Upscale retailer Watches of Switzerland said it is “encouraged” by a review of VAT-free shopping as sales remain under pressure in tough trading conditions. 

It reported a slip in sales over the third quarter, particularly in the UK where the end of VAT-free shopping has hit tourist spending.

The retailer posted group sales of £397m in the third quarter, down from £407m in the comparable period and a 1% decline at constant currency rates. In the year to date, group revenue of £1.16bn was ahead 1% at constant currency rates.

Watches of Switzerland, which warned on profits last month, expects the trading conditions experienced in the third quarter in the UK and US to continue for the rest of the fiscal year. 

Third-quarter US revenue of £175m was up 8% at constant currency but in the UK and Europe, it fell 7% to £222m.  

The retailer said: “Challenging macroeconomic conditions in the UK impacted consumer spending in the luxury retail sector, impacting luxury watches and particularly non-branded jewellery where we saw unusually high levels of promotional activity”.

It observed that discretionary spending went to other categories such as fashion, beauty, hospitality and travel over the period.

Watches of Switzerland left its profit guidance unchanged and said: “We are encouraged by the UK Office for Budget Responsibility’s review of VAT-free shopping for tourists. We have not included its reintroduction into our guidance.”