Watches of Switzerland Group PLC (WOSG) Earnings Call Transcript & Summary

Good morning, or good afternoon all, and welcome to the Watches of Switzerland Q4 FY '23 Trading Update. My name is Adam, and I'll be your operator for today. [Operator Instructions] I will now hand the floor over to CEO, Brian Duffy, to begin. So Brian, please go ahead when you are ready.

Okay. Thank you, Adam. Good morning, everyone. Thank you for joining our call. I'm Brian Duffy, the CEO of Watches of Switzerland Group. I'll be adding some further commentary and color to the Q4 fiscal year trading announcement that we made this morning. Our CFO, Anders Romberg, will then add some comments on our full year '24 guidance, which we also announced this morning, and then we'll both be happy to take whatever questions you have. I'm very pleased with our strong revenue performance in Q4 and for the fiscal year. Consistent with Q3, the macro backdrop has continued to be more challenging in Q4. And as we expected and forecasted, macroeconomic pressures impacting wider consumer confidence. However, despite these challenges, we delivered sales growth of 22% in Q4, 25% for the full year both in reported and currency and at the higher end of guidance and expectations. Sales growth in the U.S. remained strong in Q4 at plus 27% reported, plus 17% constant. U.K. and Europe sales were up 18% in the fourth quarter with the U.K. business benefiting from timing of deliveries of key brands. Luxury watches for the year grew 28%. And the market information we have shows that we gained share both in the U.K. and in the U.S. Growth was driven by the combination of increased average selling price as well as volume. Regarding our registration of interest list, so there's no change to what we experienced and commented on in Q3. Demand remains strong, outpacing supply. And we continue to add to net registration of interest numbers in both markets. Luxury jewelry in Q4 was down 17%. That reflected both market trends and our strategy and focus on full price sales. Average selling prices grew double digit as we continued to merchandise to higher price points and reduced discounting in the U.S. We further progressed our expansion into Europe with the opening of our first TAG Heuer boutique in Dundrum Town Centre, south of Dublin. Our new stores in Stockholm and Copenhagen are performing well and in line with our expectations. Our teams in those two cities are full of enthusiasm and doing a fantastic job. Consumers in these markets are responding well to elevated showroom experience and client service. The ASP in both markets is really very good, higher than U.K. and U.S. averages. Looking back at fiscal '23, we reflect on what's been an important investment year for the group. Highlights for the year include opening five showrooms and the iconic Battersea Power Station development. We did that last autumn. We expanded our presence in Boca Raton in Florida and trading in these showrooms has been ahead of expectations. We also continued to roll out our successful Goldsmith Luxury format here in the U.K. Our program of elevated customer experience, Xenia, continues to embed in our retail culture and is impacting positively in client relations and sales. Turning to full year profitability. We expect fiscal year '23 adjusted EBIT to come in -- to come out between GBP 163 million and GBP 167 million. Prior year margins did benefit from GBP 5 million of the U.K. business rates relief, an impact of about around 30 basis points of profitability. Fiscal year '23 saw another year of margin expansion as we continued to leverage our fixed cost base despite headwinds from interest-free credit cost increases and a negative impact from product mix. We're delighted to announce today plans to open our first Audemars Piguet House in the region of the St Anne's area in Manchester. That will be through our joint venture partnership with Audemars Piguet. And it will open or planned to be opened in spring 2024. This joint venture represents a further milestone in the long-standing relationship we have built with Audemars Piguet and further endorsement of the strengths of demand for luxury watches across the U.K. Manchester continues to increase its profile as a center for sports, music, hospitality and as a retail destination for a large North of England catchment area. We love the Manchester market. We've also announced today our plans to open our fifth TUDOR mono-brand boutique in the U.K. This new flagship boutique will be in a wonderful location, at the corner of Bond Street and the Piccadilly in London, and promises to elevate the experience for both loyal and new clients of TUDOR espousing the brand's iconic timepieces. The news represents the latest step in the continued evolution of our partnership with the TUDOR brand. These projects will add to our existing pipeline of projects, including our flagship Watches of Switzerland showroom in American Dream, which will open this month; the refurbishment and expansion of Mayors Dadeland, Florida, which has now just opened in recent days; and the relocation of our Rolex boutique in Orlando, Florida. And with that relocation, we'll move from 1,000-foot store to a 3,000-square feet store. And that will happen in October. Our Old Bond Street flagship boutique is due to open in the first half of 2024. We're also looking forward to the launch of CPO in Q1, Certified Pre-Owned product from Rolex, that is, in Q1 in the U.S. and Q2 in the U.K. As we close out fiscal '23, we'd like to point out where we stand against our long-range plan that we presented to the market in the summer of 2021. Sales are significantly ahead of that plan, in fact, north of GBP 200 million ahead of the plan. And that excludes the benefit of favorable movements in foreign exchange, which makes the differential even greater. Our adjusted EBIT margin has improved by more than 100 basis points versus what we had planned. And we're way ahead on cash and return on capital employed. We're very pleased with our progress, our momentum and our prospects for future profitable investment and growth. And with that, I'll now hand over to Anders Romberg, our CFO, to talk through the fiscal '24 guidance.

Thank you, Brian. I'm delighted to be back and look forward to working with the team again. So as Brian mentioned, we ended FY '24 significantly ahead of where we expected to be in our long-range plan, following 2 years of exceptional performance, notwithstanding the macroeconomic backdrop. Our guidance for FY '24 is on an organic pre-IFRS 16 basis, assuming the current exchange rate. We are guiding to revenue between GBP 1.65 billion to GBP 1.7 billion, which assumes a revenue growth rate of between 8% and 11% at constant exchange rates. We expect adjusted EBIT margins to be in line with what we experienced in FY '23. FY '24 guidance anticipates that the more challenging trading environment of the second half of FY '23 will continue into the first half of this fiscal '24 before improving in the second half of the year. Due to product intake timing, which supported the growth in Q4 of FY '23, and strong prior year comparatives, the group expects a modest sales decline in the first quarter of FY '24 before normalizing in the second quarter. Our guidance also reflects the current visibility of supply from key brands and confirmed showroom refurbishments, openings and closures but excludes uncommitted capital projects and acquisitions. We expect the underlying tax rate to be between 27% and 28%, reflecting the recent increase in the U.K. corporation tax. FY '24 will be another strong investment year. And we plan to spend between GBP 70 million and GBP 80 million of capital. And with that, I will hand over to the operator to run the Q&A session.

[Operator Instructions] And our first question is from Melania Grippo from BNP Paribas Exane.

I have a couple of questions. First one is on the impact from higher product intake in Q4 '23. We estimated it to be around GBP 50 million. Is this correct? Then I would like to ask you an update on Patek Philippe door cap. Do you ignore -- you're at the end of your negotiations. Is there anything that you can tell us on this? And finally, on the Rolex CPO program, we heard at the date that you would like to launch the program in both U.S. and U.K. But could you explain to us how does it work? Will you be able to put the watches also online in both countries? Can you give us some initial -- also, can you give us a little bit of -- can you explain how does it work?

Melania, thanks for your questions. Your question on -- wait, I'm sorry, impact of intake was '23 or '24?

The last quarter of FY '24.

I see. Have we said an exact number?

No, I think what we saw in the quarter was a continuation of what we experienced in our third quarter, where the U.K. growth rate was sitting at around 7%. And that was sort of the underlying trend that we could read on the Q4 numbers. And obviously, we came in at 18%, so there is a delta, which is related to the timing of intake.

On the Patek situation, we haven't been public yet with exactly what doors we're talking about. There will be door reductions in our group from Patek both in the U.K. and in the U.S. Overall, we think this is completely right for Patek to do. Actually, it's probably overdue. There's huge demand for Patek to be very public in saying that the cap on their production is 70,000 units. I think we all know they could sell that several times over globally. So it does make sense to concentrate their business on fewer locations. We will be expanding locations that remain. And the critical thing overall is that the intake of products, we are pretty confident, will remain at the levels that it's been in recent years, U.K. and the U.S. And I think there will inevitably be an increase in the average selling price. So we think it's a really good move for Patek. We're delighted with some of the investments that we'll be expanding on with them. It wouldn't negatively impact our business. In fact, we see it as an opportunity in the future. And of course, we then have very high-quality, desirable space available and more than enough brand partnership opportunities to take further advantage of that. So overall, we see it as positive. Rolex Certified Pre-Owned, we've been working with Rolex for months and months on this. We think it's a very exciting program. We're doing it in a typical Rolex way in terms of being very, very disciplined and detailed on processes and materials and everything else. We will be able to sell these products online, to answer that specific question, which we think is again a really nice opportunity. We obviously have a great online presence in U.K. and a growing one in the U.S. We also have our Virtual Boutique, which has really trained salespeople that are able to assist shoppers online. And we think that will be very, very beneficial for Certified Pre-Owned. We'll also be opening branded presentations of Certified Pre-Owned. And agreed locations with Rolex will include a big statement in our new flagship we're opening in Bond Street. So we think it's very exciting. We think it's going to offer significant growth in the years ahead. The limiting factor initially will just be logistics and capacity. Obviously, it's taking watchmakers in Rolex to authenticate and refurbish products. And watchmakers are a scarce resource in Switzerland. So capacity has been created, but it will have to be built. And I don't think initially it will be at the level necessary to support the demand that will be there. But we think it's very positive of consumers coming into a Watches of Switzerland store, able to buy Rolex products, which will all be 100% as good as new, guaranteed by Rolex, guaranteed by us. I think it's a very, very strong proposition.

Just a follow-up, is the impact from this Rolex CPO, should we assume that it is included in your guidance for April '24?

Yes. As included in '24, as I say, that is the start-up year. It's likely to feature more when we present our long-range plan.

The next question comes from Thierry Cota from Societe Generale.

Three questions for me. First, you expect around 10% growth this year. I was wondering if you could give us a breakdown of that, of price versus mix versus volume. Would price expected to be around half of the 10% the IFRS estimate? Secondly, if you could comment on the M&A market in the U.S., I was wondering whether, at this point, you consider it to be quite active and there are opportunities? Or is it more calm than usual? And lastly, on demand, currently, I'd like to know a little more what you're seeing or expecting for the year in terms of sales trend of supply-constrained brands versus traffic-dependent business and/or between more entry price versus our power price points? I mean, are there differences that you expect and that you already see materializing?

Right, Thierry. I don't know if you want to take the first point?

Sure. Thanks, Thierry. So the pricing impact that we saw come through in FY '23 was around 6% weighted for the group. And that is reduced in next year to 3% because that's the roll-forward impact of the pricing actions that we saw come through. We never include any new pricing that we don't have visibility in the plan. But obviously, we take into consideration the roll-forward impact. In terms of mix within the portfolio, we do expect jewelry to continue to be challenged as a category, which is more driven by macroeconomic conditions than anything else. And then the rest of the business, obviously the supply-constrained business, we expect to hold up based on supply. And the other piece is up against some pretty tough comps here in the first quarter. And then as we go through the year, those comps are becoming more reasonable.

On a M&A in the U.S., Thierry, I don't think conditions have really changed. I think the logic and the case for consolidation is pretty obvious. I think, in the U.S., it remains a market where we expect to see the greatest growth from acquisitions. We're obviously active as we've always been in the market. But it takes time. It's inevitably family businesses. It takes negotiation and discussion with our brand partners. It all takes time. But the market -- acquisition in the U.S. remains a key part of our strategy and our growth potential. And we intend to follow through as productively as we can on that. On demand overall, I think the key thing that we've commented on is that our registrations of interest for our key brands continue to increase overall, despite the fact we are not accepting everyone for key products that obviously already have a very long waiting list. Despite that, we're adding more people. So demand remains very strong overall in the category in total. Traffic-dependent business, as Anders has commented, we'd relate that mainly to our jewelry business. There are some other brands that have more of a traffic dependence as well. But the perspective of the U.K., where we commented on concerns about macroeconomic impact on our second half year, it was last October, November, I think the feeling back then was more pessimistic than it is now. Traffic is generally improving. We still have big-city traffic numbers to recover, like here in the U.K. in London and New York in the U.S., but particularly with people coming back to work and domestic tourism. So traffic is improving overall. And all of that, obviously, we've considered in the guidance that we've given. From a pricing standpoint, the move on pricing, generally average selling prices on watches and jewelry increased during the year. And consumers, I think, are looking at our category in many respects as a sensible one to invest in when inflation is out there and just wonderful products that people love to own. So the move that we've experienced from product mix has been an upwards one on average selling price.

The next question comes from Jon Cox from Kepler Chevreux.

A couple of questions for you, if you can. Anders, I think you mentioned Q1 sales would be lower. Just can you talk a little bit about that? And what sort of quantum should we expect? And you're talking about the group as a whole there, I understand. What sort of quantum would that be? Because clearly, if you look at least the export data, et cetera, that is still positive. Just wondering even if the comp is difficult, the market still seems to be growing overall. That's the first question. Second one, just on the jewelry, you're talking about that category being under pressure. Wonder if you could talk a little bit more about that. Is that mainly in the U.S. or the U.K. or the U.S. is the issue there? Third question, just on the Rolex Certified, just wondering if the profitability for you will be accretive to the group margin from that program. Is there anything on whether you're seeing a load of customers basically all running to you and saying, "Well, we want to sell this," and sort of expressions of interest ahead of time? And I'm just wondering what you think that secondary could become of your overall Rolex business down the line. Is it 10%, 20%, 30% potentially? And then just the last one, and I know you guys don't like to talk about it too much. But in terms of that growth guidance, this 10%-odd constant currency for this year, just wondering how we should think about it. Is it like a couple of points from you, as always, with the renovation program of the 1/5 of the network and you get a 10% uplift or whatever it may be plus market growth plus maybe a bit of market share gains? I'm just wondering how we should think about that 10% figure.

So your first question, Jon, on the first quarter, obviously as we indicated on the previous question -- person that asked, our growth rate in the U.K. in the last quarter of fiscal '23 benefited from the early intake of Rolex. So clearly, the underlying growth was more in line with what we saw coming out of the third quarter. So you have a delta there of around 11% or so that we benefited on sales in the U.K. That's going to reverse as we enter into the first quarter. So that has an impact of, give and take, GBP 15 million to GBP 20 million in the quarter. We're also up against a quarter where we had a very strong market conditions in FY '23. And the strategic partner brands were, as you can see in our Q1 release, really, really performing exceptionally strong. And that -- those brands have moderated in growth throughout the year as the macroeconomic situation changed. So those are the reasons. And what we said is that we expect a modest sales decline in the first quarter. And we'll stick with that rather than giving a specific number on it.

Yes. And your question around jewelry, Jon, it's more traffic-dependent as it's a more competitive market. It's one in which we are less competitively advantaged. Overall, from a market share standpoint, it's one in which the inclination of competition to be very promotional as well with chasing volume. So it is more affected by consumer confidence. And just to emphasize, it's around 7% of our group business is jewelry, to keep it all in perspective. But of all of what we sell, it's the one that's most subject to kind of the mood and, as I say, competitive activity. We love our jewelry brands. We have plans to growing our jewelry brands. I think we're doing a really good job of positioning both U.K. and U.S., whether positioning on the quality of the product and higher price points overall. And in the U.S., we are positioning full price and looking to eliminate discounting, which is much more prevalent in that market. So think we're absolutely doing the right things. But as I've said a couple of times, it's a category that's more subject to consumer mood. CPO, the financials will be that the gross margin will be smaller or less than our average, but bottom line will be in line with our average. At this point, we wouldn't see it as being necessarily a piece of order. But overall, we plan to maintain our overall profitability in CPO with the impact of CPO. I mean, to be real honestly, as I said earlier, the reflection of the level of business that we'll do will be about capacity of watchmakers rather than consumer demand. But we think both in our stores and online does have a significant potential. And we'll talk more about it when we present our long-range plan. In terms of the guidance, I think it's interesting. If you look back at '23, we stuck with our guidance that we gave at the beginning of the year and ultimately achieved what we said we would do, towards the higher end of it, in fact. But obviously, there were a lot of moving parts as the year went on, the changing macroeconomics, exchange rates, so a lot of moving parts. And we delivered on it. When we look at this year with that same mentality, we have, as Anders said, visibility on supply, which we can lock in for the calendar year. And we're conservative on the balance of the year on supply overall. We don't assume any pricing. And I think something probably will happen in January but maybe less as what's happened in the previous couple of years. We are making investments. They will deliver increases in sales overall. And again, we've taken that into account. And our plan is always to gain share. We've done it every year that we've been working on this plan for the last 10 years. And we would always intend to do so as we go forward. So all of that's there baked in against this expectation of this more negative macroeconomic situation, which we see continuing through the first half of our fiscal and then getting better in the second half.

I just have a follow-up on the Q1 modest sales decline. I guess, that would be like mid-single-digit, first follow-up. The second one, more on Europe and how to sort of maybe accelerate that process, because obviously there's a lot of opportunity there. Just wondering what your thoughts are, particularly regarding maybe acquiring some Rolex authorized dealers in Europe maybe over the next 12, 18 months or so.

Yes, we would like to do that. And we're as active in Europe as we are in the U.S. And it's pretty much the same approach. And it's the same situation that we're looking at, a lot of family-owned business, some good retailers that are out there. But some cities that we would look and see that the potential is greater. So yes, we would like to do that. Again, we haven't included obviously any acquisition in our guidance that we've given. And what we've been able to deliver will be incremental on that as is always the case. But yes, we would like to do that. And our plan is that we will, over a future period, we will secure some acquisition in the U.S. -- in Europe.

And the modest sales decline, mid-single digit?

Yes, again, we're not confirming a number. But one mind's modest take is another mind.

The next question comes from Piral Dadhania from Royal Bank of Canada.

So three for me, please. Number one, could you please give us an update on the performance of the non-supply-constrained brands in Q4 and what you're seeing in the beginning of Q1? Obviously, a lot of questions on Rolex and supply constraint. But just wondering whether there's a bit more economic sensitivity to the OMEGAs, the Cartiers and the non-constrained brands in the portfolio. The second question is just on the shape of growth relative to the guidance for '24. What gives you confidence that the second half has the potential to accelerate? You're talking about maybe sort of a macro headwind in the back half of the year and softer comps. But actually, the Q4 comp is quite high based on what you just posted. So I just wanted to understand what you're seeing. It could be the supply situation, I'm not sure. But any further color there would be helpful. And thirdly, just on interest-free credit, is there any change in the overall mix or incidence on -- of revenues being generated from credit sales? And how do you expect that to evolve in the next 12 months or so?

Thank you. The non-supply-constrained brands, like you referred to, we refer to them as our strategic partner brands. OMEGA, Cartier, Breitling, TUDOR, TAG Heuer are great brands with really strong momentum, great partnerships for us. The sales continue to be strong. We've also developed really good partnerships with smaller, more niche brands, like MB&F, Moser and so on, we are filling into our future plans, too. There some other great performing brands out there, like Vacheron, for example, from Richemont, particularly in the U.S. So the category overall is doing really well and all of these brands continue to perform well. Supply with those brands is -- and it's wrong to describe them as not supply-constrained because there's been a limitation on supply for the category overall, for luxury watches overall, particularly the component manufacturing and the impact that there was a lockdown and a catch-up. Supply with these brands has become better. New product introduction, timings have become more reliable. And all good all around, and we have expansion plans with every one of them. Our growth obviously in the second half, we will be up. We do foresee that the economic conditions are likely to improve. And we'll be up against the second half year comps that are obviously more attractive from a growth standpoint. We also have a number of projects that we are working on and initiatives that we have with our brand partners. So we do a very, very detailed budgeting by brand, by store. And we do a detailed phasing, which has allowed us to talk about Q1 and allowed us, I think, to feel pretty confident about H1/H2 numbers that we're looking at. So we're pretty confident about the indications that we've given today on guidance. On the IFC?

In terms of credit penetration in the business, it's very stable here in the U.K. And in the U.S., it ticked up slightly during the year. But that's more about us tactically using it as a sales tool than any change in consumer behavior really. So it sits at around 12% of group revenue. So clearly, we don't expect, and we can manage that by selecting our offerings to the consumer. So we will hold it at around that level. And historically, that's where we've been in the U.K. It has significantly come down in the U.S. since we entered into that market. So we've taken that out as a subsidy on a lot of parts of our business.

Yes. And just to emphasize, everybody, we don't take any risk at all on credit. That's all from our financial partner. We cover cost. But we take absolutely no financial risk on it overall. And levels of credit business are actually, I think, probably all-time lows overall. We don't give any subsidized credit on Rolex, Patek, for example.

The next question comes from Richard Taylor from Barclays.

There was a question on the margin headwinds that I think you called out for FY '23 and how we should think about it in FY '24. So the headwinds that you called out are interest-free credit and product mix. Can you help us understand which is the bigger headwind out of those two, please? And on [indiscernible] charge, you just confirmed that the participation rate is broadly stable on IFC. So are we right to think that the sensitivity from here is what happens to interest rates and how the phasing of that is rather than participation? And on products, should we read the product mix headwinds to be that the super high-demand watches are selling better than the rest of the portfolio, the other watches and jewelry?

Thank you, Richard. I'll answer the question on IFC. Obviously, as we saw base rates climbing up towards the second half of the year, that was cost pressure on us. Because obviously, we offer these programs on 12 to 48 months' terms. And obviously, you can -- so 4 years of 1% costs us quite a lot of money. So clearly, that has had an adverse impact on our margin in FY '23, specifically in the second half. And we expect that to continue to be the case throughout the year. And we have actually included a couple of rate increases as we round out the budget. So it is a drag on profitability. It's something we believe is temporary and over time will revert. We don't think that the base rates are going to stick at these levels long term. So at some point in the future, I think that margin expansion is going to come back at us. So in terms of product mix, Brian, do you want to talk about that?

Yes. Again, as I say, we do really detailed budgeting by brand, by store. And that's reflected in our expectation for this year. But we're not really anticipating as a result of significant change in product mix and impact on product mix in the -- on margin. Probably, the most significant thing still there is jewelry overall. But we're not expecting a big recovery until well into the fiscal year. But other than that, product mix, I don't think we're expecting much of a change overall.

Okay. And then just one quick follow-up. I think there's some expectation you made in your long-range plan. Is that going to happen at the full year results over the summer? Have you decided on that yet, please?

We haven't firmed up on a date. Obviously, Anders has only been with us for about a couple of weeks. And we did again a very, very detailed 5-year plan. He's just getting fully versed in all of that. And once he's totally comfortable with everything that's there in detail that it will be if we can then confirm exactly a date. But we're keen to present it to the market. And as soon as it's all buttoned out and Anders has got his [indiscernible] in line, we'll confirm a date.

The next question comes from Natasha Brilliant from Credit Suisse.

I just wanted to come back on the margin point. So I hear you on the sort of impact on the [indiscernible] that you're talking about from product mix, jewelry and also interest rates as well. In the absence of that, because you talk about it being temporary and so cyclical, what sort of leverage or what sort of margin improvement should we be thinking about in a year that you can do 10% top line growth? So how should we think about the operational leverage of the business in a kind of normal points of the cycle? And then the second question was just on the JV with AP in Manchester, obviously a slightly new business model in your approach view. So could you just give us a bit more color on how the economics of that will work and whether we could see similar deals like this with AP or indeed other brands? Do you get a sense that some of the other brands might be thinking about their distribution as well?

So on the operational leverage, Natasha, obviously we're over 1 percentage point ahead of where we thought we were going to be in our long-range plan. So clearly, we've done much better, so -- and that's come through operational leverage and not through product margin expansion. When we did the long-range plan, we were conscious that we would have some things working in our favor and other things working against us. So we actually didn't, in that plan, reflect any sort of margin improvement. We have achieved it. It's come through operational leverage. And I would say that obviously if we wouldn't have had the headwinds of increased credit cost this year, we would have had the benefit of continued operational leverage come through. But again, we have something that went against us. So I can't really comment on specifics in what it could have been and what it will be. Because again, as I said, visibility of the interest cost that are going to incur in the first 6 months of the year, which is not matched off in the last year.

And Natasha, every year, we've managed improvement in profitability. Last year, 20 basis points was still an improvement, up against some obvious headwinds and, as Anders said, way north of what we have assumed we could achieve in our long-range plan. So that model still works. We're going to get into the detail of the Audemars Piguet joint venture at this point. But obviously, we have a percentage of what we think will be a great investment, but only thinking of a percentage of the capital, but only getting a percentage of the profit but are highly productive stores, highly desirable brand. And when everything is perfect for the market of Manchester, we will have an opportunity of doing more of that, we hope so. U.K. and U.S., we really enjoyed working with the team at Audemars Piguet. They have expanded production a bit. They opened a factory in Le Locle, so more products. And having said that, it's still well below the level of demand that's out there for sure for the brand. So yes, we'd like to do more. But let's get this one opened. Let's celebrate it and see the success of it. And let's see the opportunities. JVs is a model where no one else has proposed that as a concept to us and not as to any of the brands. So we think this is something that -- and it's pretty public with Audemars that they do like that format. They clearly have moved to mono-brand everywhere. And they love their AP Houses, areas for social interaction and so on. So that's a great format for them. They've been very selective about partners that they do it with. And we are delighted that one of those partners is us.

The next question comes from Louise Singlehurst from Goldman Sachs.

And a warm welcome back to Anders, of course, on the call. So it's great to hear you again. I've got just a couple of follow-ups, if I can. Just firstly, on the underlying consumer, Brian, thinking about these comments back in February, just to make it very simplistic for us. Is there any particular change when we look across the U.S. or U.K. in terms of underlying trends? I know you called out in an earlier question that traffic is actually slightly improving. But anything across price points conversion? Obviously, across luxury, we're hearing a little bit more of a slowdown in the U.S. particularly. And I know you already highlighted that back in February. And then for the U.K. specifically, are there any differences in behavior that you're seeing in London versus the other regions? And my second question and the final one, just thinking about that growth outlook for 2024. I know we'll get more details later on. But when we think about that 8% to 11% underlying growth, is it safe to kind of assume 1/3 like-for-like and 2/3 space in the overall mix component?

Consumer behavior, Louise, there's no real change that we are perceiving. The consumer has been trading up for the last couple of years and, as we've commented, continues to do so. As I mentioned the major markets, I think there's a lot more to come out of London, New York, Vegas. Vegas is booming. Florida actually is booming as well. And in markets like Miami, Atlanta, good markets in the U.S. And we've talked about Manchester here. There isn't any difference, on your question, we are perceiving London versus others, pretty much all domestic because obviously they don't have the benefit of [indiscernible] of other markets are enjoying because of the VAT situation, which we think inevitably will change again, obviously not assuming that at this point. But when it does, it will be incremental. So we really are dealing with domestic consumers. There's actually been an impact on -- with the strikes, the rail strikes. That's had an impact and probably has more influenced London than anywhere else. London obviously is a local destination for domestic tourism and mainly people coming in by train. So the strikes haven't been helpful. But other than that, in terms of demand, willingness, interest in products and behavior of the clients in the market, we haven't really seen a big difference.

In terms of our -- we don't ever give out our like-for-like because essentially in our network, we have quite a few of these Rolex locations as you're well aware of. And the performance of all stores will be driven by how we allocate the product. So it can be a little bit misleading. What we do know is that when we invest in these stores, clearly we don't do that without discussing what incremental volume we would expect to get as a result of that. And as pointed out, the payback on these projects historically has been really good, so -- and they still are. In terms of new mono-brands, yes, there is an expansion. And that is how we gain share in some of these strategic partner brands by absorbing distribution geographically. So some of those will be incremental. But we never have quantified it. And we don't intend to do so.

And can I just ask one final one? On the Rolex deliveries in Q4, which obviously benefited from timing of the shipments, can I just check if we were to assume Q4 and Q1, the total level of Rolex inventories were in line with your original plans, it's just the timing between the 2 quarters?

Yes.

The next question comes from Daniel Isaacs from 36ONE.

I just wanted to ask a couple of questions. The first is -- so just on acquisitions, you mentioned earlier that you're always in a process and it can be a lengthy process. Can you just remind us the capacity of the balance sheet? Could you say what the net cash number is and what sort of leverage you're happy to go to, first of all? And second of all, just listening to the answers to other questions, it sounds like the main margin headwind would be in the jewelry mix that's falling back quite strongly. If we look at some of the other jewelry players in the market, their results have generally been quite resilient. So maybe you can just chat to a bit of what the difference is there? Is it something like branded jewelry taking more share or something to that effect?

So on the question on acquisitions, obviously we just reviewed our financing. So we entered into an RCF of GBP 225 million and closed out the year with cash on the balance sheet of GBP 60 million. So we have pretty good headroom. We also have baskets in this facility that allows us to expand it if needed. So cash is not going to be a restrictor in that sense.

Yes. And jewelry, we've been -- over the last couple of years, we've actually been gaining share here in the U.K. market in what's been a reasonably moribund market, I have to say, in the last couple of years. But we've been very happy with what we've done in terms of what's been a modest market share gain, very much improved profitability and agility strategy that's very compatible with the wonderful watch brands that we represent. The U.S., there is a market tendency in the U.S. for negotiation and discount that's typically been there. When we acquired Mayors some years ago, we fairly quickly [indiscernible] the cadence of discounting and special client events and all that sort of thing. We're doing the same with our new friends and colleagues in the Betteridge group. And we are sacrificing a bit of top line numbers in order to get the strategy, the client relations and kind of margin and profitability correct. So in that sense in terms of total sales, we lost out a bit on what's been overall good market trends but very deliberately and for good reasons and, as I said, improved profitability overall. As I mentioned earlier, we're just not as competitively advantaged in jewelry. We fully intend to be at some point in the future but currently not. So we are subject to whatever trends are happening in the market. And I mentioned again earlier, in the U.K. market, that trend tends to become promotional, we think unnecessarily. But it tends to, and we really don't participate in that either.

Okay. So okay, it sounds like it could become quite a promotional environment in the space and you're not participating. Can I just ask one other question? I was just curious in terms of if the business was looked at as an acquisition, would there be any issues with the relationships you have with your suppliers?

I mean, totally speculative obviously. The relationship we have with brands is fundamental to our business. They've been built over generations actually. And so they are obviously important for the value of the business. But entirely speculative as to what would be thought of any acquisition.

Yes. No, yes, I was just curious. I mean, would -- let's just say, someone is interested in buying Watches of Switzerland Group, would Rolex say, "No, hold on a minute, our relationship is with the business, and we're not interested in any changes"?

No. Under selective distribution, all of the brands have a right to review on a change of control. So it's something that we deal with obviously when we're making acquisitions. We discuss them all of the brands and the banks obviously and know where we stand. So in principle, yes, but entirely speculative and theoretical.

This does conclude today's Q&A session. So I'll hand back to the management team for any concluding remarks.

So thanks, everybody, for joining us again, for your questions. In summary, we are very pleased with our strong performance for fiscal year '23. Looking forward, we continue to operate in a category with very strong underlying performance. It gives us great confidence in our fiscal '24 guidance and the ongoing investment in the business that we are committed to through CapEx and acquisition. As we've discussed, due to product intake timing, and that's all it's been, which supported Q4 fiscal '23 and the strong prior year comparatives that we have in the Q1 fiscal '24, the group does expect a modest sales decline in quarter 1 before normalizing in quarter 2. All of it has been clearly considered in our full year guidance that we've given. We continue to target market share gains in countries in which we operate. We're encouraged by the ongoing dynamism of the category reflected in particular in the recent Watches and Wonders show in Geneva, which was spectacular brands showcasing great novelty products, production expansion and great marketing. So we feel positive about our strategy. We feel confident with the guidance that we've given and like to thank all of our teams, our colleagues and everybody involved in delivering what we think has been a very, very strong year. And once again, thanks for joining us and for your comments and questions.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.