Shares of Movado
Recent trading doesn't pique my interest, though. Even a Fed chairman's sneeze can sometimes trigger a sell-off. Instead, I prefer to concentrate on the company's actual business operations, which should give us a more accurate read on Movado's present performance and future prospects.
In analyzing Movado's latest quarterly earnings conference call, we'll focus on its three major business lines:
- Luxury watches
- Retail boutiques
- Licensed watches
Luxury has its price
Movado serves the luxury watch market in two ways. Its Movado and ESQ Swiss brands fill its "accessible luxury" category, where customers can expect to pay anywhere from $300 to $2,000 for a watch. Concord, which it acquired in the 1970s, and Ebel, purchased in March 2004, populate its upscale category. These high-end luxury watches can start for as little as $1,000, and go all the way upward toward $100,000.
According to CEO Efraim Grinberg, Ebel enjoyed strong double-digit growth in fiscal 2007, thanks largely to a new series of men's watches (the 1911 BTR Collection) powered by mechanical movement technology. Historically, Ebel was known as a women's brand, but the 1911 BTR Collection, as well as the 1911 Discovery Collection (to be introduced this month at the Basel World international watch and jewelry fair) are expected to make the brand "more balanced" in catering to both genders.
The company will also introduce its new vision for Concord at Basel. Fiscal 2008 will be a transition year for the brand, as Concord turns to a more "bold," "aggressive," and "daring" look. The new look will come with a new price tag, too. In the question-and-answer session of the call, we learned that entry prices will likely move from the current $1,000 to around $5,000, then move as high as $20,000 for more limited pieces. Look for Movado to then increase its price points to fill Concord's old levels.
The biggest news from Movado is that fiscal 2008 will include a new advertising campaign for its sports watches, featuring superstars Tom Brady and Derek Jeter. Grinberg also indicated that the Movado brand is looking for greater exposure in China's emerging market.
Overall, Movado, ESQ, and Ebel will carry the load in the luxury segment in fiscal 2008 as the company repositions its Concord brand. Once all four brands are firing on all cylinders, investors should see a more diversified product offering, as well as a pricier one. If the company can maintain healthy sales growth, its higher price points should ultimately translate into significant profit increases in fiscal 2009.
Retail needs repair
The company's strategy includes using its Movado boutiques to generate exposure for its high-end brands -- but those stores haven't met expectations. With roughly 30 retail units in operation, Movado could enjoy healthy growth solely by rolling out more stores, provided it can get comps expanding again.
Movado plans to employ more coordinated marketing initiative in the second half of the year to highlight "synergies between Movado watches and jewelry." The company is also streamlining operations, using a "flatter organizational structure" to increase efficiency and be more responsive to customers. Finally, Movado will close two underperforming units, one in Chicago and the other in SoHo, then open two new stores in California.
By year's end, the company expects to have 31 Movado boutiques in operation. However, no timeline was provided for retail profitability; expect a further drain on profits through fiscal 2008. Fortunately, the strength of Movado's other business lines, and its continued leveraging of SG&A expenses, should actually maintain a stable gross profit margin of 62% to 63% in fiscal 2008. Operating margin is actually projected to improve to 11.5%, up from 10%.
Licensing matters more
Movado manufactures several licensed brands, including Tommy Hilfiger
Expect Coach to start pursuing a younger audience with "bold colors and designs." Coach also plans to tackle the Japanese market with a custom-tailored line of watches.
HUGO Boss's sales are strong from the U.S. to Europe to Asia, but Germany will be the its greatest point of emphasis this fiscal year. Additionally, the company plans to unveil a Boss Orange series featuring "more urban and sportier designs." Finally, the company is set to unveil its first series of Lacoste watches this month at Basel.
Fiscal 2009 should be a banner year
When one analyst inquired about Movado's expansion opportunities, Grinberg offered a telling response. Movado's licensed Juicy Couture and HUGO Boss brands just hit the market this past year, and Grinberg expects to see "accelerated growth opportunities" for both over the next several years. Lacoste is just now hitting the market, so it shouldn't reach its full sales potential for at least another year. Meanwhile, Grinberg expects Concord to return to sales growth next year.
In the meantime, he anticipates continued solid performance from Ebel, Movado, and ESQ. If the company can get its retail operations running smoothly over the next year, fiscal 2009 might be time for Movado to flex its full corporate strength.
Given these findings, I'd consider any weakness in the company's stock this year as an opportunity to look closer. Movado's been a solid long-term performer, and that's not likely to change in fiscal 2009.