The Hour Glass

[Big Toe]

I dont own a single watch. It has no functional purpose and I dont really enjoy owning or wearing them. But I did a bit of research anyway to understand it a bit more. Prices of watches on the grey market is correcting as we speak. The most popular models have run up several fold in the past 2 years and is unsustainable so a correction is normal. There is still a huge gap between Dealer pricing to Retail price to Grey market price. But gap is narrowing between retail and grey market.

My best guess is the less popular ones will have prices hammered during the correction, while the most popular ones will correct less. As for authorized dealers, in the shorter term they are not affected much but exponential growth that we have witnessed will not repeat. So at best sales will stabalize or start to taper off. In the longer term, it is anyone's guess. More of downside risk than upside surpirse for sure going forward.

[brattzz]

Now that the tide is out and trend is down, isn't it a greatx time to take it private?
THG is doing share-buy back regularly, recently $2.28++

[weijian]

I am not a watch connoisseur but a good read to appreciate where all the fuzz is coming from.

Inside The Manufacture Going Where Few Have Gone Before – Inside All Four Rolex Manufacturing Facilities

After the waterproofness test and self-winding module examination, the completed watches are set into boxes of 10 for a rigorous 24-hour accuracy test. But before the test begins, the watches are photographed – exactly 24 hour later the watches will be photographed again, and the two images laid upon each other. If the images do not align perfectly, the watch will be sent back for further adjustment.

For all those watches that make it through this final stage of testing, final bracelets will be fitted, COSC tags applied, and finally, they will be placed into a completely proprietary Rolex shipping container for distribution to their destination markets.

Yes, well, Rolex has a machine in-house that can filter stones in mass to cull out anything that isn't a real diamond. The machine costs tens of thousands of dollars so I asked how frequently they received a stone from a supplier that wasn't an actual diamond. The answer? About one out of 10 million. They do it anyway, because this is Rolex

https://www.hodinkee.com/articles/inside-rolex

For those who has an hour to spare to listen to a podcast. THG was actually mentioned by the podcaster (the same author of this 2015 article) at around the 45min mark.

And Rolex make watches, not sell watches. Maybe this is why as powerful as the executives and the watchmakers (I will call them watchmakers from now on, no more brand owners) are, the "middleman" like THG will probably continue to strive.

Ben Clymer - Rolex: Timeless Excellence

https://www.joincolossus.com/episodes/12...tab=blocks

[Big Toe]

THG will continue to do ok as long as

1. interest in luxury watches doesnt fade away.
2. relationship between rolex/brand owner and dealers remain stable.
3. supply/ demand dynamics remain stable.

as previously explained there was explosive growth during the pandemic, which is not sustainable.
now it is normalizing. How far and long it will correct, no one knows. Grey market prices of popular watches are still far ahead of retail prices, effect on THG will be mild during the start of this phase.

[weijian]

Pretty boiler plate answers to most of the questions. But I thought there is some new insight from the response I put down below.

RESPONSES TO QUESTIONS SUBMITTED IN ADVANCE OF THE ANNUAL GENERAL MEETING (“AGM”) TO BE HELD ON 29 JULY 2022

Question: How significant is the wealth effect on demand for luxury watches? Is there a bubble in the secondary market for luxury watches?

Answer (partial): For serious watch buyers and specialist watch retailers, we welcome this reversion

https://links.sgx.com/FileOpen/Responses...eID=724371

[BlueKelah]

I always turn to youtube for the latest
Much like BTC, looks like the craze is over..

https://www.youtube.com/watch?v=B3MfQ36VeTA

[Choon]

Pretty boiler plate answers to most of the questions. But I thought there is some new insight from the response I put down below.

RESPONSES TO QUESTIONS SUBMITTED IN ADVANCE OF THE ANNUAL GENERAL MEETING (“AGM”) TO BE HELD ON 29 JULY 2022

Question: How significant is the wealth effect on demand for luxury watches? Is there a bubble in the secondary market for luxury watches?

Answer (partial): For serious watch buyers and specialist watch retailers, we welcome this reversion

https://links.sgx.com/FileOpen/Responses...eID=724371

Answer (partial): For serious watch buyers and specialist watch retailers, we welcome this reversion

I like the simplicity and unambiguity of this sentence and more importantly, its reflection of management's view towards how a sustainable watch business should be run.

I find most of the other answers quite honest and authentic too. For example:

Q: How does the Company ensure that it remains competitive and overcome challenges ahead? 
A: By ensuring that the Board of Directors and members of The Hour Glass team are constantly reviewing their business and the industry through a multi-decade lens.

I would not be surprised if many T-companies would reply with a really motherhood replication of their risk and strategy framework.

What I would like to know more would be how does mgmt perceive fair value for the stock in making share buyback, even if its a broad description. For example, I recall WB used to say he will conduct share buyback for Berkshire at or around book value. It would be interesting to see what metric THG looks at (PE / dividend yield / book value) even if they do not reveal the quantitative levels.

[brattzz]

Agreed with Choon, for the share buyback, how much does Boss Tay valued a fair price for THG?
We see THG buying back at SGD2.40/share, and FMR is selling slowly...

Once the FMR's 6% block is absorbed by THG, figure Boss Tay would have around 80% of THG? enough to next step offer!

[BlueKelah]

Agreed with Choon, for the share buyback, how much does Boss Tay valued a fair price for THG?
We see THG buying back at SGD2.40/share, and FMR is selling slowly...

Once the FMR's 6% block is absorbed by THG, figure Boss Tay would have around 80% of THG? enough to next step offer!

Sounds like perfect timing as the bottom is falling out of the luxury watch market these past few months. From what i been monitoring second hand luxury watch market started crashing around APril this year after a crazy run up. I expect lower earnings for the next half year with the global recession hitting, perfect timing for stock price to plummet and for boss to privatise on the cheap

[weijian]

THG's gross margins were around mid 20s (and only rising to small 30s in the last 2 years of boom). So, a PP watch that retails for 35,000, probably earns THG about 9-10k gross profit. A THG customer who decides to flip on the grey market earns 10x of what THG earns.

Watchmakers hold the upper hand over THG. But the decision whom to sell to, is by THG, so THG holds the upper hand over its customers. The 10x difference in profit is probably a big margin of safety to THG's own margins.

In the last few years, retailers have successfully used the high demand watches to sell their low demand watches. This probably explains the amazing reduction in inventory days at both THG/Cortina, and also the gross margin expansion seen. I suspect both may be the first to be impacted when things change.

But to be honest, all these "analysis" is really just an academic exercise. Before I did my investment some time back, I re-read the last 100pages in VB on THG....there was just "so much noise" on hindsight. For THG, it is really about betting on the jockey, than the horse. While I don't have my own luxury watch but somehow I understand vanity I guess the amount of return on brain damage from THG, is much favorable in my situation.

The Crypto Collapse Has Flooded the Market With Rolex and Patek

The price of a Patek Philippe Nautilus 5711A, which sells for about $35,000 at retail, surged to $240,000 in the first quarter, according to Chrono24. Now the blue-dialed steel sports watch is fetching about $190,000.

https://www.bloomberg.com/news/articles/...-and-patek