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Watches of Switzerland (WOSG) is a retailer and partner to Rolex and other watch brands. Most of the company’s value lies in its relationship with Rolex, which only sells through authorized retailers like WOSG. The company benefits from Rolex waiting lists that effectively mean inventory is pre-sold, there is no price competition, and no online competition. That makes WOSG’s economics far superior to a typical retailer and more like a subsidiary of Rolex, which I think investors underappreciate. WOSG is the number one Rolex retailer in the US with 10%+ share and growing at 25-30%, and 50% share in the UK.
The link above is to a 30page report I wrote on the company based on speaking with 20 industry sources. I think much of it is still relevant today and provides background on what investors underappreciate.
The stock trades on 14x EV/NOPAT for a business that should grow at high single-digit rates in most years and has a long runway to acquire mom & pop Rolex retailers at about 20% ROIICs. It has traded at 20x in the past.
Assuming 9% organic profit growth + 6-7% FCFE yield + modest margin expansion gets to a 20% IRR going forwards.
Management are competent, experienced, and well incentivized, with CEO Brian Duffy owning £70mm of stock and options. Duffy joined in 2014 and has grown WOSG’s share of Rolex sales in the UK from 35% to 50%. This encouraged Rolex to entrust WOSG with replicating its strategy in the US.
Current conditions are strong (even picking up in the UK) and many of the risks the company has faced in the last few years around a luxury slowdown, declining secondary prices, and tariffs have reversed or are reversing. The company has demonstrated its significant resilience in the last 18 months, given these conditions, and I believe the thesis that the business has economics more similar to a subsidiary of Rolex than a retailer continues to play out. The outlook for WOSG looks stronger than it has done at any point since I wrote the report.
Management have also done a good job with new business lines that they control: They acquired the Roberty Coin jewelry license in the US, are going e-commerce rapidly, and pre-owned is now 8% of sales. These three segments together now account for 24% of company sales and as a group are likely to grow in the high teens. That alone adds 4-5 ppts of sales growth per year at a group level. When combined with Rolex raising prices by about 4% p.a that gets WOSG to high single-digit organic growth even before accounting for volume growth at existing stores. Volume growth is likely to also be positive, particularly as Rolex opens its expanded production facilities in 2028/29.
Private equity firms appear to think the company is undervalued too, with Reuters recently reporting that:
“Watches of Switzerland Group[(WOSG.L)](https://www.reuters.com/markets/companies/WOSG.L) has held talks in recent months over potential offers to take the luxury watch retailer private, said three people close to the matter…
...CEO Brian Duffy responded to the initial approaches because he believes the stock market undervalues the company, two of the sources said, with one adding that no formal offer has been made. Private equity funds and strategic bidders have shown interest in the company, a second person said. The third source said ***the company was seeking an offer of significantly more than £7.50 per share.****”*
See the link above for more background on WOSG and other pieces I have written on the company.
Full dislosure: I am Long WOSG and this is not investment advice or a recommendation. This is for informational purposes only.