is right.

The UK remains WOSG's core luxury watch market, contributing 55% of their revenue and 158 showrooms. Revenue decline (for UK/Europe) on a constant FX base may have finally turned the corner (+2% in 2Q25, after -4% 1Q25 and -5% reported in FY24). Their UK business has finally moved past the negative drag from the Brexit-driven end of duty-free shopping at UK airports on January 1, 2021. On the plus side, WSOG's exit from Europe (reported w/in the UK segment) should be completed in 1H25, with Copenhagen the last of the 9 mono-brand showrooms closed/divested.

Most listed UK consumer stocks have been punished in 2025 for their exposure to the UK economy, with elevated concerns about consumption growth + higher interest rates, and potential UK budget-driven austerity. Specific to the Swiss watch industry, sales trends are currently stuck in a contracting mode, with very different growth dynamics between high-end and the rest of the market. For WSOG, this challenging environment has affected their lower/mid UK watch segment (GBP 3-6k ASP). Geopolitical concerns emanating from trade wars are not helpful for export-driven consumer products globally. Some of these macro headwinds are reflected in WOSG LN's weak YTD 2025 share price performance and with their shares trading ~30% below their 52-week high.

WOSG has yet to release substantial revenue payback or margin operating leverage from annual GBP 70m of growth capex or their expanded showroom footprint. Near-term growth trends have been further clouded by changes in the product mix of the watches sold (e.g., a shift towards lower ASP steel Rolexes) and the top-down pressure on the overall Swiss watch market growth. The reset of both WOSG revenue and margins in January 2024's profit warning could prove helpful for future shareholders as it clears the way for upside risk financial outperformance in 2026-28 (if they can get back to delivering mid-single-digit annual revenue growth + margin attrition).