Movado Gives Investors Hope for a Better 2015

Partnerships like this one with cycling company Parlee have traditionally helped Movado. Source: Movado.

The luxury retail business has been choppy lately, as the industry's long period of resistance to changing economic conditions has finally started to give way to cyclical pressure. Throughout luxury retail, several major players have taken hits, and shareholders of watchmaker Movado Group worried about how well it would respond to macroeconomic factors including a strong U.S. dollar and shifting demand among its core customer base.On Tuesday morning, though, Movado delivered much better results than most had expectedin its fiscal-fourth-quarter financial report and rewarded investors with a dividend increase. The stock was up 17% by 9:45 a.m. Let's look at Movado's latest results and what the company expects this year.

Movado winds itself upInvestor expectations for Movado were already fairly low, so even somewhat sluggish results appeared strong. Net revenue fell 4.4% to $133.9 million after adjusting for a one-time charge in last year's fourth quarter, which was actually slightly below what those following Movado were looking to see. While the dollar hurt sales, Movado's revenue fell 1.5% even on a constant-dollar basis. But the good news came in Movado's bottom-line figures, where earnings of $0.40 per share doubled the $0.20 consensus figure among those following the stock. Nevertheless, net income fell 16% year over year to $10.1 million.

Digging deeply into the numbers, Movado continued to see deterioration in some business metrics. Gross margin dropped substantially, coming in at 50.3%, compared to 53% last year. The company's4.3% reduction in operating expenses eased the impact of tighter gross margin. Nevertheless, operating income dropped 30% year over year, highlighting some of Movado's difficulties in implementing its reallocation strategy in a manner that will eventually lead to higher profitability.

Movado was pleased with its ability to perform well despite very tough conditions. "Our brands and business performed above our revised expectations," said CEO Efraim Grinberg. "The overall watch category experienced slower growth than in previous years, and we saw retailers curtailing their purchasing to more tightly manage their inventory, [but] we experienced improved sell-through at retail as a result of our design innovation and strength of our brands." Grinberg said he believes Movado is in a good position at the beginning of the new fiscal year.

The latest from the ESQ brand is reminiscent of Swatch's colors in the 1980s. Source: Movado.

What's next for Movado?Movado's guidance for fiscal 2016 was mixed. The revenue projection of $590 million to $600 million was slightly below the $603 million investors had expected, but earnings of $2 to $2.10 per share would represent substantial improvement from the $1.89 consensus forecast. Movado, though, sees currency headwinds continuing to take a toll on its results, and the overall slow-growth environment in luxury retail is likely to continue.

To boost its results as much as possible, Movado intends to make the most of its opportunities in the coming year. In addition to continuing cost-control measures, Movado expects to increase prices selectively. A streamlined supply chain and other operational efficiency initiatives will help the watchmaker to achieve its goals.

Perhaps the biggest sign of Movado's confidence came from its dividend increase announcement. Movado will now pay shareholders $0.11 per share quarterly, up 10% from the previous dime-per-share payout. The company also bought back almost 500,000 shares in its stock repurchase program, and as of the end of January still had about $63 million left in its authorized buyback amount.

Investors cheered the earnings beat, sending shares of Movado up. With the stock already having traded at a low earnings multiple of about 13, the positive news on the income front suggests Movado's worst times might be over. Yet given the somewhat ambivalent tone of the watchmaker's guidance, shareholders might well have to be patient as they await a more aggressive expansion in Movado's business. For those willing to bank on the strength of its brand awareness among consumers, Movado remains an interesting value play to consider.

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