Are watch sales really that bad? In a surprise move, Movado Group Inc. (MOV) recently guided lower for the full year as it blamed softening in the watch category. It has fallen to a Zacks Rank #5 (Strong Sell) as analysts moved to cut estimates.
Movado Group makes watches in its Switzerland manufacturing facilities under the brands Movado, Ebel, Concord, ESQ Movado, Coach, Tommy Hilfiger, Hugo Boss, Juicy Couture, Lacoste and Scuderia Ferrari. It also operates Movado company stores in the United States.
Movado focuses on the upscale watch market, which has been holding up well in the face of economic weakness in Europe and now in Asia.
Disappointing Sales and Lowered Guidance
However, on Nov 14, Movado shocked the Street by announcing preliminary third quarter sales which were below analyst forecasts.
Net sales for the third quarter are expected to fall to $188.6 million from $189.7 million a year ago. For the full fiscal year, net sales are only now expected to increase by 1% to 2%.
The company blamed it on slower growth in the overall watch category and that retailers are “focusing on driving improved productivity.”
Additionally, some of its brands didn’t perform as well as planned, including the flagship brand, Movado, in the international markets.
Earnings per share for the fiscal fourth quarter are expected in the range of $0.86 and $0.87. That is well below the Zacks Consensus of $1.14.
Fiscal full year guidance has been reduced to a range of $1.80 to $1.85.
That is well under the Zacks Consensus Estimate of $2.41.
Analysts moved to immediately cut estimates. The full year Zacks Consensus was cut to $1.81 which is at the low end of the company’s new range. That’s also an earnings decline of 12% from fiscal 2014.
Shares Fall to New 52-Week Low
Not surprisingly, the shares got crushed on the lowered guidance. They’re now trading at new 52-week lows.
Movado is now trading with a forward P/E of just 13.9.
But that doesn’t mean it’s a deal. Slashing your outlook as you head into the critical holiday shopping season is never a confidence booster.
If you are really interested in the watch space, you might want to consider Fossil Group Inc. (FOSL) instead. While it makes watches on the lower end of the spectrum, it didn’t mention any problems with watch demand slowing in its last earnings report. Fossil is also expected to see 13% earnings growth this year.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.
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