Fellow Fool writers have been waiting patiently for a more compelling valuation before leaping wholeheartedly into watchmaker Movado
Let's look first at the second-quarter earnings released last Thursday. Movado announced that sales advanced 9.8%, to $126.6 million for the quarter, while same-store sales at its boutiques grew an impressive 9.3%. Net income grew by an even more impressive 30.3%, and management expects fiscal 2007 diluted earnings of $1.53 to $1.58.
Movado is a designer, manufacturer, and distributor of watches. It owns the rights to its namesake brand, as well as to Concord and recently acquired luxury brand Ebel. Licensed brands include ESQ, Coach
Movado's 10-K filing breaks down the watch market into five price categories, starting with the more affordable mass-market watches selling for less than $55 and moving to the exclusive category of $10,000 and up. The company shows a diversified approach to hitting a number of market segments by selling watches targeted to four of those five categories. (It doesn't sell in the mass-market level.)
Movado owns 27 Movado Boutique stores, located in more upscale malls, to showcase its brands. It also runs 28 outlet stores to move discontinued and excess merchandise. In addition, Movado sells watches to other retailers, including jewelers such as Zale
Looking back, we can see that Movado has reported average annual revenue growth of 8.6% over the past five years, while net income has advanced by 8.2% over that time frame. Return on capital also averages nearly 8%. I would characterize those numbers as solid but not spectacular. Operating cash flow has been slightly above reported net income, while capital expenditures have eaten up more than half of that for the past two years. Growth could be in the low single digits going forward, according to one analyst projecting a long-term earnings growth rate.
Overall, Movado looks to be a safer bet than competitor Fossil
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