Investing.com -- Watches Of Switzerland Group (LON: WOSG ) was downgraded to “sector perform” from “outperform” by RBC Capital Markets, citing softer demand expectations and increasing challenges to its long-term revenue targets, in a note dated Friday.

The brokerage also lowered its 12-month price target to 375 pence from 640 pence. RBC said it expects weakening U.S. market conditions to weigh on the company’s fiscal 2026 performance.

The U.S. accounts for approximately 45% of Watches of Switzerland’s revenue, and the company’s non-Rolex portfolio, which also makes up around 45%, remains especially exposed to mid-tier pricing pressures.

RBC forecasts a 5% decline in value and a 7% drop in volume for Swiss watch exports in 2025.

The U.S., a growth driver in 2024, is expected to moderate due to weakening consumer confidence, negative wealth effects and uncertainty around U.S. tariff policy.

For fiscal 2026, RBC estimates group revenue of £1.72 billion, with flat EBIT margins of 8.7%. Both figures fall below consensus by 6% and 13%, respectively.

The brokerage expects management to either withdraw guidance altogether or offer a wider and more cautious revenue range of £1.65 billion to £1.75 billion, which would likely be received with caution.

RBC also raised doubts about Watches of Switzerland’s ability to meet its long-range goal of reaching £3 billion in revenue and expanding EBIT margins by 50 to 150 basis points by fiscal 2028. The bank noted that market expectations are already well below those targets.

The analysts cut its fiscal 2026 revenue and EBIT estimates by 6% and 12%, respectively, citing anticipated demand softness in both the U.S. and U.K.

RBC forecasts adjusted earnings per share of 44.66 pence, which is 5% below its previous projection.

While new Rolex allocations in stores such as Old Bond Street, Plano and Jacksonville are expected to support sales, they are unlikely to fully offset macro-related pressures.

Valuation metrics reflect investor caution. Watches of Switzerland trades at 7.5 times forward earnings, much below its historical average and at a wide discount to the broader luxury sector. RBC views the risk-reward profile as neutral, with limited scope for earnings upgrades in the near term.