Luxury watch company Movado (NYSE:MOV) announced better-than-expected results in Q2 CY2024, with revenue flat year on year at $159.3 million. On the other hand, the company’s full-year revenue guidance of $670 million at the midpoint came in 4.5% below analysts’ estimates. It made a GAAP profit of $0.16 per share, down from its profit of $0.36 per share in the same quarter last year.
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Movado (MOV) Q2 CY2024 Highlights:
- Revenue: $159.3 million vs analyst estimates of $150.5 million (5.9% beat)
- EPS: $0.16 vs analyst expectations of $0.19 (15.8% miss)
- The company dropped its revenue guidance for the full year to $670 million at the midpoint from $705 million, a 5% decrease
- EPS (GAAP) guidance for the full year is $1.25 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 54.2%, down from 55.7% in the same quarter last year
- EBITDA Margin: 2.2%, down from 9.2% in the same quarter last year
- Free Cash Flow was -$20.13 million, down from $28.36 million in the same quarter last year
- Market Capitalization: $501.5 million
Efraim Grinberg, Chairman and Chief Executive Officer, stated, “While increased marketing investment coupled with our initiatives to enhance retail performance drove improvement in our sales trend from the first quarter, second quarter sales and earnings were below our expectations due to the challenging consumer spending environment compounded by increased expenses to support future growth. Despite this, the quarter exhibited some bright spots that we expect to capitalize on during the second half of the year. The quarter saw our Movado brand sales increase by 1.4% with significant growth in the direct-to-consumer channel with Movado.com sales increasing by 21%, partially offset by a 5.5% decline in our wholesale channel. This reflected a strong response to the innovation across our product offerings, particularly the success of our Movado Bold Quest collection, which features a new shaped design inspired by a vintage Movado from the 1970’s. Opening at $595, Bold Quest fills more accessible price points that we had previously vacated.
With its watches displayed in 20 museums around the world, Movado (NYSE:MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Apparel, Accessories and Luxury Goods
Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Movado struggled to generate demand over the last five years as its sales dropped by 1.4% annually, a rough starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Movado’s recent history shows its demand has stayed suppressed as its revenue has declined by 7.2% annually over the last two years.
This quarter, Movado’s $159.3 million of revenue was flat year on year but beat Wall Street’s estimates by 5.9%. Looking ahead, Wall Street expects sales to grow 7.9% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Movado has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.6%, subpar for a consumer discretionary business.
Movado burned through $20.13 million of cash in Q2, equivalent to a negative 12.6% margin. The company’s quarterly cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from Movado’s Q2 Results
We enjoyed seeing Movado exceed analysts’ revenue expectations this quarter, but EPS missed. Full-year revenue guidance was lowered and missed as well. The company cited a "challenging consumer spending environment compounded by increased expenses to support future growth". Overall, this was a weaker quarter, but expectations were also seemingly low going into the print. The stock traded up 2.4% to $23.10 immediately after reporting.
So should you invest in Movado right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.