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Movado Group

MOV

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Movado Group, Inc. (MOV - Snapshot Report) announced outstanding second quarter fiscal 2013 results, which included an earnings surprise of 57.9% and year-over-year profit growth of 67.0%. The fiscal 2013 earnings guidance was raised significantly following the impressive first half performance. This Zacks #1 Rank (Strong Buy) designer of quality watches has surpassed the Zacks Consensus Estimate in six of the last seven quarters and boasts a huge average surprise of 200.0%.

Solid Second Quarter Beat

On August 25, 2012, Movado reported second quarter fiscal 2013 adjusted earnings of 30 cents per share (excluding a one time gain), beating the Zacks Consensus Estimate of 19 cents.

Net sales advanced 4.2% to $118 million from the prior-year quarter, driven by solid demand. Revenues increased 7.6% on a constant currency basis, driven by strong performance of the Movado and licensed brands.

Excluding sales from the ESQ and Ebel watch brands, revenue would have jumped 15.1%. The company strategically reduced the shipment of these brands, as it plans to re-launch them in fall.

Gross margins expanded an impressive 190 basis points over the prior-year quarter to 55.7%. It was driven by fixed cost leverage and a channel and product mix shift.

Operating margins more than doubled to 9.2% of sales from 4.4% in the prior-year quarter, driven by gross margin expansion and a decline in selling, general & administrative (SG&A) expenses.

Impressive Outlook

Movado raised its outlook for fiscal 2013, and now expects sales to increase 10% year over year to $510 million. It had previously expected sales between $505 million to $510 million. The guidance does not include an impact from foreign exchange.

Adjusted operating income is expected to expand between 43% and 46% to $49 million – $50 million. Adjusted EBITDA is expected to increase over 30% to between $60 million and $61 million in fiscal 2013.

The effective tax rate is seen at 25%, lower than the prior expectation of 30%. Earnings are predicted to be $1.40 per share, much higher than previous expectations of $1.15.

For the rest of the year, Movado will continue to work toward building its strategic initiatives, launch new products and refine its existing products.

Earnings Estimates Rising Sharply

Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013 has advanced by 25.4% to $1.53. The Zacks Consensus Estimate for fiscal 2014 has moved up approximately 9.2% to $1.67 over the same timeframe.

Expensive Valuation

Movado looks expensive at current levels. It trades at a forward price-to-earnings (P/E) of 23.72x, representing a premium of almost 15% to the peer group average of 20.63x. On a price-to-sales basis, shares trade at 1.88x, a 129.0% premium to the peer group average of 0.82x. Furthermore, the stock has a trailing 12-month return on equity (ROE) of 9.3%, which is below its peer group average of 12.3%. However, the premium valuation looks justified given its strong fundamentals.

Chart Shows a Consistent Advance

Shares of Movado have been rising consistently since early August and reached a new 52-week high of $37.15 on September 7, a few days after announcing the solid second quarter results. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $27.01 and $23.25, respectively. In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since early and mid August, respectively.

Volume is strong, averaging roughly 399K daily. Movado has mostly outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 99.71% compared with the S&P 500’s return of 13.64%.

Based in Paramus, New Jersey, Movado is a designer, manufacturer and distributor of quality watches. It offers its watches in almost every price category. Its popular luxury brands include Ebel and Concord and accessible luxury brands are Movado and ESQ. The company also sells certain watch brands like Coach, Lacoste and Tommy Hilfiger under licensing agreements with the owner company. The market cap of the company is $927.2 million.

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