The watch industry is indeed doing pretty well, and this is evident when we look at the performance of some of the prominent players of the industry. For instance, Fossil (FOSL, Financial), one of the most popular players in the watch industry, reported a blockbuster quarter very recently. Higher demand for its products resulted in great growth in its top line as well as the bottom line.
However, this was not the case with peer Movado (MOV, Financial), a premium watch maker. The retailer has already warned about its results, two weeks back, and reported a lackluster quarter this week. The numbers were significantly below the Street's estimates, resulting in a drop of 39% in its share price.
Not an impressive quarter
Total sales dropped slightly to $188.6 million over last year's quarter. This was in sharp contrast with that of its peer Fossil. Key reasons for the underperformance were slow growth in some of the regions and brand weakness in the international market.
The company witnessed weakness in the European market, where demand for premium watches was not up to the mark. Also, sales were sluggish in Asia, where most of the watch players expect sales growth. Hong Kong and China, in particular, were the underperformers. Hong Kong is the biggest watch market and sales in this region were lower than last year. This was mainly because democracy protests in the region shut most of the parts of the city, affecting sales of the watch retailer. Further, demand in China also slowed because of the levy of anti-corruption measures for use of high end products. Therefore, these factors together brought the overall results down.
Another major problem for all the watchmakers is the launch of smart watches, which is taking over the popularity of traditional watches. The introduction of Apple iWatch snatched all the customer attention, resulting in lower sales of traditional watches. However, peers such as Fossil also plan to come up with a similar product in order to combat competition.
The bottom line of the company dropped 3.5% to $0.87 per share, over the prior year. This was way below the analysts' estimate of $0.96 per share. Gross margin also shrank 44 basis points to 53%. The margins were affected due to currency fluctuations and a shift in channel and product mix.
Key efforts
Although demand in the International market has been weak, Movado brand is doing pretty well in the U.S. Also, the company intends to expand its presence overseas so that it can tap into new markets. Moreover, it plans to focus on improving its productivity. The watch maker announced that it will be introducing new products and undertake several advertising campaigns to market its products.
Finishing thoughts
Movado is undergoing a tough phase, wherein demand for its premium watches has been low. Further, it lowered its outlook for the year as well as for the fourth quarter. Moreover, its performance is not as good as its industry peers. However, the company has undertaken a number of measures to overcome the problems and has increased its share buyback program. It will be interesting to see what happens in the future. The efforts do look interesting, but it will take time to do so. Hence, staying on the sidelines and waiting for things to change will be the right option.
