MOV - Movado

[chmith]

Hi all, any thoughts on this one? Long running, profitable company.

 

Business model (from memory):

Secure agreements with luxury and semi-luxury brands to put on watches. Source, market and distribute said watches in the semi-luxury space. Price point: $300-$3k. Examples of tied brands: Hugo Boss, Lacoste, Tommy Hilfiger. Very steady grower, family controlled but liquid.

 

Background

Steady growing business over many years with a recent blip: Revenues fell off a cliff in 2010 and 2011 due to the economic slowdown, emphasised by retail destocking. The business suffered on two fronts due to the simultaneous underperformance of their own retail outlets. This led to cost cutting, closure of the retail business (focus on wholesale), and a strategic review.

 

Value?

The business is back to profitability solid trading. The share px has suffered for three (as far as I can tell) main reasons:

 

1) Fears that the rise of the IWatch will eat into their market

2) Reduced revenues and profitability in recent quarters, driven by currency moves (large production in switzerland, global sales but results in USD)

3) General market weakness

 

The business has TTM net income of about $48mm, a market cap of $533mm and an EV of ~$370mm. Looking at unit sales, and gross margins in local currency, the business has kept growing and I while it's still vulnerable to a global slowdown, it looks quite cheap here to me.

 

Anyone had a look at this one and have any thoughts?

 

/C

 

Disclaimer: Please make your own decisions, this is not a recommendation of anything. I own shares i Movado.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[mcliu]

I took a quick look at it along with Fossil, overall impression is that at the price range of these watches, why wouldn't someone just get an Apple Watch or something similar, that does way more?

[feynmanresearch]

I looked at it briefly. It appears to be slightly undervalued right now( 10-15%), not enough margin of safety for me. It has an attractive P/E, P/B and P/S ratio, but ROA,ROE,ROIC seems to be pretty anemic. Also,it has a high current ratio

 

What's your intrinsic value of the company?

[JayGatsby]

I took a quick look at it along with Fossil, overall impression is that at the price range of these watches, why wouldn't someone just get an Apple Watch or something similar, that does way more?

Have there been any indications yet that there's actually consumer demand for smart watches? I guess that's chsmith's #1. Seems like the wall street analysts led the horse to a dry pond. I've only met one person with a smart watch. They liked it, but I still haven't figured out that point.  Of course, I haven't figured out the point of a fitbit either and those seem to sell pretty well. If I were buying a watch I'd want the more traditional style with a battery that actually lasts. I can use my phone for the rest.

 

What's the competitive advantage of Movado? Are they under long-term license or is it a consumer preference for swiss watches? I guess a Tommy watch made in China wouldn't sell as well? These licensing consumer businesses alwasy seem to be low multiple, but if they generate good cash I'm not sure what else matters.

[chmith]

I took a quick look at it along with Fossil, overall impression is that at the price range of these watches, why wouldn't someone just get an Apple Watch or something similar, that does way more?

Have there been any indications yet that there's actually consumer demand for smart watches? I guess that's chsmith's #1. Seems like the wall street analysts led the horse to a dry pond. I've only met one person with a smart watch. They liked it, but I still haven't figured out that point.  Of course, I haven't figured out the point of a fitbit either and those seem to sell pretty well. If I were buying a watch I'd want the more traditional style with a battery that actually lasts. I can use my phone for the rest.

 

What's the competitive advantage of Movado? Are they under long-term license or is it a consumer preference for swiss watches? I guess a Tommy watch made in China wouldn't sell as well? These licensing consumer businesses alwasy seem to be low multiple, but if they generate good cash I'm not sure what else matters.

 

Thanks for the feedback. I Suppose the answer to the initial question would be:

* An apple watch is $1000 that will likely be tech redundant in <3yrs whereas a wristwatch isn't

* A traditional wristwatch isn't really there for it's functionality. If it was they would have gone away when mobile phones appeared in everyone's pocket. I think wristwatches are 99% a fashion accessory, which may also be true for the Iwatch, but I'm not sure they appeal to the same target market (the people I see with Iwatches didn't use to wear a wristwatch).

* I personally don't really see what need the Iwatch really fulfils

 

These are the arguments - I am inclined to agree, but then again I wasn't a big believer in the Ipad either (doh). I agree that the thesis falls over if the Iwatch explodes and takes out traditional watches, and you have to be comfortable that that won't happen overnight in order to go long. As a parenthesis, Movado expects to have their own smartwatch on the market by the end of the year, this can go either way, but they are recognizing the potential and are trying to be part of it.

 

 

[chmith]

I looked at it briefly. It appears to be slightly undervalued right now( 10-15%), not enough margin of safety for me. It has an attractive P/E, P/B and P/S ratio, but ROA,ROE,ROIC seems to be pretty anemic. Also,it has a high current ratio

 

What's your intrinsic value of the company?

 

I suppose it will be overvalued now then after this pop :) I put a target around $36, which represents an ev/ebit of roughly 8.5x

 

In terms of their competitive advantage, they're well established and have a good market position. Setting up relationships with brands, manufacturers and distribution channels takes time. Apart from that, not much as far as I can tell. I suspect that the brands giving Movado a licence have certain demands on production facilities in order not to dilute their brand names too much, but in principle it'd probably be very easy to shift production to China.