OK, which clock-related cliché should I use today? I mean, really, there's a pretty wide range to pick from when it comes to talking about clocks and watches. How about "Movado (NYSE:MOV) keeps cleaning shorts' clocks"? Yeah, that should work.
Second-quarter results for this high-end watchmaker came in ahead of mean analyst expectations (all three of them). Sales were up about 18%, as reported, and up about 10%, if the sales from the Ebel brand are stripped out. Comp-store sales at the company's boutiques were up 2.3%, although this is still a smallish part of the overall business.
The company also continues to make progress on the margin side of the business. Gross margin improved by about 140 basis points, and operating margins were up about 170 points. As a result, operating income grew more than 40% for the quarter.
There were certainly some positive points to this quarter. Ebel sales more than doubled as the company continued to try to rejuvenate this brand, and other brands like ESQ and Tommy Hilfiger also performed well. Coach and Concord brands were less strong, but still positive. With a launch of Hugo Boss coming in the spring of 2006, investors certainly have some reason for optimism on the sales and branding front.
On the downside, though, Movado still has a very hefty cash conversion cycle. By my calculations, the cycle for the second quarter came out at a whopping 422 days -- better than the year-ago level, but still exceptionally high. It's tough, though, to put this in a completely fair context. After all, can you name another publicly traded pure-play watch company for comparison's sake? See what I mean?
Is Tiffany's (NYSE:TIF) recent number of 362 days a fair comparison? Or what about Coach (NYSE:COH) at 129 days? Certainly, it's not fair to compare it to the likes of Wal-Mart (NYSE:WMT) and its 13 days, as luxury retailing definitely moves at a different pace. All the same, with a huge chunk of capital invested in inventory, investors at least need to be aware of these numbers and of the fact that Movado has a lot of operating capital tied up.
With a fairly reasonable valuation and good underlying growth, Movado seems to be in good shape as long as consumers keep shelling out cash for things they don't really need. I'm still tempted to think that Coach or Nordstrom (NYSE:JWN) are better destinations for luxury investment dollars, but Movado is certainly still ticking along.
Live high on the hog, even if just vicariously:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
