Watchmaker and boutique operator Movado Group (NYSE:MOV) reported a 28% quarterly increase in overall second-quarter sales and a 12% increase in same-store sales at its Movado Boutiques. That growth -- relative to the second quarter last year -- boosted net income an impressive 22%. That beat analyst estimates and prompted the company to raise sales and earnings guidance slightly. Is it time to watch this stock?

The company's net income would have ticked higher were it not for the $47.3 million cash acquisition in March of Swiss luxury watchmaker Ebel (with watches in the $1,500 to $10,000 price range). The revitalization of Ebel, including the timely hiring of supermodel Claudia Schiffer to give the product a face, swept $1.3 million out of profits.

The purchase of Ebel, Movado's first acquisition since 1983, cost slightly more than the company's free cash flow for last year. Although Ebel will depress earnings this fiscal year, it will add to them starting next year.

Ebel's strategic importance is not just about its brand alone. Last year, only 14% of Movado's sales were outside the U.S. The company's goal has been to expand into Germany, the U.K., France, and Japan. Ebel gives the company a strong international calling card to facilitate the introduction of its other brands.

Those looking for problems will notice that the recent 12% boutique same-store sales growth is less than the 18% gain in the first quarter. Since the company's highest margins come from boutiques, they -- and their growth -- are important. But when you compare results with Tiffany & Co. (NYSE:TIF), where same-store sales increased just 7%, earnings declined, and positive cash flow has yet to materialize this year, Movado, with its positive cash flow, looks downright luxurious.

Also at luxury levels are Movado's 59% gross margins (a tad better than Tiffany's 57%). Although there is twice as much debt as cash, the company's strong cash flow makes this of little concern to me.

You will also see $3,500 Ebel watches at Wal-Mart's (NYSE:WMT) Sam's Club and $2,000 Concord watches at Motley Fool Stock Advisor recommendation Costco (NASDAQ:COST). With the big names in discounting now offering upscale goods, Movado is gaining additional depth in its U.S. market as well.

Selling at 15 times next fiscal year's estimated earnings, Movado is value-priced and a timely preholiday consideration worth watching.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned and, unfortunately, does not own any Movado watches.

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