Watches of Switzerland share price dips as Peel Hunt slashes target amid economic uncertainty

City broker Peel Hunt has reduced its price target for Watches of Switzerland by 20%, attributing the decision to decreased spending and increased prices posing challenges for the retailer.

The luxury watch company's target price was downgraded from 500p to 400p, as reported by City AM.

As of midday on April 7, shares in the retailer were trading at 335p, marking a 2.8% drop on Monday and nearly a 20% decline since 'Liberation Day' on April 2.

"With uncertainty so high, we are not attracted to the shares even after their fall," stated Peel Hunt.

The broker cautioned that US watch prices could surge by 10 to 15%, spelling trouble for a sector already grappling with demand issues.

"While there's not much price elasticity on Rolex and Patek products, other brands could see volumes impacted," the broker noted.

Rolex and Patek Philippe watches account for approximately 60% of Watches of Switzerland's sales. The US market served as the company's primary growth driver in the second quarter, with revenue climbing 24% to £355m.

"Our forecasts have most of the group's growth coming from the US. We will wait until the economic backdrop calms and see how the US consumer responds... but the risk is clearly to the downside," Peel Hunt commented.

"The likelihood is that the US consumer, crucial to the growth story here, will remain nervous for some time," the broker added.

Another concern is that many of the watches sold by these retailers are manufactured in Switzerland, which is subject to a 31 per cent tariff, although some products are sourced locally from American distributors.

RBC analysts highlighted that the watch company has lower margins than its competitors, making it more challenging to respond to tariffs.