Thanks again Matt for the write up on WOSG. I’ve spent the last 3-4 weeks doing a deep dive into them, and the value proposition at their current valuation looks very attractive. The main reason for the current price as you mentioned does seem to be the market seeing a risk in Rolex taking away product from WOSG altogether (even if 100% did go overnight, the stock would likely still be BE over the next few years).
The main focus therefore was on evidence for and against Rolex doing this. The only evidence for Rolex wanting to do this is their purchase of Bucherer, which if the current owner had someone in the family to succeed him, wouldn’t even be a point. Rolex didn’t go out to buy a dealer as part of a new plan, it seems likely to be (nearly) entirely motivated by just keeping Bucherer out of the hands of a luxury fashion rival.
However, for arguments that Rolex and WOSG will keep their strong partnership, there are many:
WOSG is the largest Rolex AD in the UK and the U.S
They have a 100 year partnership selling Rolex, which itself respects longevity and generational change.
As stated in their YE24 report, WOSG have their strongest ever lineup of new showrooms including Rolex, out to YE26. Each showroom is individually approved by Rolex. Why would they be approving a record level of new showrooms if their plan was to suddenly take away WOSG as an authorized dealer.
WOSG’s long term plan going to YE28 was also fully discussed with Rolex, after the Bucherer announcement. Rolex is strongly incentivised to provide WOSG with more supply, so they can in turn invest in better showrooms in more prestigious locations, a win-win. Rolex also works with WOSG on their service and marketing, so it’s already co-working with them on all aspects of retail.
Rolex is building new manufacturing capacity, which a) takes capital, b) the new supply needs new showrooms to sell in, making it even less likely for Rolex to want build out a whole retail operation to replace their current AD’s
Given all these points, my conclusion is currently that there is below a 2% chance of Rolex cutting WOSG out completely. My conservative Base Case for WOSG is for them to hit just 2/3rds of their Long Term Plan (£1bill rev increase vs their plan for at least an additional £1.5bill in revenue vs FY23), flat Adj EBIT margins (vs their goal of 50bp to 150bp expansion and a conservative P/E of 15x by YE28 (April 2028) (given that the UK and U.S luxury watch markets are likely to continue growing at >5% a year, even without WOGS taking more share (not even accounting for Certified Pre-Owned and luxury jewelry which is likely faster)
= £10.80 per share, 29% IRR for nearly 4 years.
Bull case growing 17% CAGR from YE23, P/E 20 gets a April 2028 share price of £23.00
(WOSG rev growth in the 8 years to YE23 was 19.8% CAGR)
(Taking the view that the luxury watch market in UK and U.S will continue growing similar to as it has, second hand luxury watch market will bottom out in next 1-2 years. Rolex has raised prices slightly above inflation (on average over multi-year period) for the last 70 years+)
I agree that the partnership between WOSG and Rolex seems robust, especially given their longstanding relationship and the strategic investments in new showrooms. The factors you've outlined do suggest that the risk of Rolex (https://diamondsourcenyc.com/collections/rolex-watches) cutting ties entirely is minimal.
Your conservative and bull case scenarios provide a solid framework for understanding the potential upside, and it's promising to see a 29% IRR in the base case, with even more exciting prospects in the bull case. The continued growth in the luxury watch market and Rolex's historical price adjustments certainly support a positive outlook.
Great write up. Going to deep dive into WOSG for sure to see if I may invest.
One small point, I found on their Long Term Plan about operating leverage they wrote "+50 to 150bps margin improvement by the end of the Plan", which suggests this margin expansion is by 2028, instead of per a year to 2028?
10/10 write up! I’ve done a lot of research on this one and agree with your points. Fantastic job. Only meaningful pushback is that the company doesn’t run negative WC overall. They may for high demand watch categories (Rolex), but don’t on a consolidated basis due to jewelry (I think). Inventories and de minimis A/R is > A/P so working capital is positive and will be a use of cash as they grow.
Would have also preferred they prioritized additional US Rolex M&A over Roberto Coin as you pointed out, but that being said it doesn’t look like a bad deal overall.
Thanks Jon! I agree, negative working capital only applies to the "supply constrained" brands like Rolex, PP, and AG. As WOSG expands into jewelry WC will become more substantial.
Enjoyed this, thanks. Regarding waitlists, found this video on YT doing some DD that gives an interesting perspective.
https://youtu.be/YbQTCrW2L_4?si=lOYpHv0TOchyPj8m
Thanks!
Thanks again Matt for the write up on WOSG. I’ve spent the last 3-4 weeks doing a deep dive into them, and the value proposition at their current valuation looks very attractive. The main reason for the current price as you mentioned does seem to be the market seeing a risk in Rolex taking away product from WOSG altogether (even if 100% did go overnight, the stock would likely still be BE over the next few years).
The main focus therefore was on evidence for and against Rolex doing this. The only evidence for Rolex wanting to do this is their purchase of Bucherer, which if the current owner had someone in the family to succeed him, wouldn’t even be a point. Rolex didn’t go out to buy a dealer as part of a new plan, it seems likely to be (nearly) entirely motivated by just keeping Bucherer out of the hands of a luxury fashion rival.
However, for arguments that Rolex and WOSG will keep their strong partnership, there are many:
WOSG is the largest Rolex AD in the UK and the U.S
They have a 100 year partnership selling Rolex, which itself respects longevity and generational change.
As stated in their YE24 report, WOSG have their strongest ever lineup of new showrooms including Rolex, out to YE26. Each showroom is individually approved by Rolex. Why would they be approving a record level of new showrooms if their plan was to suddenly take away WOSG as an authorized dealer.
WOSG’s long term plan going to YE28 was also fully discussed with Rolex, after the Bucherer announcement. Rolex is strongly incentivised to provide WOSG with more supply, so they can in turn invest in better showrooms in more prestigious locations, a win-win. Rolex also works with WOSG on their service and marketing, so it’s already co-working with them on all aspects of retail.
Rolex is building new manufacturing capacity, which a) takes capital, b) the new supply needs new showrooms to sell in, making it even less likely for Rolex to want build out a whole retail operation to replace their current AD’s
Given all these points, my conclusion is currently that there is below a 2% chance of Rolex cutting WOSG out completely. My conservative Base Case for WOSG is for them to hit just 2/3rds of their Long Term Plan (£1bill rev increase vs their plan for at least an additional £1.5bill in revenue vs FY23), flat Adj EBIT margins (vs their goal of 50bp to 150bp expansion and a conservative P/E of 15x by YE28 (April 2028) (given that the UK and U.S luxury watch markets are likely to continue growing at >5% a year, even without WOGS taking more share (not even accounting for Certified Pre-Owned and luxury jewelry which is likely faster)
= £10.80 per share, 29% IRR for nearly 4 years.
Bull case growing 17% CAGR from YE23, P/E 20 gets a April 2028 share price of £23.00
(WOSG rev growth in the 8 years to YE23 was 19.8% CAGR)
(Taking the view that the luxury watch market in UK and U.S will continue growing similar to as it has, second hand luxury watch market will bottom out in next 1-2 years. Rolex has raised prices slightly above inflation (on average over multi-year period) for the last 70 years+)
Best regards
Jack
If it's a home-run investment, I owe you a beer
I agree that the partnership between WOSG and Rolex seems robust, especially given their longstanding relationship and the strategic investments in new showrooms. The factors you've outlined do suggest that the risk of Rolex (https://diamondsourcenyc.com/collections/rolex-watches) cutting ties entirely is minimal.
Your conservative and bull case scenarios provide a solid framework for understanding the potential upside, and it's promising to see a 29% IRR in the base case, with even more exciting prospects in the bull case. The continued growth in the luxury watch market and Rolex's historical price adjustments certainly support a positive outlook.
Thanks Jack, I tend to agree with your analysis. It will be interesting to see how this one plays out. Thanks for reading!
Indeed. Started a position today in my portflio's
As a value investor and watch enthusiast, this was a very enjoyable read. Great writeup guys.
Thanks Larson!
Great write up. Going to deep dive into WOSG for sure to see if I may invest.
One small point, I found on their Long Term Plan about operating leverage they wrote "+50 to 150bps margin improvement by the end of the Plan", which suggests this margin expansion is by 2028, instead of per a year to 2028?
Best
Jack
Thanks Jack!
Very clear investment case. Well researched.
Thanks Edward!
10/10 write up! I’ve done a lot of research on this one and agree with your points. Fantastic job. Only meaningful pushback is that the company doesn’t run negative WC overall. They may for high demand watch categories (Rolex), but don’t on a consolidated basis due to jewelry (I think). Inventories and de minimis A/R is > A/P so working capital is positive and will be a use of cash as they grow.
Would have also preferred they prioritized additional US Rolex M&A over Roberto Coin as you pointed out, but that being said it doesn’t look like a bad deal overall.
Thanks Jon! I agree, negative working capital only applies to the "supply constrained" brands like Rolex, PP, and AG. As WOSG expands into jewelry WC will become more substantial.
10/10 summary - thanks for sharing!
Thanks Marc!
Yes, fantastic writeup!!
Thanks Frederik!
Really good write-up
Thanks!
Great write up.
Thanks Tom!