The Real Story: Timing Right Again for Movado

On March 29, I made a bullish case for Movado(MOV - Cramer's Take - Stockpickr), stating that the watchmaker is an inexpensive way to capitalize on the growing market for luxury goods. On Mad Money the following evening, Jim Cramer pounded the table on Movado; the "Cramer effect" seemed to last three trading days as the shares jumped 12% from their March 30 close through Tuesday, before dipping Wednesday.

On Thursday, the stock tumbled 5.2% to $22.42 on heavy volume after Movado posted weaker-than-expected quarterly sales.

As Jim often says, the time to buy the stocks he recommends is a few days later, when the stock comes back in after its initial jump. Patient investors now have the chance to get into Movado, and I believe they will be rewarded over the next 12 months.

Earnings and Margins

Movado reported fourth-quarter sales of $126.1 million and earnings of 38 cents per share (11 cents on a GAAP basis). That compared with First Call consensus estimates of $129.1 million in sales and 36 cents in earnings.

The lighter-than-expected sales figure was mostly due to weakness in its international wholesale business -- particularly the Concord brand and how it performed in the Middle East. No specific reason was given for Concord's Middle East woes other than that the midprice luxury category has been difficult (while the top level and entry level are growing). Movado is in the early stages of re-engineering the Concord brand.

For fiscal 2007 (ending in January), Movado expects revenue in the $513.3 million to $522.7 million range and EPS of $1.35 to $1.39 including one-time items, which would represent earnings growth of 14% to 18%. Still, its guidance is slightly lower than the current consensus of $524.8 million in sales and EPS of $1.41.

According to my model, Movado should earn $1.39 per share in fiscal 2007, at the top of its guided range. I believe Movado management could be conservative in its estimates. As I mentioned in the first article, this is a company that knows how to market and sell luxury brands.