Why Movado Has Lagged Its Luxury Peers

On Wednesday, Movado (MOV 0.38%) will release its latest quarterly results. The stock has hit some bumps in the road lately, raising questions about whether it can successfully compete with its luxury-retail peers.

Overall, the luxury space has done relatively well lately, with the upper end of the income scale holding up better than broader-based retailers relying on a mainstream customer base for the bulk of their revenue. Movado has made some interesting strategic moves, but investors haven't been certain about its long-term success lately. Let's take an early look at what's been happening with Movado over the past quarter and what we're likely to see in its quarterly report.

Stats on Movado

Source: Yahoo! Finance.

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Analysts have reduced their views on Movado's earnings substantially in the past few months, reducing their estimates for the April quarter by $0.06 per share. However, they've been less nervous about its longer-term prospects, cutting their full-year estimates by only half that amount. Nevertheless, the stock hasn't done too well, falling 5% since late February.

Movado has put in place a number of lucrative partnerships, going beyond selling its own line of luxury watches by creating watch lines for other luxury retailers. By latching onto the success of fellow luxury retailers Coach (TPR -1.60%) and the Juicy Couture division of Fifth & Pacific (KATE), Movado ensures that it's able to get customers from multiple sources targeting different demographics.

But competition in the watch industry has gotten incredibly fierce. Archrival Fossil (FOSL -2.36%) has pushed ahead with partnership and expansion plans of its own, with its acquisition of Skagen last year helping to push sales higher. Earlier this month, Fossil posted its own strong earnings report, with a 24% jump in net income coming from a better-than-15% gain in revenue. Although direct sales through its own stores brought in the best margins, Fossil's partnership with Michael Kors (CPRI -1.67%) and other third-party sales also led to substantial growth.

The big issue for Movado this quarter is whether its near-term results turn out as badly as it projected back in March, when it gave negative guidance along with its January quarter results. Yet despite taking a charge related to aligning its partnership with Coach to reflect Coach's strategic shift, Movado expects long-term sales growth in the 10% range throughout the next several years.

In Movado's report, look for signs of whether the retailer is falling behind Fossil in the watch space. In the fashion world, falling out of favor is always a troubling sign, but with so much promise, Movado needs to post the same strong results that Fossil did in order to reassure investors of its long-term success.

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