Watches of Switzerland shares soar, New Domino’s boss is a textbook hire, and Barratt Developments surrounded by gloom

“After a crackerjack session yesterday the FTSE 100 was just about hanging on to its gains on Thursday as the latest US inflation data fed hopes the Federal Reserve is nearing the end of its rate hiking cycle,” says AJ Bell Head of Financial Analysis, Danni Hewson.

“That the Bank of England is perceived to be lagging a long way behind in its battle against inflation is reflected in sterling reaching its highest levels in well over a year against the dollar, and this is not helpful to an index packed full of overseas earners. Their foreign revenues are worth less in relative terms when the pound goes up.

“Later we should get more insight into the inflation picture in the US with producer prices, which tend to be a leading indicator for the trajectory of prices in the rest of the economy.

“UK GDP figures were underwhelming, with a month-on-month decline in May. Elsewhere, evidence of cracks in the wider global economy could be seen in the drop in net fee income at recruiter Hays and a cut to earnings guidance from European chemicals firm BASF. The chemicals and recruitment sectors may not have a huge amount in common but both tend to be highly sensitive to economic trends.

“Could Dr Martens finally be putting its best foot forward? It started life as a public company as if its laces were tied together, but the iconic footwear brand appears to have made some progress in sorting out its problem-child US business. Though, with its shares down three quarters on the price at which it listed in 2021, it still has plenty to prove to shareholders.”

Watches of Switzerland

“Watches of Switzerland has reported the kind of revenue, profit and free cash flow growth that most companies can only dream of. The fact it has achieved stellar growth in a cost-of-living crisis shows that not everyone is short of money.

“The market has previously worried that the luxury goods market might not be as resilient as previously thought.

“Second-hand Rolex prices have weakened, with the decline attributed to people who had previously won big on crypto flooding the market with the watches they had bought to show off their new-found wealth. As crypto prices fell back, many people playing that game reassessed their finances and offloaded some of their assets.

“There have been cracks elsewhere in the luxury goods sector, such as falling diamond prices. Watches of Switzerland even reported a ‘more challenging trading environment’ in May, which naturally pulled extended earlier share price losses as investors pondered if the luxury goods boom had passed its peak.

“Therefore, today’s announcement that everything is still going swimmingly has caught investors by surprise, hence the 11% share price jump. More people are getting on the company’s list to buy watches, average selling prices are moving higher, and expansion plans are going well, putting Watches of Switzerland ahead of its long-range plan.

“Despite the uncertain economic backdrop, the fact Watches of Switzerland hasn’t downgraded its guidance has been taken as a massive positive in the eyes of investors.”

Domino's Pizza

“The new boss of London-listed Domino’s Pizza is the textbook definition of a safe pair of hands. This is perhaps what the company needs given all the drama the UK franchise owner has been through in recent years.

“Spats with franchisees, setbacks with overseas expansion, intense competition and stubborn cost pressures have made the business as dizzy as someone stepping off a Waltzer fairground ride. It’s time to regain focus and that’s why Andrew Rennie has been hired. He’s a Domino’s lifer – having run various geographic territories for the pizza group since 2006.

“He must really love cheese and tomato to want to take the helm at yet another slice of the Domino’s pie. His CV is impeccable – overseeing impressive earnings growth and clearly knowing the brand inside out.

“Some investors might think the business needs fresh thinking and that an outsider might have been a better appointment. Yet Rennie should at least have the recipe for putting the business back on track.”

Barratt Developments

“Housebuilder Barratt Developments may be sticking with its guidance for now but there was little else but gloom in its latest update. Completions are down, people are buying fewer of its homes and the number of first-time buyers has dropped off alarmingly.

“None of this will come as a great shock to the market given mortgage rates have gone through the roof and the state-backed Help to Buy scheme has dropped off.

“For years housebuilders benefited from almost-perfect conditions. Buyers could borrow easily and at extremely low rates, the government provided its own help, and supply and demand dynamics underpinned rising house prices.

“Mounting costs started to become more of an issue for the sector, but for a while it could comfortably absorb these thanks to the robust health of the property market. That is no longer the case and so margins and profitability are under pressure.

“Housebuilder dividends may never have been as ‘safe as houses’ but they now rest on shaky foundations.

“Unlike in previous housing market cycles though, Barratt and its peers did at least fix the roof while the sun was shining, with many sitting on comfortable net cash positions. This should enable them to ride out what is likely to be an exceedingly difficult period.”

These articles are for information purposes only and are not a personal recommendation or advice.