Can Movado Group Restart the Luxury Retail Growth Engine?

Movado Group has grown impressively over the long run, but can shares get out of their recent funk?

Aug 25, 2014 at 2:35PM

Mov
Source: Movado Group.

On Tuesday, Movado Group (NYSE:MOV) will announce its financial results for its fiscal second quarter, and investors expect continued solid earnings growth from the luxury watch maker. Yet, Movado has suffered from the same trends that have held back most luxury retailers this year after an incredibly strong 2013, and shareholders want to see whether the company can sustain its growth rates, even as some expect the fundamentals of the industry to start topping out.

Movado poses a double threat to its competitors in the watchmaking industry. Its own name brand sports impressive market share in the U.S. luxury watch segment, topping its rivals in the $500 to $1,500 price point range. Yet, Movado also has lucrative licensing deals with other major brands, including Tommy Hilfiger, Coach, and Hugo Boss. Nevertheless, potential competition not only from existing luxury watchmakers, but also from potential smartwatch offerings from tech titans, could hurt Movado down the road. Let's take an early look at what's been happening with Movado during the past quarter and what we're likely to see in its report.

Stats on Movado Group

Analyst EPS Estimate

$0.54

Change From Year-Ago EPS

23%

Revenue Estimate

$152.99 million

Change From Year-Ago Revenue

10.6%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How Movado set the stage for growth
During the past few months, investors have gotten more upbeat about Movado's earnings prospects, lifting long-term estimates. The stock has also rebounded impressively, gaining almost 20% since late May, and regaining most of its lost ground from earlier in the year.

Mov
Source: Movado Group.

As Fool analyst Seth Jayson discussed in detail back in May, Movado's fiscal first-quarter report was somewhat disappointing for investors, but was nevertheless consistent with its long-term track record. Even though Movado didn't bring in as much revenue as investors had hoped to see, growth of nearly 10% from the year-ago quarter still showed the company's overall upward trajectory. Gains in licensed-brand sales led the way with gains of 19%, and given some of the declines that other retailers saw due to bad winter weather, Movado held up pretty well by comparison. Yet, year-over-year earnings-per-share declines worried many shareholders, with margins eroding somewhat from past levels.

Overall, though, Movado still projects that it will meet its initial guidance for the full fiscal year. In order to achieve that goal, Movado has made shifts to its product mix at many of its distribution channels. Movado believes that by doing so, it can match up its offerings with local customer demand, and thereby boost margins back up to previous levels.

What has many investors concerned, though, are expectations that smartwatches could lead to a shift away from luxury watches. As hype about a potential iWatch from Apple (NASDAQ:AAPL) continues to swirl, some luxury shoppers will jump at the chance to have a functional and innovative watch on their wrists. Yet, with analysts expecting an iWatch to cost somewhere in the neighborhood of $300, Movado's key price demographic would likely be unaffected, and renewed attention to wrist-borne accessories could actually drive further sales of luxury watches after an iWatch launch.

In the Movado earnings report, be sure to look at how the company's own name-brand products perform compared to its licensed lines of watches. More broadly, with shares of luxury retailers across the industry having taken a pause, any strength in Movado's report could prove to be a catalyst not just for its stock, but for the industry as a whole.

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Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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