Movado Group - Watch The Money

Mar. 23, 2016 3:42 PM ETMovado Group, Inc. (MOV)

Summary

  • Demand for Movado's products has benefited from an increase in tourist spending, primarily from Chinese consumers travelling to Europe.
  • Higher cost of the Swiss franc has increased the input costs for the firm, and smaller margins should be expected.
  • Dividend policy has been strong in the past, and based on historical trends and the firm's excess cash, it should continue to grow.

Analyst: Henry Zhang

The Company

Business Overview

Movado Group, Inc. (NYSE:MOV) focuses on the designing, sourcing, marketing and distribution of watches. Movado is based out of New Jersey, USA, with the main distribution centre located in Moonachie, New Jersey, and the executive offices located in Paramus, New Jersey. Additionally, for the firm's Swiss watch brand, Movado operates a smaller facility in Bienne, Switzerland, mainly for distribution purposes. For distribution within Asia, the company relies heavily on a third-party warehouse and fulfillment provider. Unlike many companies, Movado's fiscal year starts on January 31st of each year.

Business Model and Supply Chain

Movado does not manufacture products. Rather, the firm relies on independent manufacturers to meet any shifts in marketplace demands. The watches are manufactured in Switzerland, China and Hong Kong. The watch components used for the Movado, Ebel, Concord and ESQ Movado watches are purchased from two suppliers while all other components are sourced from several different suppliers. Currently, Movado has no long-term commitments with any of its component parts suppliers, and therefore, any changes in demand can potentially cause a backlog of orders due to the company waiting for watch parts. As for the watch assembly, Movado (with the exception of Movado Bold), Ebel and Concord watches are assembled in Switzerland by an independent party while all of the company's other watch brands are assembled by independent contractors in Asia.

Growth

Movado Group has seen an increase in revenue every year for the past six years, with an average revenue growth of 11.1%. Although the firm has seen revenue growth annually, the growth rate has quickly diminished in the last four years.

Because a significant portion of Movado's inventory purchases are denominated in Swiss franc, the exchange rate of the Swiss franc directly affects the company's gross margins. One of Movado's growth

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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