Operating profit declined 75% to 304 million Swiss francs ($335 million) in 2024, below analyst estimates, it said in a statement Thursday. Sales dropped 12.2%.

Shares fell 7% in early trading in Zurich. The disappointing results came alongside industry figures showing that Swiss watch exports declined for a fourth straight month in December. Overall exports fell 5.4% year-on-year, with China down 19%. The watch industry, as with the luxury sector, has struggled since an inflation spike led consumers to curb spending after a pandemic boom.

The company expects substantial improvements in sales and results in 2025, though demand in China will “continue to be rather restrained.”

“The watch sector remains in a very difficult situation, as the Swatch Group’s results show, said Jean-Philippe Bertschy, head of Swiss equity research at Vontobel. “China remains very fragile and uncertain.”

In its statement, Swatch said it’s “deliberately maintaining production capacities and jobs,” which led to a “strongly negative operating result in the production segment.” It cut its dividend.

The group, whose brands also include Omega, Blancpain, Breguet and jeweler Harry Winston, said that its prestige products were particularly affected by the difficult market environment, while the medium price segment performed well.

The latest figures suggest signs of recovery in parts of the luxury market have yet to reach Swatch’s brands. Richemont’s specialist watchmaker section declined 8% in the three months through December, but the fall was less pronounced than in the previous two quarters.

“The problem are our prestige brands, they performed worse than competitors, whereas our entry and mid-range products did well,” Chief Executive Officer Nick Hayek told Bloomberg. 

Persistent Weakness

The huge drop in demand for consumer goods in China and in the Southeast Asian markets, which are heavily dependent on Chinese tourists, persisted in the second half of 2024, according to the company. Sales in these key regions declined by around 30% overall. 

“We accept that Swatch Group might see profit margin losses for a while, but we want to maintain our production to be able to react faster when demand returns,” Hayek said. “Our mistake is that we were too enthusiastic at the beginning of 2024.”

Both management and the board of the company are controlled by the Hayek family, which has repeatedly clashed with some shareholders who have criticized corporate governance and share-price performance. Swatch shares have declined about 25% over the last year.