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Skeptics have been knocking the makers of designer timepieces for years. Who needs a watch when mobile phones tell time and so much more? What the cynics have failed to grasp is that there's fashionable appeal to wearing a luxury brand around one's wrist.
Fossil and Movado shareholders have benefited from climbing the wall of worry. Both stocks hit fresh highs last month after posting better-than-expected financials results. They also offered up rosy near-term guidance.
Movado's revenue and adjusted earnings climbed 17% and 38%, respectively, in its latest quarter. Things are going so well that it even boosted its quarterly dividend by 60%. Earlier in the month, Fossil delivered top- and bottom-line growth of 11% and 25%, respectively. It boosted its outlook for the entire fiscal year.
Both companies are seeing profitability grow faster than revenue, so clearly the industry isn't suffering from contracting margins. The economy's improving, and designer watches are easier purchases to justify. However, with so many tech giants either putting out Web-tethered smartwatches, or likely to enter the market in the coming months, can the good times keep going at Fossil and Movado?
Samsung and Qualcomm (NASDAQ: QCOM ) became the latest companies to make it official. The world's leading smartphone maker introduced Galaxy Gear yesterday, and Qualcomm unveiled Toq. Both devices aren't cheap at roughly $300, and they also have their shortcomings. Samsung's watch may play nice with dozens of apps, shoot video, and offer hands-free communications, but limited battery life, and an even more limited selection of device compatibility, will keep sales in check. Qualcomm's Toq has a reportedly longer battery life and will work on a broader range of Android devices, but it's missing a few of Samsung's interactive features.
More importantly for Fossil and Movado, neither watch is very stylish. It won't be confused for fashion accessories that just happen to be tech toys. Just as we've seen with the awkward Google Glasses appearance, consumers need to choose functionality over fashion when it comes to wearable computing.
Then again, the market wasn't sure that Apple (NASDAQ: AAPL ) would have a mainstream hit with the iPhone in 2007, and the iPad a few years later. However, as cheaper rivals hit the market, and developers made owning the gadgetry more compelling, they took off at the expense of traditional desktops and laptops. We may be at that point eventually, where designer watches are the new PCs. However, analysts see both companies continue to grow for now. They see Fossil and Movado growing revenue between 9% and 10% next year with profitability growing even faster.
Something has to give here. Will the folks bidding Movado and Fossil shares to new highs in recent weeks win? Will the early adopters make smartwatches an indispensible wearable computing accessory?
Investors in Movado and Fossil may want to keep a close eye on things as the smartwatch revolution bides its time.
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