February 5, 2015 / 8:30 AM / 5 years ago

UPDATE 3-Swatch shares rally on upbeat comments for 2015

* Shares up 3 pct after earlier falling as much as 7 pct

* Says to maintain dividend (Adds CEO quotes)

By Astrid Wendlandt and Alice Baghdjian

PARIS/ZURICH Feb 5 (Reuters) - Shares in Swatch Group reversed earlier losses on Thursday after the Swiss watchmaker gave a buoyant trading update and said it expected trends in the important market of China to improve.

The group whose brands range from cheap colourful plastic watches to diamond-studded Blancpain timepieces, said 2015 had started well and kept its dividend for 2014 unchanged despite the rise in the franc and a drop in profits last year.

“I see a really good year for us,” Swatch Chief Executive Nick Hayek told Reuters in an interview. “We will see a growth rate of 7 to 9 percent in 2015 in local currency. The only question mark is the exchange rate.”

Analysts said management forecast sales could rise by about 5-8 percent in Asia, Swatch Group’s biggest market, this year. Journalists were barred from listening to the group’s conference call with analysts.

Swatch shares fell sharply earlier on Thursday after the group missed profit forecasts, which it blamed on increased marketing costs in the United States, Japan and China.

Investors were also spooked by the group’s inventory, which increased faster than sales last year and which they said highlighted continued weakness in underlying demand for Swiss watches, particularly in the all-important Chinese market.

Swatch reported an operating profit of 1.75 billion Swiss francs ($1.89 billion), missing analysts’ expectations of about 2.0 billion Swiss francs, according to Thomson Reuters data.

“This was a big miss,” Melanie Flouquet at JP Morgan Cazenove, said. She said it looked as though the group’s brands generating higher margins were underperforming compared to those producing lower margins.

Swatch shares, which fell as much as 7 percent in early trade, closed up nearly 3 percent higher. The stock shed a quarter of its value in 2014.

Hayek said high-end watches were suffering somewhat in China where the government had been cracking down on conspicious spending for more than two years, severely denting demand.

“The Chinese buy watches with a lower average value than before because they buy fewer watches with gold and diamonds and more steel watches,” Hayek said.

Its companies such as Harry Winston in the United States and Rivoli in the Middle East, whose costs are recorded in local currency, have helped temper the impact of the strong franc.

Swatch together with Cartier-owner Richemont have been hit by the Swiss bank’s decision last month to remove a cap on the franc, causing a surge in the currency.

Several of Swatch’s brands are compensating for the franc rise with price adjustments of 5 percent to 7 percent in select markets in line with Richemont’s price increases.

Net profit fell more than expected to 1.416 billion Swiss francs ($1.53 billion) last year. It was forecast to fall to 1.529 billion francs in a Reuters poll. ($1 = 0.9236 Swiss francs) (editing by Jane Merriman and Elaine Hardcastle)

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