Retailers catering to the affluent class of society have been performing well. So, in this piece, we will examine the underlying business of watch retailer Movado Group (MOV -1.17%). We will also compare it to peers such as Fossil (FOSL -3.42%) and Michael Kors Holdings (CPRI -3.04%) to see how these luxury players catering to the affluent class may perform in the long run.
Movado's magic
Watch retailer Movado declared its fiscal fourth-quarter results last month. The company continued its streak of strong performance. This certainly impressed Mr. Market; the stock was a big mover, gaining a whopping 10% after the results were announced. Movado has outperformed the market by quite a distance as shown in the chart below:
Movado is capitalizing on the unique aesthetics of its brands along with enticing product offerings at different price points. This has allowed the company to deliver exceptional sales and profit growth for 16 straight quarters without missing a beat.
For example, in the four-year period since it initiated the above-mentioned strategy, it has delivered compounded annual sales growth of 14.6% and achieved 13% operating profit as a percent of sales. It has also decreased operating expenses as a percent of sales to 40% from the historical levels that were north of 50%. As a result, it is not surprising that Movado shares have tripled from $15 in late 2011 to $45.70 at the time of this writing.
Looking ahead
One of Movado's key growth drivers is the launch of the Scuderia Ferrari brand globally, with product offerings in the price range of $125 to $695. Movado opened approximately 2,300 stores in 2013, and this year it plans to open another 1,000 stores. In addition, Movado has repositioned watches from Coach and launched more than 150 new styles. This helped Movado expand into more than 500 incremental stores globally.
Going forward, from the second quarter of fiscal 2015, some of the ESQ retail space will be reallocated to fuel incremental sales of the Movado brand watch family. As a result, ESQ brand sales will experience a sizable decline, but this will be more than offset by the growth of the more productive Movado brand watch family. Such moves are expected to push operating income to 19% of sales. Movado also expects diluted earnings per share to increase from $2.04 last year to $2.44 in fiscal 2015.
Fossil and Kors are on a solid run
Movado wasn't the only one to deliver a strong performance in its last-reported quarter. Fossil also turned in strong results with top-line growth of 14% year over year to $3.3 billion. As a result of a reduced share count, robust top-line growth, and an operating margin of 8%, Fossil posted a 17% increase in full-year earnings per share to $6.56.
Asia has been a good hunting ground for Fossil, with the brand posting double-digit gains. Asia Pacific will be one of the key growth drivers for the company, as it is projected to be the home for approximately 31.2% of the global market for luxury jewelry and watches. Spending on jewelry and luxury watches in this region is expected to grow by a whopping $31.9 billion over the five-year period from 2012 to 2017. As compared to Movado, Fossil's performance in Asia has been spectacular.
Asia Pacific is also one of the focus markets for Michael Kors. Kors has been on a spectacular run ever since it went public. Its stock has outperformed peers and the market by a huge margin and is also a clear leader in the last year as shown in the chart above. Kors is intent on continuing this impressive run, and it recently opened a 5,800 square foot flagship store in China.
Kors expects this to become the premier destination for the brand in China. Longer term, Kors expects to operate around 200 stores in China alone. According to Bain & Company, the Chinese account for $1 in every $4 spent globally on luxury goods. So, Kors is looking at this as one of the growth drivers going forward.
Bottom line
Luxury retail has been performing well, and these three companies have outperformed the market despite macroeconomic concerns. Looking ahead, Movado, Fossil, and Kors should be able to continue their outperformance as they open stores in high-growth regions and introduce more products, making all three worthy investment options.
