Unlike many of the independent jewelers which it supplies with watches, Movado Group’s retail boutiques posted strong sales gains in the three-month period ended July 2006. While independent specialty jewelers posted an aggregate gain of about 7.5 percent for the second calendar quarter, total sales surged at the company’s 28 Movado Boutiques by nearly 21 percent, driven by a dramatic 9.3 percent same-store sales gain as well as revenues from four new units.

 

What is behind this superior performance of the Movado Boutiques? Here are highlights of second quarter performance of those units.

 

• Proprietary jewelry sales strong – Movado has created a line of proprietary jewelry exclusively for its boutique stores. This jewelry has been well-received by shoppers.

• Diamond fashion demand is up – Management reports that diamond fashion jewelry demand is strong in its boutique units.

• Gross margins up – As a result of solid sales gains, the company’s gross margin (sales less cost of goods sold) is up in its retail division. In part, this is due to a more favorable high-margin sales mix in the Movado Boutiques; in part, it is also due to the lack of a need to implement margin-eroding price-based promotions in those stores.

• Profitability just ahead – Sometime during the next twelve months, we expect the Movado Boutiques to begin producing a profit for the company. By year-end, there will be 31 Movado Boutique units in operation; at this level, this division should achieve the necessary economies of scale to generate an operating profit.

Movado Outlet Stores Weak

While the upscale Movado Boutiques posted solid sales gains, Movado’s 29 outlet stores substantially underperformed. For the quarter, total sales fell by 7.1 percent, with same-store sales down 8.7 percent. Three factors were responsible for this weak performance in the outlet stores, as follows:

 

• Shopper traffic was weak in outlet malls where these stores are located.
• There was a lack of breadth and depth of merchandise in the stores.
• Sales in the Movado outlets are often a reciprocal of the performance of the Movado Boutiques and Movado’s wholesale watch sales. When sales are good through regular channels, there is less merchandise overstock flowing into the outlet stores.

Movado Corporate Results Strong

Movado’s total corporate sales rose by 9.8 percent in the quarter ended July. High-end luxury branded watches – Ebel and Concord – posted a 7 percent sales decline. While Ebel sales were up 7.2 percent, Concord sales fell dramatically. Movado is attempting to reposition the Concord watch brand for future growth, likely to come in 2007 or early 2008.

 

Movado’s mid-priced luxury watch brands – ESQ and Movado – posted a 9.5 percent sales increase in the quarter.

 

Its licensed watches – Hugo Boss, Tommy Hilfiger, and Coach – generated a total sales gain of 51.2 percent due to the launch of Hugo Boss worldwide as well as growth in the Tommy Hilfiger line.

 

Wholesale sales of watches to distributors and retail jewelers were up 10.9 percent. In the U.S., wholesale sales were up 6.2 percent while international wholesale sales rose by 23.5 percent. International demand was driven by Ebel sales (up to 70 percent of Ebel sales are made to overseas customers) as well as by strong demand for licensed brands, especially Hugo Boss which is extremely popular in Asian markets.

 

Movado generated an increase in its gross margin – 62.0 percent versus last year’s 60.7 percent – due to sales gains in its Boutique stores as well as a favorable mix of proprietary jewelry and new watch lines which carry an inherently higher gross margin.

 

This fall, its Juicy Couture line of whimsical watches will be introduced in about 150-200 doors in the U.S. In the spring of 2007, Movado plans to launch the LaCoste line of luxury watches.

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