Thanks for this. Could well be interesting timing for an earnings recovery.
I know this reasonably well from a previous role. I think the Bucherer deal implications still haven't totally been put to bed. Yes there is a ' rolex sanctioned' roll out plan but the fear is over 1) the US consolidation, which is the real growth driver here and 2) what type of allocation they get, there's a decent suspicion recent inventory has missed out on the most supply constrained watches, which pot have gone to B.
There were multiple offers for B that Rolex shouldn't sanction, largely PE so guess it makes sense. Finally WOSG earn crazy returns for selling a fairly risk free product, R definitely respect them and their place in the eco system should be secure, but no reason why couldn't R couldn't take a 10% or 20% larger cut at some point, which would create margins.
I'm also a bit sceptical you can remove 50% of capex, they are getting backed because they are growing and the quality per store is elevated vs most independents.
As to whether it's cheap depends on if you see it as a retailer, with low margins and decent opp leverage, or luxury. If we are on a path to recovery in luxury, then earnings can grow, bear estimates and I'm sure this looks more luxury esq. To me that is the main question to answer and probably comes down to earnings momentum a bit.
Thanks for your comment, very interesting thoughts.
To your last question, I see it as half way between retail and luxury. Given the importance of the US and UK in Swiss watches exports, it could also be seen as a sort of "ETF" for the watch sector...
For the 50% removal, I think its just that if we assume no growth, company could cut by half capex and it will be trading at 10x. However, I don't consider this scenario in my valuation and always include £60-70 million capex per year.
And for the supply of watches, they did have some constraints, but if they are opening a 3 floor store in London's Bond Street, I guess it was just temporary.
In my view I see it as 75% luxury, with Rolex, AP and Patek, Rolex PO and Roberto Coin.
At add some comments on the above comments, WOSG have a near century long relationship with Rolex, which itself is (importantly) run by a foundation and very focused on heritage and tradition, not to maximize profits. That is why they are highly unlikely to increase their take rate away from WOSG (which they could have done at any time). Also because they value them as a partner to build high quality stores, provide great service in prime locations.
They have agreed multiple new stores with Rolex, so what sense does it make to reduce their allocation or decrease their profit %.
Yeah I just think in no growth you risk losing allocations, whether that is just R changing focus geographies where WOSG are less involved in or which to a proposition that is. Could easily be wrong, but issue why so many have failed in the past is partly due to unscrupulous practices e.g. you have to buy 5 watches before you get a submariner but also a severe lack of investment into the proposition.
Maybe it is halfway in-between, I just look at the volatility over the past 18mths or so to show it is more retail. But that works both ways, if vols recover, then so do the earnings and investor mood moves to US consolidation story and product price increases.
Guess question is, with all of luxury on low prices, do you buy this or some proper bone fide luxury. Maybe both
Very detailed and good analysis.
Really good analysis!! 🙌👏
Really good analysis!! 🙌👏
Damn, that was a very long and thorough piece of work. Well done!
Thanks for this. Could well be interesting timing for an earnings recovery.
I know this reasonably well from a previous role. I think the Bucherer deal implications still haven't totally been put to bed. Yes there is a ' rolex sanctioned' roll out plan but the fear is over 1) the US consolidation, which is the real growth driver here and 2) what type of allocation they get, there's a decent suspicion recent inventory has missed out on the most supply constrained watches, which pot have gone to B.
There were multiple offers for B that Rolex shouldn't sanction, largely PE so guess it makes sense. Finally WOSG earn crazy returns for selling a fairly risk free product, R definitely respect them and their place in the eco system should be secure, but no reason why couldn't R couldn't take a 10% or 20% larger cut at some point, which would create margins.
I'm also a bit sceptical you can remove 50% of capex, they are getting backed because they are growing and the quality per store is elevated vs most independents.
As to whether it's cheap depends on if you see it as a retailer, with low margins and decent opp leverage, or luxury. If we are on a path to recovery in luxury, then earnings can grow, bear estimates and I'm sure this looks more luxury esq. To me that is the main question to answer and probably comes down to earnings momentum a bit.
Thanks for your comment, very interesting thoughts.
To your last question, I see it as half way between retail and luxury. Given the importance of the US and UK in Swiss watches exports, it could also be seen as a sort of "ETF" for the watch sector...
For the 50% removal, I think its just that if we assume no growth, company could cut by half capex and it will be trading at 10x. However, I don't consider this scenario in my valuation and always include £60-70 million capex per year.
And for the supply of watches, they did have some constraints, but if they are opening a 3 floor store in London's Bond Street, I guess it was just temporary.
In my view I see it as 75% luxury, with Rolex, AP and Patek, Rolex PO and Roberto Coin.
At add some comments on the above comments, WOSG have a near century long relationship with Rolex, which itself is (importantly) run by a foundation and very focused on heritage and tradition, not to maximize profits. That is why they are highly unlikely to increase their take rate away from WOSG (which they could have done at any time). Also because they value them as a partner to build high quality stores, provide great service in prime locations.
They have agreed multiple new stores with Rolex, so what sense does it make to reduce their allocation or decrease their profit %.
Yeah I just think in no growth you risk losing allocations, whether that is just R changing focus geographies where WOSG are less involved in or which to a proposition that is. Could easily be wrong, but issue why so many have failed in the past is partly due to unscrupulous practices e.g. you have to buy 5 watches before you get a submariner but also a severe lack of investment into the proposition.
Maybe it is halfway in-between, I just look at the volatility over the past 18mths or so to show it is more retail. But that works both ways, if vols recover, then so do the earnings and investor mood moves to US consolidation story and product price increases.
Guess question is, with all of luxury on low prices, do you buy this or some proper bone fide luxury. Maybe both