Why Shares of Movado Group, Inc Plunged 27% in May

Watches with smart functions are in high demand, which isn't good for Movado.

What: Shares of Movado Group, Inc fell 27.3% in May, according to data provided by S&P Global Market Intelligence, after the company reported first-quarter earnings and reduced full-year guidance.

So what: Sales fell 5% to $114.1 million and net income fell 8% to $3.3 million, or $0.14 per share. Adjusted earnings per share of $0.19 easily topped analysts' estimate of $0.16, but that wasn't the focus in May.

Management said fiscal 2017 revenue is expected to be between $565 million and $580 million, and earnings will be $1.55 to $1.70 per share. Previous guidance was for $585 million to $600 million in revenue and $1.85 to $2.00 per share.

Now what: Movado is fighting new entrants in the watch market with the advent of smart watches, which don't fit into the company's traditional business model. Smartwatches are clearly taking significant market share in watches, and there's no easy answer to how the company will adapt.

I think investors should look at the falling fiscal 2017 guidance as a canary in the coalmine for Movado. Smart watches will only gain in popularity, and unless the company can adapt it will see its business decline in the years ahead.

The article Why Shares of Movado Group, Inc Plunged 27% in May originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Movado Group. 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.