Shares in European watch groups experienced a significant boost on Thursday, as fears of a decline in demand for luxury items were proven wrong.

Luxury timepiece retailer, Watches of Switzerland stock (WOSG), recorded a remarkable increase of over 10%. The company reported that its pretax profit for fiscal year 2023 amounted to £154.8 million pounds ($201.1 million), surpassing the previous year’s figure of £126.2 million.

This impressive improvement was mainly driven by a surge in revenue, which rose from £1.24 billion to £1.54 billion. The growth was attributed to a combination of increased average selling price and higher sales volume, as the demand surpassed the supply.

The performance in the United States was particularly outstanding, with sales soaring by 52% to £653 million. Encouraged by these results, the London-listed group expressed confidence in achieving its fiscal year 2024 targets.

According to Chief Executive Brian Duffy, “Growth was driven by average selling prices as we continued to merchandise to higher price points and reduce discounting in the U.S.”

This positive news was a relief for shareholders amidst concerns that the luxury goods market was not as reliable as previously assumed. The stock of WOS traded at its lowest point in two years earlier this week.

Danni Wilson, head of financial analysis at AJ Bell, commented on the recent decline in second-hand Rolex prices, stating, “The decrease is attributed to individuals who profited from cryptocurrency and subsequently flooded the market with watches to showcase their newfound wealth.”

Luxury Goods Sector Shows Resilience Amidst Challenges

Investors were taken by surprise with the recent announcement that the luxury goods sector is thriving, despite various challenges. Falling diamond prices and a more challenging trading environment had raised concerns. However, luxury watch retailer Watches of Switzerland reported positive results, leading to an 11% increase in share prices.

Similarly, Swatch, the renowned watchmaker, saw a more than 5% rise in shares. The company attributed this success to the easing of COVID-related travel restrictions in Asia, which bolstered sales and earnings in the first half of the year. Furthermore, Swatch anticipates continued strong performance throughout the year.

Based in Switzerland, Swatch, recognized for its diverse brands including Blancpain and its own eponymous timepieces, experienced a net profit surge of over 50% in the first six months of the year. Sales also increased by 18% on a constant currency basis.

Swatch is particularly optimistic about the prospects of improved sales in key Asian tourist destinations like Thailand and Macau. This demonstrates that despite the current cost-of-living crisis, some consumers still possess disposable income.

The resilience displayed by watch groups during these challenging times highlights their ability to thrive in adverse conditions, showcasing their relevance in the luxury goods market.

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