Is It Time To Get Behind Movado?

Movado Group (NYSE: MOV  ) has all of the appealing factors of its high-market retail brethren, yet with a more compelling valuation and long-term story. The company's namesake timepieces, aside from its also-successful private-label manufacturing, carry one of the industry's strongest brand names and, ironically, is a timeless product. Movado has weathered the extended economic tepidity well because it sells to a largely wealthy demographic that recovered first from the Great Recession and has not experienced the ongoing concern of mainstream consumers. With a great management team and industry tailwinds, it may be time to get behind Movado.

Like clockwork
While specialty retailers across the board have a hard time maintaining year-over-year sales figures, Movado has enjoyed its industry's resilience, and then some. The most recent quarter showed an adjusted 9% sales growth, improved gross margin, a 43.5% leap in operating income, and a roughly 14.3% gain in adjusted net income to $12 million, or $0.46 per share.  

This is the 16th consecutive quarter in which Movado has posted positive gains, thanks to a mix of organic sales growth and expanding margins -- the most ideal combination for investors. Management is keeping a close eye on what product lines are performing best in retail watch cases, shuffling around the lineups to create an optimized product mix.

For the full year, Movado saw very healthy double-digit gains in sales, operating income, adjusted EBITDA, and net income. In the long run, management has targeted 10% annualized sales growth and 20% annualized operating income growth.

Fiscal 2015 looks to bring continued gains, with guidance pegged at 10.7% sales growth and 19% operating income growth.

Big gains behind, more ahead
Over five years, riding off the lows of the Great Recession, Movado has booked nearly 450% in stock price appreciation. That may be enough to scare off price-conscious investors, but this business still trades at a discount to some of its high-end retailing peers.

The consistently strong-performing company trades at 15.6 times earnings. Meanwhile, Michael Kors trades at 24 times expected forward earnings. Coach, which struggled in recent periods and not booked near the sales or earnings growth that Movado collected, represents the low end of expensive fashion retailers at roughly 14.8 times forward earnings.  

One could argue that Movado is a steadier business than either Michael Kors or Coach. All three have great brand power, but Coach and Kors both have a much more seasonal element to their products. A few poor merchandising decisions could derail either business, and its stock, quickly. Movado, for the most part, sells a product that certainly requires timely updates, but is really an iconic piece that easily stands the test of time (tired of time puns, yet?). Movado's products are not nearly as susceptible as its peers' lineups to short-term trends and changes in consumer preference. The face of a Movado, numberless and often with a single stone placed delicately on its face, is a design that appeals season after season, year after year.

 Source: Movado.com

Retail is an extremely difficult line of business, but this company is relatively predictable and stable. Significant downturns in the economy, as evidenced by the Great Recession, can take a business like Movado down quickly, but they can also be quick to recover. In the long run, there is little not to like about Movado's prospects. 

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