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Movado Takes Time

Crafting a fine timepiece takes significant time and effort. Metals such as stainless steel, gold, and platinum are all part of the process, as is an understanding of quartz-analog technology. In a similar vein, watch maker and distributor Movado (NYSE: MOV  ) is in the midst of crafting an updated corporate strategy and cutting back on the number of retailers that sell its watches.

Judging by the first-quarter results released this morning, Movado's strategy is moving forward with mixed results. The targeted 35% reduction in wholesale distribution requires some adjustment to remove what are now considered "discontinued product sales," leaving core sales (excluding the excessively discounted items) up a respectable 2.7% in an admittedly tough environment for consumer goods. But core sales fell 2.6% if you exclude the benefits of a weaker dollar on Movado's international sales, which make up about half of the wholesale business.

The profit picture was a bit clearer, as management is mindful that a more challenging retail climate warrants careful cost controls. As a result, gross profit increased to 64.2% of sales. And while reported earnings fell from $0.09 to $0.05, they beat analyst expectations by a penny. Better yet, Movado stuck to its full-year earnings forecast of $1.65 to $1.72 and expects sales of $555 million to $565 million.

It's still too early to tell if Movado's aspirations to morph into a more exclusive watch seller will boost sales and earnings growth. If all goes well, investors will come to dig Movado as much as they have rival Fossil's (Nasdaq: FOSL  ) makeover. I think Movado is on the right track, though. It already has a reputation for steady free cash flow generation from selling its company-owned Concord, Ebel, and namesake brands, as well as those it licenses from the likes of Coach (NYSE: COH  ) , Estee Lauder's (NYSE: EL  ) Tommy Hilfiger, and Liz Claiborne's (NYSE: LIZ  ) Juicy Couture.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

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10/26/2016 3:40 PM
MOV $21.85 Down +0.00 +0.00%
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