Is Hour Glass Ltd Cracking Soon?

Luxury watch retailer Hour Glass Ltd (SGX: AGS) had recently announced its fourth-quarter and full-year earnings for its fiscal year ended 31 March 2016 (fiscal 2016).

For the year, the company suffered a 4% decline in revenue and a 10% decline in profit. But, the company had made a S$5 million donation during the year to celebrate Singapore’s 50th anniversary in 2015. If the donation expense was adjusted for, Hour Glass’s net income for fiscal 2016 would have been flat when compared to fiscal 2015.

The numbers for the fourth-quarter were worse, as Hour Glass experienced a 15% year-on-year drop in revenue and a 22.3% fall in profit.

All does not seem well for the luxury goods industry. Hong Kong-listed Chow Tai Fook Jewellery Group, one of the largest jewellery and luxury watch retailers in the region, had reported consecutive declines in profit over the past few quarters. Hour Glass’s management also warned of a bleak outlook for the industry in the recent earnings release.

It said that an uncertain global economic outlook “will result in the tightening of global demand for luxury goods and a rebalancing of supply to these new market conditions.”

Deloitte, a financial advisory and consultancy firm, had also published a recent report showing how more and more Swiss watch brand owners are looking to grow their sales channels by opening their own e-boutiques or using online resellers. The distribution-share for authorized dealers such as Hour Glass is expected to be sharply reduced.

Moreover, the report also contained a survey in which consumers around the world were polled on whether they would be buying a smartwatch or a classic wristwatch in the near future. In most countries, consumers were more eager for a smartwatch than a classic wristwatch.

So, it seems that the headwinds for Hour Glass are quite significant. The challenges include a decline in demand for luxury products in the region, an oversupply of retailers, brand owners’ decision to grow their own sales channels, and the threat of smartwatches.

Foolish Summary

Although Hour Glass still expects to be profitable in its current fiscal year (fiscal 2017), it is clear that investors should not be expecting strong growth in the near future. Instead, investors may want to prepare for some choppy seas ahead.

For more stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.