May 29, 2008
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.