Wednesday, September 25, 2013

Are Watchmaker Stocks Nice Portfolio Accessories? MOV & FOSL

On Tuesday, small cap watchmaker Movado Group, Inc (NYSE: MOV) surged 10.5% after it reported earnings and it's the only real pure play watchmaker as mid cap Fossil Group Inc (NASDAQ: FOSL) has diversified into other accessories and has almost tripled over the past five years. Given the problems many clothing retailers are having, its probably worth taking a closer look whether or not watchmakers or other accessory stocks might make better investments.

What You Need to Know About Movado Group and Fossil Group

Top Small Cap Companies To Watch In Right Now

Here is what you need to know about both watchmakers:

Small cap Movado Group, Inc. designs, manufactures and distributes watches from ten of the most "recognized and respected" names in watchmaking: Movado, Concord, EBEL, ESQ Movado, Coach, HUGO BOSS, Juicy Couture, Lacoste, Tommy Hilfiger and Scuderia Ferrari. The Movado Group has manufacturing facilities in Switzerland; its corporate headquarters in Paramus, New Jersey, USA and Bienne, Switzerland; and sales and distribution offices around the world as its timepieces are sold throughout North and South America, Europe, Asia and the Far East. Yesterday, Movado Group reported a 17% revenue increase to $138.3 million thanks to higher sales of its namesake watches and Scuderia Ferrari plus the later timing of the Swiss international watch and jewelry fair held annually in Basel. Net income came in at $20.7 million verses $14.7 million. The Movado Group also raised its full-year earnings and revenue forecasts plus raised quarterly dividend by 60% to 8 cents per share. It should be noted that in the earnings call, the COO stated:

…the sales growth is all driven by productivity. When you look at it -- and I'll remind you of the percentages of market growth that took place in the U.S. When you look at the Movado brand -- and again, this is third-party independent data -- the market excluding Movado in our price points of $300 to $3,000, grew 1% for the 12-month period ended June 30, 2013. Movado grew in excess of 15%.

The COO added that he believes the momentum will continue plus the company will get some additional benefit "because of the Coach repositioning" and "some additional door expansion in Scuderia Ferrari." Otherwise and going into earnings, data from Yahoo! Finance gave the stock a trailing P/E of 18.45 along a forward P/E of 18.02 – figures that have probably changed but don't necessarily make the stock overvalued for new investors.

Midcap Fossil Group says it was the first American brand to bring value and style to the watch category and offers an extensive line of watches under its proprietary FOSSIL®, RELIC®, MW®, MW MICHELE®, MOBILEWEAR™ and ZODIAC® brands plus it licenses watches under brands such as ADIDAS®, BURBERRY®, CALLAWAY GOLF®, COLUMBIA SPORTSWEAR®, DIESEL®, DKNY®, EMPORIO ARMANI®, MICHAEL MICHAEL KORS® and MARC® by MARC JACOBS (Note: FOSL's watches cost from $7 at discounters to $4,000 at luxury retailers, with a majority selling $85 to $600). In the early 1990's, the Fossil Group expanded its core business by launching a line of accessory products such as handbags, belts, small leather goods and sunglasses. In early August, the Fossil Group surged nearly 20% after it reported earnings. Specifically, the Fossil Group reported a net sales increase of 11% to a record $706 million as North America wholesale net sales increased 4%, Europe wholesale net sales increased 16% and Asia Pacific wholesale net sales increased 14%. Net earnings hit a record of $67.7 million verses $57.3 million for the same period last year while a rosy guidance for the full year was also given. The CEO cited "strength in our FOSSIL(R) and SKAGEN(R) brands and double-digit sales increases in our multi-brand watch portfolio and in jewelry." The Fossil Group also repurchased $169 million or 1.7 million shares under its stock repurchase program and had remaining authority to purchase $843 million of its common stock at the end of last quarter. Otherwise, it should be mentioned that the Fossil Group has a trailing P/E of 18.59 and a forward P/E of 15.90. Share Performance: Movado Group and Fossil Group

On Tuesday, small cap Movado Group rose 10.5% to $41.99 (MOV has a 52 week trading range of $28.25 to $42.56 a share) for a market cap of $1.35 billion plus the stock is up 48.2% since the start of the year, up 46% over the past year and up 72% over the past five years while Fossil Group fell 1.79% to $113.98 (FOSL has a 52 week trading range of $78.75 to $129.25 a share) for a market cap of $6.44 billion plus the stock is up 27.6% since the start of the year, up 29.8% over the past year and up 286.2% over the past five years.

As you can see from the above chart, the more diversified Fossil Group has outperformed the Movado Group.

Finally, here are the latest technical charts for both stocks:

The Bottom Line. For me, I'd be a bit more comfortable with the Fossil Group as its more diversified rather than with the Movado Group that's focused on watches. Either way, both stocks look like good portfolio accessories at least for the rest of this year.

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