Shares added luxury watches and jewellery seller Watches of Switzerland (WOSG) to its Great Ideas list at 792.4p on 16 June 2022. We argued the group’s global growth journey was just getting started and demand for luxury watches continued to outstrip supply.

A trading update on 16 August was an important test for the share price given recent uncertainties over the state of the pandemic-boosted watch market caused by surging inflation, the cryptocurrency collapse and concerns over a global recession.

Recent reports suggested that luxury watch prices on the secondary market were falling, presenting a risk that trend spreads into the primary market where Watches of Switzerland operates.

Reassuringly for our ‘buy’ thesis on Watches of Switzerland, there are no signs of primary channels seeing a demand dip thus far, and the shares ticked up 3.3% to 913p as the company delivered a robust update for the 13 weeks ending 13 July.

Watches of Switzerland also reiterated full-year guidance, albeit with the outlook factoring in a ‘potentially more challenging’ trading environment in the second half.

Group sales were up 31% year-on-year to £391 million despite tough comparatives, while management highlighted a continuing strong luxury watch market in the UK and the US, where sales doubled year-on-year.

‘The first quarter continued with strong momentum throughout, and we carry this positive momentum into the second quarter,’ insisted chief executive Brian Duffy, now expanding the business into Continental Europe. ‘Despite the well-publicised concerns about the macro-environment, demand for our products remains robust with client registration of interest lists continuing to extend,’ he added.

Affluent consumers are still spending money as inflation doesn’t massively impact their lifestyle, supporting strong sales of luxury goods.

Bears may believe the luxury sector is at peak sales and profit, but BofA Securities has found that luxury demand accelerated in July compared with the second quarter and the month of June in Asia, the US and Europe, boosted by the return of international travel. China demand started to normalise in June and continued to do so in July, added BofA Securities.

Premium watches are seen to be a good investment as editions are limited and there are plenty of people who want to own them. Yet if second-hand prices are falling, that dilutes their appeal from an investment perspective. It’s something to watch, particularly if second-hand prices for luxury watches fall below retail prices. Reports suggest we’re a long way off that happening.

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