Timely Management

A single dot at 12 o’clock against a black face. No timepiece or watch brand presents a more recognizable or even iconic emblem. Since 1947, the “sun at high noon” imagery encased behind the crystal of each Movado watch has served to identify this brand. Yet it might be Movado’s ability to navigate turbulent international markets and fierce competition that will determine the brand’s future.

[PROFILE OF A TIMEPIECE]

The company today designs, manufactures and distributes watches under the Movado brand, as well as the Concord, ESQ, Coach and Tommy Hilfiger names. In deals designed to expand its global influence along with it bottom line, Movado inked global licensing agreements with Hugo Boss, LaCoste and Juicy Couture. Like most top watchmakers, Movado traces its roots to Switzerland. Founded in 1881 in La Chaux-de-Fonds, the company today holds some 100 patents and 200 international art and design awards. Its watches were worn in World War I, and its Museum Watch dial in 1960 debuted in the New York Museum of Modern Art. Gedalio “Gerry” Grinberg was a Cuban watch seller and émigré who escaped Fidel Castro’s Cuba in 1960. Over the next three decades, he would help turn Piaget into a must-have brand name. He fought back a growing threat from Japanese brands like Seiko, and earned accolades from across the watch industry. He collaborated with Andy Warhol, dined with presidents and celebrities—and changed an industry. And he acquired Movado—a $4 million-a-year brand—in 1983. By 1987, sales hit $50 million. In 1996, the holding company, which had gone public in 1993, was renamed Movado Group. Son Efraim, who joined the family business in 1980, was named president and COO in 1990, and CEO in 2001.

[DRAWING MAD ATTENTION]
 
The company’s deal with LaCoste drew the attention of CNBC’s Mad Money host Jim Cramer back in 2006. In a lead segment, the commentator/stock-pick provocateur noted the company was poised for growth—fresh off its deal LaCoste and an emerging Chinese market. Then, the softening consumer market seemed to catch up to companies across the retail spectrum, including luxury items. The company went from its historical high of $35.40 in March 2007, to a 52-week low of $17.16 this March. The company put into place moves to navigate troubled markets. Some seemingly have borne results. In December, Movado reported its fiscal third-quarter profits up 21 percent, with wholesale revenues leading the way. Its $26.5 million in income, or 97 cents a share, was up double-digit percentage points over the same period a year prior—or $21.9 million and 82 cents a share. Though bolstered by one-time charges and benefits, its sales were up 8 percent—to $180.2 million—from the year prior. Same store sales were up almost 9 percent . The company said in a release that its strategy to “convert discontinued product into cash” was improving inventory and driving cash flow. While other luxury brands have seen their tidings drop, Movado over the last three quarters has exceeded expectations, says Jeff Blaeser, a consumer retail analyst with brokerage Morgan Joseph & Co. Inc. He credits deft financial management and the development of the brand’s licenses.

[TRIMMING OUTLETS, AMASSING CASH]

In another move, the company in February announced that over the next year it would cut 1,400 wholesale distribution outlets—from around 4,000 to 2,600, or 35 percent. Those outlets represent about $10 million in annual sales, or less than 2 percent of Movado Group’s consolidated revenues, the company said in a statement. At the same time, the company united product development, merchandising and marketing across its wholesale and retail channels, enhancing its 60-plus Movado boutiques and outlets to foster long-term growth. Proactive moves now, in the face of a challenging economy, presents a “long-term view of our business,” notes Efraim Grinberg, the company’s president and CEO, in a statement. “By taking this decisive action now, it will allow us enhanced opportunities to generate strong sustained growth in the future.” Still, the company in late February updated its guidance, downscaling 2008 net sales to $543 million from $560 million. For his part, Blaeser is “very guarded” with a hold rating on the stock, yet as of February, he saw cause for hope. Movado’s situation is little different from other players in the luxury market. Its moves to maintain brand strength and price points bolster its long-term prospects.

The introduction of the three new licenses—Boss, LaCoste and Juicy—allows the company to spur top-line growth without cannibalizing existing sales, he says. Ultimately, it could expand its markets and generate upward of $50 million a year in sales within three to five years, he says. The company’s balance sheet is flush with $100 million in cash, creating opportunities to invest, acquire new licenses or just weather the economic storm. At the same time, the company is looking internationally for growth. Where the Movado name isn’t as strong overseas, some of the newer lines could bolster its tidings and revenues. “If you’re aligned with a license that does well overseas, then your watches will do well,” Blaeser says. As much as anything, Blaeser is impressed with the management team, he says. They’ve faced the market, been realistic in expectations, guidance and goals, and have acknowledged concerns to the investment community. Movado’s time, it seems, may be coming—again.