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

Good morning, everyone, and welcome to today's Watches of Switzerland Group plc Q4 2024 Trading Update. My name is Drew, and I'll be your operator today. [Operator Instructions] I will now turn the call over to Brian Duffy, CEO of Watches of Switzerland. Please go ahead.

Thank you, Drew. Good morning, everyone. Thanks for joining our call. I'll run through some reflections on trading for our final quarter of FY '24. And then talk about the year-end total. All I say, in [indiscernible] we issued this morning. Then our CFO, Anders Romberg, will add some commentary on guidance for FY '25 and the LRP updates that we provided this morning. We'll then, as usual, open up to any questions that you may have. . So I'm very pleased with our Q4 results, which we are going to close FY '24, in line with our guidance. FY '24 was undoubtedly a year in which we did experience more market challenges, particularly here in the U.K. than originally expected, but also one in which we continue to gain market share, both in the U.K. and in the U.S. and continued with our successful model of investing in high-quality growth, positioning the business well for the future. For Q4, our sales were particularly strong in the U.S. with a year-on-year growth of plus 14% in U.S. dollars. As we have presented often the U.S. market is underdeveloped and the U.S. consumer responds very well to both our current environments, and particular, an excellent client service, supporting our above-market growth. Sales in the U.S. were consistently strong throughout FY '24, and we're plus 11% in U.S. dollars for the full year. In the U.K., sales for Q4 were 4% down, 5% down for the year as a whole. We have continued to experience more challenging conditions in the U.K. than the U.S. due to the combined impact of cumulative price increases due mainly to the strong Swiss franc and a more challenging consumer environment. While we believe this resulted in consumer deferral purchase intent, we continue to take market share and outperform the labor market. We have been pleased that how the 15 luxury stores we acquired were traded since been part of our group, and we expect them all to make good contributions to our U.K. business, although the U.K. consumer environment remains subdued. There are some early signs of including sentiment. We have been delighted with how the Pre-Owned business has performed, both in the quarter and the year as a whole, and things are currently tracking ahead of our expectations in both the U.K. and the U.S. with the Rolex Certified Program being particularly strong. We are rolling out distribution and increasing resources to support this business momentum. I'm delighted to have announce last week, the acquisition of Roberto Coin Inc. and with this, the exclusive distribution rights for exciting brand in North America, the Canada and Central America. This is a very, really great opportunity for us with an iconic brand supported by fantastic teams in Italy and in the U.S., and we see great potential for growth in the years ahead. We are very impressed at the recent Watches and Wonders here in Geneva. The brand presented great new product introductions with a clear blend of innovation and commercial focus. The Swiss watch industry overall has taken a more conservative approach to expected sales in calendar '24, which we believe to be both correct and responsible as the industry emerges from this more volatile period. You will have seen in our announcement today that we intend to reallocate investment resources from the European market into higher returning regions of the U.K. and U.S. where we continue to gain market share. What we've experienced in Europe as well, we had good stores with great teams. We haven't been able to get the scale needed to grow. This market was managed out of the U.K. It was very time consuming and resource heavy. As you know, we take a very disciplined approach to capital allocation. And when looking at all the opportunities we have on the table since November, particularly Rolex CPO; Rolex Bond Street; the acquisition of Roberto Coin; Audemars Piguet House opening in Manchester and many others that we have plans with our brand partners in the U.S. This was an appropriate step for us to take. We are in advanced discussions with our brand partners on selling the existing European mono-brand stores to them. And planning fiscal year '25 and reviewing our LRP through fiscal year '28, we start both periods with a very exciting program of projects with all of our key brand partners, and luxury watches and in luxury branded jewelry. We have the incremental business from Roberto Coin in the U.S. We have strong momentum in the Pre-Owned category. Great new products from our brand partners and further expansions planned in luxury branded jewelry. We've also undertaken a robust review of our overheads and discretionary spending in all areas of the organization in order to support ongoing profitability and margin expansion. We therefore, start the new financial year with new confidence and both in near and medium-term outlooks for the business. My thanks to our amazing teams for their achievements, enthusiasm, hard work and commitment to succeed in fiscal year '24 and beyond. And with that, I will hand over to Anders.

Thank you, Brian. And I'm going to shortly take you through our LRP update and give you some guidance for FY '25. We remain confident in our LRP targets that we set out in November to more than double sales and profits by FY '28. Rolex Certified Pre-Owned as you heard from Brian, is very encouraging, and we found new sources of supply in the U.K. So the cap that we referred to when we did our Capital Market Day is no longer a factor in the U.K. market. We expect this area to outperform our original expectations from the past. We also have the strongest pipeline of connected Rolex and other projects. And this, alongside the Roberto Coin acquisition, which came in earlier than originally expected, gives us further confidence in our LRP ambitions. Moving to the outlook for FY '25. We're cautiously optimistic about trading in FY '25. We've seen sales coming in more flattish and the run rate is stabilizing at the back end of FY '24. Our guidance reflects current visibility of supply from key brands and confirmed showroom projects. In FY '25, we will annualize the luxury showrooms as you heard from Brian. And we'll have [ 50 ] weeks of Roberto Coin in our numbers as well. We have not assumed any further acquisitions within our guidance for FY '25. Our guidance, as always, is provided on a pre-IFRS 16 basis. We've assumed an exchange rate of GBP 1.25 to the U.S. dollar. Revenue is expected to come in between GBP 1.67 billion and GBP 1.73 billion, which implies an underlying constant currency growth of between 9% and 12%. Our adjusted EBIT margin is expected to expand by 0.2% to 0.6% from this year. And we do plan to spend between GBP 60 million and GBP 70 million of CapEx, which is slightly below what we historically have done because we've taken the hurdle rates of a little bit internally and are more disciplined. Our operating cash flow conversion is expected to come in at around 70%. With that, I'll hand back to Brian for some closing remarks.

Now maybe I'll leave it here, how about you, Anders, because we'll take questions now.

[Operator Instructions] Our first question today comes from Adrien Duverger from Goldman Sachs.

Congratulations on the results. This is Adrien Duverger from Goldman Sachs. So my first question would be on the Rolex deliveries for the full year '25. So you're happy about the allocation you got? And how clear are you on what you will get in terms of value versus volume. My second question would be on your M&A pipeline and its strengths. So what product category and geographies does the pipeline for M&A is skewed to, especially given the fact you mentioned you will reallocate investments from Europe to the U.S. and the U.K. And my last question is with regards to your guidance. So if we strip out the contribution from the acquisition of Roberto Coin, How do you think about the organic growth rate implied by the full year '25 guidance?

Thank you, Adrien. Our answer, never be happy with the allocation of minutes obviously, such demand for -- of key brands, Rolex in particular, demand continues to significantly exceed supply over adding to our waiting list and so on. But I mean, of course, we are both in the U.K. and the U.S., we could do our annual processes, receive allocations. And happy with our process. We're happy with the support we're getting for the projects that we're doing and what's happening within the market overall. We obviously continue with what we've always done and include only the numbers that have been indicated and effectively given to us by Rolex and luxury watches like it's in our numbers. So we are happy with the support that we're getting. But the demand that's out there, of course, could substantiate. More supply further evidence, which is a great success of having Rolex CPO. So it just confirms the demand that's there for our wonderful brand and some others. In terms of M&A pipeline, it's -- I mean as all U.S. was predominantly U.S. in any event, we see further opportunity for consolidation of the market in the U.S. We've always had a pipeline of discussions going on any one time at various stages. Things do take particularly delivery with family businesses, things do take time for people to get comfortable overall, but we're dealing with sort of area which we're clearly have to be patient. But we are happy that level of activity and opportunity that's there that we've reflected likelihood of delivering in our LRP, we're happy that all that makes sense. Overall, on the guidance.

Yes. I mean if you take into consideration Roberto Coin which we obviously disclosed the numbers for, a, we're not going to have it in for the full year. So essentially, the May month is more about integration and so forth and soft comps and validation of balances to land on the final working capital. So we expect the business to have a little bit of a slowdown in the first month. That would imply that our guidance sits in the mid-single digits for our core business.

Our next question today comes from Richard Taylor from Barclays.

Can you talk a bit about the supply demand that you see in the market more generally. I mean the comment you made about brand sort of behaving quite responsibly from a production point of view. But any thoughts there on sort of inventory levels in the market amid your competitors and how much discount are you seeing? And then secondly, I think you said that the Rolex CPO is going ahead of the long-range plan guidance, doing 10% in the U.K. and 20% in the U.S. of Rolex sales. Are you saying that the U.K. could move towards U.S. levels or both moving up? Any sort of indication on that would be great.

The supply demand overall in the market, clearly, as we have been seeing at the higher end of the market, demand has stayed very strong [ over near ] supply. Our supplies that were near to demand and certainly that those dynamics are not changing as we commented and currently, when we gave the market announcement where we clearly experienced disappointment. There's more U.K. original, more aspirational price points and so on, which all made sense to us in terms of cost moving and price increases that had also happened along those price points as well. So that's continued to be -- as Anders indicated, some signs of more positive traction with certain brands, very encouraged by what we saw by Watches and Wonders. Watches are great industry and they do respond to market conditions very long term and the approach overall. But we do respond to market conditions, and we did see a lot of exciting commercial, new introductions that we think are really going to -- would help particular market in the U.K. and the year ahead. As you know, we have very little discounting and the mix of the products that we sell, it's the case for the market overall. If you go back, whatever, 8, 9 years, it wasn't always the case. There was going to be more stock issues around and other activity like that. But the market for the last, I don't know, 7, 8 years, and 2, 3 years, I think, being very disciplined actually globally disciplined in terms of stock management and correlation between demand and production. So -- we really don't anticipate that has being a problem. We, as part of our review of next year's budget and beyond, we have cut back on areas of incentive, whether it's subsidized interest or guess with purchase and that sort of thing. Obviously improving profitability. But I think overall, for the market that we're looking at positive moves to make. CPO area, what we've said back in November is, the potential in the U.K. was the same as the U.S., but supply was more evident than the U.S. than we thought we'd be able to deliver in the U.K. We had some positive developments on sourcing in the U.K. and therefore, we have a really good opportunity of getting to the same level of penetration of the market and the U.K. with CPO as we indicated in the U.S.

Our next question today comes from Kate Calvert from Investec.

A couple for me. First one on Europe. Obviously, this was a key plank of your long-range plan, you talked about last year. Can you sort of give some background as to why you decided to withdraw now? Has there been any sort of change in the brand distribution strategy that is making it harder to get sites. It'd be quite good to get a bit of background color on that. The second question is on Pre-Owned. Could you just update us as to where you are as a percentage of sales in those markets as you exited. And how many more doors do you think you will roll out this financial year in both markets? And my final question is on the performance of the mid-priced watch category. Could you sort of talk about the differences in the performance in the fourth quarter versus the third quarter? Is there any evidence of stabilization.

Association with the EU is, firstly, we've opened some great stores that are performing well, and we've got some really great colleagues there that have been doing a great job overall. But as we look, I think honestly just a question of priorities. There are some great new opportunities to develop like certified pre-owned getting Roberto Coin deal done and all the opportunities that offers. We are adding to our project list of expansion, particularly in the U.S. And we just have a lot on -- and Europe was getting supported out of the U.K. We were a bit behind where we wanted to be at the stage in terms of size and scale, as we have said quite openly. So we will allocate a lot of time and resource for business that was not big enough to support that level of resource yet and therefore, it was impacting on profit and return on capital. So we have better things to do from a financial viewpoint in terms of getting return on capital and our big markets of the U.K. and the U.S., somewhat to the question, apologies. The opportunities there still is there. And we hope to revisit Europe at some time. But at this point, it just made all the sense in the world. It's profit, positive, obviously, moving into next year is cash positive as we sell, restore back to the brands. And just the right thing to do at this stage and delighted that we are selling the stores and obviously there and with the responsibility for the unit teams that we've got in place in these markets. Pre-Owned?

In terms of Pre-owned, obviously, we haven't disclosed a specific number, but I can share that it's now the second biggest brand within our portfolio, and it's -- the path is growing by a mile, segment of our business. So it's performing as we said, ahead of where we thought it would be. So very encouraging and obviously 100% within our control. So we're really happy about that. We haven't specifically spoken about doors, we want to be a little bit cautious on that. But clearly, the training of the teams is a priority. Getting access to the product, which is available online for all doors, whether or not we have it in the store or not using our technology in terms of web enablement so forth is going to help drive productivity in that segment. So we're really happy about all that.

And I think a comment, basically kind of mid priced, you're right to single out the regional markets mid-price products where we had the biggest challenges from obviously [indiscernible] that are Q4 on Q3, we've definitely got an improving performance even luxury performed much better, which is encouraging. And some developments within -- what you described as the mid-price range, we see some positive traction on. And as I said earlier, too, those good products coming into that category as we are at price points we think will make sense. So encouraged and obviously, coming up against what will be much better comparisons. So feel like the major correction in that sector is certainly coming to our course.

Another thing that might be worthwhile to mention on that is obviously, we're annualizing the impact of the pricing that took place during '22 and '23, which actually took prices up quite significantly, as Brian pointed out on the Swiss Franc movement. So the consumer base that reacted adversely to that from an affordability point of view, we're sort of already annualizing that drop off, if you want to go there.

Our next question today comes from Jonathan Pritchard from Peel Hunt.

Two from me. Firstly, on Ernest Jones. Just give us a bit more color on the process, and sort of staff retraining, evolving the range. Just a few comments on that, how that's gone on. And then just sort of following up on the Goldman question at the start on guidance. If we strip out the acquisitions, et cetera, we're probably a couple of percent, 2% or 3% down from where consensus was in terms of our expectations for FY '25. If you get to the granularity, is there any region that is particularly the culprit of that? Are you less bullish of the states or less bullish of the U.K. versus where consensus was and where guidance has been set?

So in terms of EJ stores, as I said, we are on track for the trajectory that we had planned for them. We've gone through obviously a sequential process of rebranding the stores, changing all of the systems, starting a process of re-merchandising of product which is a bit of an ongoing process. We put in products, we make changes. We read and react overall. And so that's an ongoing process, which is going fine. And then alongside that, we're getting to all of our teams and all of the team training, everything else at a personnel level is to be absorbed. All going high and sequential improvement in store performance by week as well, we are focused on and tracking, we could build through the stores, with all of the senior management. So I think it's good, nice acquisition and tracking and laying them which is what we expected. The guidance, Anders.

In terms of the guidance, I guess this is what we've used for our acquisition of Roberto Coin. And we haven't planned that particularly aggressively going into the first year of ownership. We, as I said, are going to have that around 11 months rather than 12 months in the numbers. We're also in the process of getting to know our distribution network and so forth. And there might be some that have a view on ownership and so forth. So we plan it relatively conservatively. In terms of where we sit, we got the consensus, as I said, we're coming out pretty much at the mid-single digit on a core business, which is a little bit south of where the consensus at 6.5%. But I think within the guidance. But it's also impacted, obviously on the key brands view on allocation and so forth. So we have the numbers for this year, and that's what we have incorporated into our business. So that's where we are.

Our next question comes from Antoine Bregeaut from BNB Paribas.

It's Antoine Bregeaut, BNP Exane. So 3 questions. First of all, on that mid-single-digit core business guidance? What are the sort of underlying assumptions for the U.S. and for the U.K. . Question number two is a bit about current trading. Also, any reason for the first quarter should be better or worse than the average of the year and any other quarterly considerations we should have in mind? And thirdly, on the margin guidance, I understand several moving parts, probably removing some losses from Europe, reintroducing the bonus structure and also some acquisition from the current deal. So is there anyways of quantifying those, give a little bit of color.

Okay. I'll take the easy one, easier one. Current trading, but obviously, I'm not going to comment on -- we've said Q4, there was some sequential improvement from Q3 in key categories like jewelry and more mid range watch products and the overall conditions remain, the demand is cutting supply for key brands, key products, that dynamic is not changing. The U.S. market remains very strong and that dynamics is not changing. And some earlier signs about the U.K. perhaps talking a bit. And obviously, we're going to have better comps. So the other headlines I'm really not going to add anything to follow-up to that about in more detail. Anders?

Yes. You know what we don't give guidance by market. So I'm going to duck that question, but you've obviously seen the performance in last year. And we don't expect any major change in economic conditions happening here in the U.K. So you can draw your own conclusion from all that. In terms of margin guidance, obviously, improved margin is coming. As we said, we get actually margin accretion from exiting Europe, which is helpful. But to your point, we introduced obviously our bonus target analysis result will come the cost. So and as low sales growth, obviously, the leverage in the core business is somewhat restricted. We have, as Brian pointed out, taking action on costs. So we reduced our IFC programs and so forth. We haven't played in any interest cost reduction in our guidance in terms of the cost for the IFC program. We'll see what happens there. And obviously, Roberto Coin is accretive, as we pointed out when we released the acquisition data coming in at around the 20% EBIT margin.

[Operator Instructions] Our next question today comes from Jon Cox from Kepler.

Jon with Kepler here. Just a question on the CapEx guidance. Wondering if you can just elaborate a little bit on that and whether you think that this sort of step down is likely to be not just next year but actually going forward. Because I was under the impression that you're renovating about 20% of your shop network every year, which leads to a 10% uplift within those stores. Where does that lead that program if you're talking about maybe GBP 10 million, GBP 20 million lower-than-expected CapEx going for the next couple of years?

What we've done, we've obviously looked at all of our investment programs for the next 12 months. And Europe, as Brian pointed out, has come out. So there is obviously a reduction in that space. That's not included in the guidance. And then we've looked at some of the smaller projects that aren't well exactly, but we said we might want to take a different view on timing of those until we see conditions improve. So I don't think it's a permanent reset in that sense. We're continuing the entire program on anything that is core. That is to say, underwritten by balance that we know will deliver the productivity. So that's what's impacting this year.

Okay. I want to make just similar follow-up back to the Rolex CPO. You said it's your second biggest brand. Am I right in thinking then that you're moving towards Rolex CPO is somewhere around 10% of group revenue at the moment. I'm talking about on a month-to-month basis, not for the year as just gone FY '24, but that's what you're approaching at the moment?

Pre-Owned total, is not far off that level of penetration. But the curve we can see is accelerating quite encouraging, is somewhat exponential achievement, which is good. But it's now the second biggest category or brand in our portfolio, as you say.

Just on -- go on...

Sorry, Jon, just to add to obviously, we took some very good moves in the area of deal, then we had acquired Analog:Shift in the U.S. that gave us great expertise and great credibility in that category and really position us well for how things then developed and in particular with the introduction of Rolex CPO. It's a great program, Rolex CPO, it's very well managed by them. We have a partnership with someone built up resources to handle the recommission of the products and the guaranteeing of products. We've invested in training and other. So we've been doing a lot to really get behind that business opportunity. But a lot of good things fall in place. And I think, in particular, Analog:Shift acquisition that we did some years ago has really given us a great benefit in the term.

Yes. I was just interested in this exponential growth. So I'm just trying to get a handle, like by the end of 2025, can we assume maybe your monthly sales of Rolex CPO are actually approaching 20% of group revenue?

Yes. There's a lot of moving parts to it, Jon, but having to manage, obviously, they're sourcing of products and then the processing of product, partners with of Rolex reconditioning and guaranteeing those added distribution that's happening not only with those, but in the market overall. So we have, value add. We don't have branded in-store furniture or in-store presence or particular marketing behind CPO at point, which obviously should then be beneficial. But A lot of moving parts. So the comments that we've given so far are the best that we could see, but that clearly is really encouraging area of growth for the benefit of authorized retailers like us. So great trend and better than what we had predicted.

Okay. And then just a last one on the so-called tourist tax. I'm just wondering, do you feel that you're being penalized in terms of international buyers, maybe preferring to have a look in Germany and France, obviously, the Chinese is supposed to be coming back. Do you think you're missing out on some of that business? And I wonder if you've had any discussions about that tax being revoked potentially after another election with the labor party at all.

Thanks for asking because it is a really important subject, I think, retail overall in the U.K. in hospitality and other aspects of tourism. So that's something that we've been as supportive and active as we possibly can to see the U.K. has hugely missing in economy. Tourists -- post-COVID tourist certainly for the U.S., and Middle East and elsewhere have come back, but the real concentration of where they're going to, where they've spending money has been in the EU. And clients, Portugal, Germany, Italy all 3 were benefiting and absolutely U.K. missing, does disproportionately impact and luxury within retail, but it's not only luxury. So I haven't been involved in supporting a lot of the lobbying activity and providing data on and helping where we can any of the test interest that is in the category, but I haven't dealt directly with any of the government representatives on it. Our view remains, so it's inevitable, changes -- statistics are becoming more and more evident to everybody. And it was always our view that when the actual start will happen, then the differential was in the government's assessment versus retail industry, the first a bit of -- would have been reconciled but hopefully would have seen the facts and the impacts of that. So that's clearly happening. There's some really going to pay attention in the area. We think it's inevitable, but will it take the government help that if that's what transpires November, possibly. But the country really needs growth, as we all know, and here is an area that we're actually doing the opposite manner in pursuing growth. So we think it's inevitable, but it's very difficult to divest when and in the meantime we haven't included any change in legislation and any of our projections, including the LRP.

Our next question today comes from Alison Lygo from Deutsche Numis.

Two quick ones from me. First one, just on inventory and working capital, you've obviously come in ahead of guidance on cash position. So just wondering if you could talk a little bit about where inventory close this year and whether you're comfortable with the kind of competition of inventory that you are holding. And then I suppose if you think about next year, how are we -- how should we be expecting kind of working capital and inventory to trend [counter] to kind of moving more into the luxury jewelry side of the business. And then second, just how you're thinking about some of the fixed cost profile of the business at this stage. Are you happy with kind of the -- you've got the infrastructure and capabilities in place you need and just whether there's anything we should be mindful of in terms of investment going in or cost pressures as we think about next year?

Sure. So yes, we are happy with our inventory position as we close the year, as you can see from our cash position. So obviously, we've been working to adjust -- we bought into more stock in anticipation of a better Christmas and we'll roll through that, and we're in good shape exiting the year. So no issue in that. In terms of working capital for FY '25, as indicated, Pre-Owned as a segment turns a bit slower than new products because you have the refurbishment cycle that you need to go through. So working capital is going to hold pretty much where it is. Yes, I don't think it's going to deteriorate that much year-on-year. So I don't think it's going to be material as a percentage of our sales. If you look at the fixed cost, we have a really good and solid infrastructure in the business that we've proven that we can scale up and down if needed. So really not a big deal in terms of necessary investments. We have done an investment in the U.S. where we've gone into a new corporate office, which is partially in this year, and it's going to be a little bit of cost coming into next year, but nothing material. It's essentially done. So I think, the infrastructure is pretty good actually.

Our next question today comes from Edouard Aubin from Morgan Stanley.

Yes. So just sorry to come back on the guidance, you had a few questions already, but just to clarify things. If I do the math, if I just take 2022 numbers for Roberto Coin, it take 11 months, 20% EBIT margin. Basically, your guidance, if my math is correct, implies that the underlying business should have a post an EBIT margin rought about 8.3 to 8.5. versus your guidance for last year of 8.6 to 8.8. So First of all, is the math more or less correct, number one. Number two, if it is, why again the margin pressure in fiscal '25 versus fiscal '24? In terms of Europe, would it lead to increased margin pressure or lower margin pressure because your start-up costs potentially diminish related to that? And then on the guidance for the legacy business, so to speak, underlying business, medium to long term, how do you see things if margin is going to go down in '25. So that's kind of first and long question. The second question is much shorter. Just to come back on what you said, Brian, I think during Q3, you talked about a bit of weakness in terms of demand in the U.K. and maybe in the U.S. for mid-price kind of brands in the $3,000 to $6,000 type of dollars of price. So are we -- should we understand that demand is now a bit stronger or was a bit stronger in Q4 versus Q3 for this type of product?

So your question on margin, we haven't broken out it by segment. But clearly, as part of our acquisition of Roberto Coin, we're going to revitalize some investment into marketing behind that brand. It's that its going to benefit on a longer-term basis. So as I said, we haven't been that specific. And using '22 numbers, I would be cautious on because obviously, that was the year of restocking, as we pointed out when we announced the transaction. So '23, probably a better base to start from. . And on that basis, we only have 11 months of the business incorporated and we're going to obviously assess our distribution network and work with our partners and so forth that could be, and we planned it conservatively in the sense that, that could be a small number of retailers that view ownership as an issue, which we've seen in other acquisitions or brands like [indiscernible] and so forth. So we've been relatively conservative, but we also putting some resources behind relaunching the brand in the U.S. to guide it's order.

Yes Edouard, Brian. Watching along with the industry overall, we're taking a cautious approach to the year -- conservative approach to the year I think. That hopefully, that comes over strongly what we're doing. And in terms of the net price, I think you've commented recovery in jewelry and some of the mid price products as well, showing signs of more encouraging trends as we get to the full summary here. So I think inevitably, yes, as I get space, the kind of regional market and the U.K. has been whatever was disproportionately impacted by a combination of pricing and [volume] concerns. And of course, that will settle down in the plans of we can't really push pricing, any follow-up. The Swiss Franc situation stabilized as well, so all of their indications are but things will be moving back and it positively or even for that category in the year ahead.

Understood. Sorry, just a small follow-up on fiscal '25 EBIT. In terms of Europe, is it going to be an incremental drag or an incremental positive because start-up losses could go down a bit. So fiscal '24 to fiscal '25 in Europe?

No, Edouard, we've already taken the decision that's been booked in this fiscal year as an exceptional exit cost. And actually, it's going to be accretive going into next year because with the overhead and support structure that Brian alluded to, that business wasn't particularly profitable as that faced some slight losses coming through. So it's going to be positive from a margin perspective. Sales-wise, it's obviously a bit of a decline, about GBP 10 million or so, but it's not something that's material. But the offset against that is the reintroduction of bonuses and [outreach ] their target. So what is sort of the phase whether to...

[Operator Instructions] Our next question comes from Akshay Gupta from HSBC.

Just one follow-up on the pre-owned business. So can you throw some color on what the margin structure is today for the business?

Yes. We've said this business as we grow we expect to have a neutral impact on our profitability. The P&L is a little different and that the gross margin will realize at least where it's been an average, but I understand like to move ahead on it. So when you get to EBIT level, it's pretty much [ a wash]. I think the important thing to recognize was the average selling price that we're selling to you that, which is actually very positive to our average. So the actual profitability by transaction or in terms of space as a positive impact, keeping in that sense. But the percentage is like a discrete a little bit less margin, but bottom line, pretty neutral impact.

That concludes the Q&A session on today's call. I now hand back over to Brian Duffy for closing remarks.

Thanks, Drew, and thanks again, everybody, for joining. And while the reviews continue, people have picked up on, but I think just disguised [indiscernible] of cautious optimism as we get into the year. We have some positive trends. We have fantastic projects to look forward to delivering and hopefully exceeding expectations on well above what we can do [indiscernible] trend that we're enjoying on Pre-Owned. And the mega projects we've got coming up like Rolex and Bond Street like the [Piguet] Manchester and the likes, particularly will be opening in Atlanta, Georgia and a number of a lot of mega projects in the U.S. But we all got an exciting year ahead. It's a great category. We really respect and support the way the industry is responding to, the conditions that we're in. And we think the reset is largely behind us overall. So cautiously optimistic, and I appreciate your interest and support and huge thanks again to our colleagues for the amazing job that we do and it's important in representing our business and our great brand partners. Thank you.

That concludes today's call. You may now disconnect your lines.