June 2025 Update
XPEL, WOSG, SEG, MACF, LOGC
Don’t forget to read the recent Update on TerraVest.
Read the latest Special Report on XPEL based on 54 interviews. XPEL is a great company going through a blip.
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XPEL
Special Report, Notes from the trade show
XPEL reported strong Q1 results on May 6, with EBIT up 21% y/y:
Revenues +15.2%.
US +11.6%, China +459%, Canada -14.9%, EU +9.1%.
PPF +15.2%, window film +28.1%, installation +11.6%, other services -1.6%.
Profitability improved with gross margins of 42.3% and EBIT margins of 10.7%.
The US aftermarket grew 10%, which is particularly pleasing as I estimate SSS have been declining in the aftermarket since late 2023.
The key is how much of the strong Q1 was the result of a pull forwards because of tariffs. Management acknowledged that March and April were strong but say the pull forwards of car purchases does not benefit XPEL much because that buyer is less of a buyer for PPF. I’m skeptical. Dealers like AutoNation and Lithia Motors reported a similar patterns of a strong March and April but expect growth to turn negative in May.
Q2 guidance was for revenues of $117-119mm, or +6.5% to +8.3%. Given the strong growth to come in China this implies management expect the US to about flat/down slightly against a tough comp. Last year XPEL had issues in the US with Audi and Porsche imports pushed back from March into April, so flat/down in Q2 probably translates to underlying growth of about +2%. That’s not bad given the tariff announcement and pull forwards into Q1.
The other impressive aspect of results was the strong profit growth, and I think investors underappreciate how much earnings will grow this year. I’m expecting single digit revenue growth but earnings growth in the teens.
XPEL significantly invested in SG&A over the last 12 months expecting revenue growth to continue and currently has a bloated cost structure. Management’s 2024 bonuses were set based on targeted revenue growth of +15% and EPS ex stock based comp of $2.25. The actual results were +6% and $1.7 respectively.
Despite the 21% EBIT growth in the quarter, sales and marketing was still up 14% y/y and G&A was up 15%. Management reiterated that they expect those costs to come down, which should lead to significant margin expansion. For context, EBIT margins were 16.6% in 2022 and 16.9% in 2023 but only 14.1% in 2024. A return to average would lead to nearly 20% earnings growth even if revenues were flat.
Lastly, XPEL announced a $50mm buyback, or 6.3% of the share count when results were published. This is the first time XPEL has launched a buyback program.
Watches of Switzerland (WOSG.L)
Special Report, Notes from the trade show, Podcast
Watches of Switzerland’s trading update on May 15 was somewhat below my expectations but still ahead of the markets’, with the stock up 5% on the day. The stock has been up significantly on most occasions the company has reported results over the last 12 months, which tells you how little is priced in.
Revenues = £1,652mm, +8% constant currency for the full year and +12% in H2. This was slightly below their guidance of +9% to +12%, which I had expected them to beat.
UK +2%, and +6% in H2 with the Rolex Old Bond St opening exceeded expectations. Given the tough economic conditions in the UK I have been consistently impressed with how the company’s performance has held up.
US +16%, and +19% in H2. The Roberto Coin acquisition likely contributed about 12%, meaning organic growth was +4% for the year and +7% in H2. I think management should have been more transparent on this. US growth was the area of disappointment for me as I expect them to grow at double digit rates on a LFL basis.
No profitability numbers were given, but management say adj EBIT was in line with market expectations, which looks to be a 9.2% margin and in the middle of guidance. This was slightly better than I expected.
Outlook:
Commentary on waitlists is the same as the February trading update, which itself was watered down from last summer: "Registration of Interest lists, remains strong, outstripping supply in both the UK and US markets".
"In the US, following a temporary period of consumer uncertainty in response to the initial tariff announcement, we have seen a return to normalised trading patterns in April."
I do think tariffs are reducing demand, particularly for non-waitlist brands outside the US. Richemont reported results on May 16 where they highlighted double-digit watch growth in the Americas and that Europe was “largely stable”, but admitted the company was now buying back inventory from some retailers (they did not say in which geography, so I would guess in Asia for now).
Richemont’s Founder added:
"You remember that at our AGM, I asked for discipline by the Swiss watch industry. Now we know who are the discipline players are, I can tell you one of them, obviously, Rolex, the other one Patek Philippe, where not everyone has displayed the same discipline in reducing production in terms of their total absorption rate. So you do find -- should I say the EUR 2,000 to 3,000, EUR 5,000, EUR 6,000 range, you find fierce competition. And I would say that's where more of the stresses are."
The industry reacted to US tariffs by increasing watch imports by 149% in April, with the UK also continuing to be healthy with low single-digit growth:
The Wall Street Journal reported that US/Swiss trade discussions are going well and being accelerated. This may be wishful thinking, but I actually wonder if Swiss watches may get particularly favorable treatment. The UK got a 0% tariff