With the economy still limping and consumers not loosening their purse strings readily, the retail sector is going through a bumpy ride. However, retailers catering to the affluent class have managed to perform comparatively better, and the fine- watch segment remains one of the hottest segments in retail.
Watch-retailer Movado Group (NYSE:MOV) has been able to generate strong demand for its fashion luxury items, similar to Michael Kors Holdings (NYSE:KORS), and recently came up with encouraging third-quarter results. Movado competes directly with Fossil (NASDAQ:FOSL) in this retail segment, so we can also take a look at how the two stack up against each other.
Movado's results were quite impressive. Its revenue grew 18.4% year over year to $189.7 million, fueled by double-digit growth in licensed brands and company outlet stores. Innovative product designs at key price points struck a chord with consumers, leading to a 27.5% jump in the revenue from licensed brands. The results were driven by the launch of Scuderia Ferrari watches.
It has been eight months into the roll-out of the Scuderia Ferrari brand globally. The response has been good, with core product offerings available at 2,000 of the 2,300 doors planned for fiscal 2013. Some of the others from the pack are the Coach Tristen and Boyfriend mini product offerings, the Tommy Hilfiger Windsurf and Ladies Tribeca models, the Hugo Boss Aeroliner and Ultra Slim watches, etc.
In addition, the Movado Bold brand also had a new range of products like Bold bangles, Bold ceramic, and Bold with diamonds introduced at different price points. Bold has grown from 400 doors last year to 700 now. Movado plans to add Bold to a couple of hundred doors every year globally. The company did not spare any effort in advertising, which helped in getting consumers to its doors in good numbers.
Fossil: cracking the Asian market
Globally, the Asia Pacific region is expected to account for 31.2% of the global market for luxury jewelry and watches. It is also projected that this region will be the fastest-growing region in the world, with spending growing by $31.9 billion over the five-year period 2012-2017. However, it remains a challenging market for Movado, and the focus has been not to rush into increasing distribution dramatically but to tread a cautious path and avoid the big ups and downs.
Whereas Movado finds the Asian Pacific market challenging and is treading cautiously, Fossil has done well. In its third quarter, Fossil's Asian business posted currency gains of 20% on the back of robust growth in China, Japan, India, and Australia. The company continues to build its distribution network and leverage its existing footprint to grow newer brands, making strong headway in markets like Japan, Australia, and Korea.
Also, in China, revenue grew more than 50% in the quarter, and the company opened its first Fossil flagship store in Hong Kong at Causeway Bay, a high-traffic, important location in Hong Kong. This will be a growth driver in the region going forward.
Fossil makes watches for luxury fashion brands such as Armani, Tory Burch, and Michael Kors, and this has helped in achieving good sales growth. In addition, Fossil has products at different price-points -- low end and high end -- though like Movado, it leans toward high-end customers. Offering products at different price point helps in widening the target customer base.
Fossil reported revenue growth of 18.1% over last year, with earnings increasing by 25% to $1.58 per share. Moreover, new designer launches such as Karl Lagerfeld have gone over well with customers. Fossil plans to launch a new Tory Burch collection next year, which should bring in additional revenue.
Kors signifies strength
High-end luxury-item sales remain resilient even in troubling times, mainly because those retailers have not had to mark down merchandise to allure buyers. There's no better example of this than Michael Kors, which had an amazing run even last year and hit a new 52-week high of $83.91 on Dec. 13.
Kors has been growing from strength to strength ever since its IPO and has a history of estimate-beating quarters, delivering positive earnings surprises in the last eight quarters with an average surprise of 44.9%. This is also a good growth driver for Fossil, as it sells its watches through Kors' stores, and should continue to offer a stiff challenge to Movado.
The luxury-retail segment has continued to do well despite headwinds. Even luxury retailers have made some good moves such as addressing a wide range of price points and expanding product lines. This is why investors should take a closer look at both Movado and Fossil.
Movado has shown good growth, and its new products are attracting customers. On the other hand, Fossil is making its presence felt in the Asian market. Both of these retailers should continue doing well in the future and might turn out to be good investments.
Fool contributor Neeta Seth has no position in any stocks mentioned. The Motley Fool recommends Fossil and Michael Kors Holdings. 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.