The rise of wearable technology has thrown the watch business into momentary chaos. Especially in the luxury realm, companies like Movado Group have had to pivot their strategies to try to come up with a response to products like the Apple Watch, and other wearable products.
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Coming into Wednesday morning's fiscal-first-quarter report, Movado shareholders were already prepared to see slightly weaker results from the watchmaker, and the company's numbers indeed reflected sluggishness in the overall industry. Nevertheless, Movado thinks that its longer-term efforts will pay off. Let's look more closely at Movado, and see what its latest figures say about the state of the retail segment in the early part of 2015.
Movado starts to see some hopeful signs On their face, Movado's results weren't especially encouraging, but in the broader context of the watchmaker's recent struggles, they showed signs of progress. Revenue was roughly flat, at $120.5 million, with the strong U.S. dollar costing the company about five percentage points of potential growth. Adjusted net income of $6.2 million was down about 16% from year-ago levels, and adjusted earnings of $0.25 per share fell short of the consensus estimate by $0.01.
A closer look at Movado's metrics reveals some of the causes of its weakness. Gross margins continued to fall, with the latest quarter's figure of 51.8% declining more than two percentage points from last year's first quarter. Yet much of the decline in margins was exchange-rate related, and a more favorable product mix helped offset some of the drop.
Operating expenses rose, but some of those costs went toward Movado's operating efficiency initiatives, which the company hopes will produce more than enough long-term savings to offset their immediate impact on the watchmaker's bottom line.
Movado continued to highlight the best parts of its recent performance. "We continued to focus on new product introductions and developing our brands globally," said CEO Efraim Grinberg, and "We believe we are well-positioned for success as we continue to innovate our product assortments." In particular, Grinberg pointed to Movado's preparations for its wearable technology launch as a promising element of its overall strategy going forward.
The key for Movado's futureFor the most part, Movado still sees the 2016 fiscal year playing out the way it had expected several months ago. The company reiterated its yearly guidance, and still expects revenue of between $590 million and $600 million. That, in turn, should produce earnings of $2.00 to $2.10 per share if things work out the way Movado expects.
Movado also expressed its optimism by ramping up its activity under its share repurchase program. During the quarter, the company bought back 860,000 shares of stock, spending roughly $22 million in the process. Even with the extensive purchase activity, though, Movado still has roughly two-fifths of its original $100 million authorization to use on future buybacks if it chooses to do so.
Movado executives are also looking at other ways to improve the company's overall results. As COO Rick Cote described, Movado is still looking at streamlining some of its business operations, with a special emphasis on its supply-chain organization in order to ensure optimal sourcing for its products. Cote also said that Movado has implemented price increases selectively for some of its merchandise, pointing to valuable pricing power that could help in the turnaround.
Movado gave back most of the share-price gains it experienced after last quarter's earnings report, so shareholders really have to take a step back and evaluate the watchmaker's progress in the context of its longer-term strategic plan. If Movado keeps moving forward with incremental progress, then its low valuation suggests substantial upside. The challenge, though, will be finding ways to keep moving forward in a competitive environment.
The article Movado Slows Down, but Can It Wind Itself Back Up? originally appeared on Fool.com.
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