Popular watch company Movado Group (MOV) reported earnings Thursday. The first quarter earnings were positive across all fronts and significantly beat those posted in last year's first quarter. The earnings and future growth initiatives could send shares to a new fifty two week high.
Net sales for the first quarter increased 15% to $103.7 million. The increase was led by growth in licensed brands and the more affordable brands like BOLD and ESQ. Gross profit for the quarter was $59.0 million, which was an increase of 57% from last year's first quarter. Operating income was reported as $8.5 million, versus last year's $1.6 million. Earnings per share for the first quarter were $0.26. The earnings significantly beat last year's $0.02 per share in the first quarter.
The watchmaker sells its watches under nine brands. Four of the brands are owned by Movado Group, while the remaining five are licensed from other companies.
· Movado is the flagship watch brand in the portfolio. The watches began in 1881 and currently sell for $500-$2995. The brand also has a new line called BOLD, which has watches that retail for $295.
· Concord was founded in 1908. The brand was acquired by Movado in the 1970s and sells watches in the higher end range of the upper thousands.
· Ebel, founded in 1911, sells watches in the $1700 retail range. The brand was acquired in 2004 by the company.
· ESQ is a brand under the Movado line. The brand was launched in 1992 and has watches that retail for $295-$495 today.
· Movado licenses the Coach (COH) brand from the popular handbag maker. The company created a watch in 1998 to sell under the Coach brand.
· Hugo Boss watches are sold by Movado Group. The watches retail for $195-$695.
· The Juicy Couture brand is licensed from newly named Fifth and Pacific Companies (FNP). The former Liz Claiborne company has been licensing its brand to Movado since 2005. The watches retail for $95-$495.
· Lacoste watches have been a part of the Movado licensed portfolio since 2006. The watches retail for $95-$495.
· The newest licensed brand with sales is Tommy Hilfiger watches. The brand from Phillips-Van Heusen (PVH) began as a Movado watch brand in 2011. The watches retail for $85-$295.
The company's newest brand will launch in fiscal 2014. Movado Group has partnered with famed car brand Ferrari to create watches designed around the car maker's Formula 1 brand. The watches will retail for around $1500. Movado has secured international licensing for the brand of watches.
By segment, 2012 sales were expected to be:
· Ebel/Concord: $43 million, 9% of net sales
· Movado/ESQ: $151 million, 33% of net sales
· Licensed Brands: $197 million, 42% of net sales
One big worry for Movado going forward may be its sales in Europe. By regional segment the sales are:
· North America - 58%
· Europe - 21%
· Asia - 10%
· Middle East - 7%
· South America - 4%
The company has been attempting to expand its brands into the strong and growing luxury goods market in China. The sales in Europe will likely be weak in fiscal 2013 so the company needs help from American retailers and new expansion in China and the Middle East. Retailers that sell Movado watches like Macy's (M) and Nordstrom (JWN) have seen increased sales over the last quarter, which could be a good sign for Movado. Movado has also ramped up e-commerce sales of its brands by launching dedicated stores for Movado and Tommy Hilfiger watches on Amazon.com (AMZN).
In a May presentation to investors, the company gave the following as its future strategies:
· Unleash Movado brand potential
· Realize the ESQ Movado potential
· Continue momentum of licensed brands
· Reposition EBEL for growth
· Capture the growth opportunity in China, Brazil
For fiscal 2013, Movado Group is guiding net sales of $505-$510 million. The company is also calling for net income to increase 25% to $29.0-$29.7 million. Earnings per share are expected to be $1.15, which includes investment of the new Ferrari branded watch.
The company recently announced a special dividend of $0.50, which has already been paid to shareholders. Movado also raised its quarterly dividend to $0.05. The yield is not high on the stock, but it is nice to see the return of the dividend in 2011 and 2012. The company suspended its payout in 2010 and the majority of 2009.
Shares of Movado are up 51% on the year. I see the company going higher from this earnings report, but could see them falling significantly with concerns out of Europe. The brands associated with Movado are tied to European countries and considered a non essential luxury item, which are both concerns from investors. Look for several buying opportunities to present themselves under $23. I would be a buyer under $23 and recommend a HOLD rating until then.