Movado Group, Inc. (Movado Group) designs, sources, markets and distributes watches. Its quality watches are sold in almost every price category comprising the watch industry. Its portfolio of brands includes Movado, Ebel, Concord, ESQ, Coach Watches, HUGO BOSS Watches, Juicy Couture Watches and Tommy Hilfiger Watches and Lacoste Watches. The Company also designs, develops and markets Movado-branded jewelry, which it retails in its Movado Boutiques.
Movado which is based out of Paramus, NJ is a small company with a market capitalization of $265 million. Movado stock reached a high of $35 a share in July 2007. The stock reached as low as $4.65 a share in March 2009 before rallying to its current level of $10.78 a share. The stock which was dirt cheap at its low in March 2009, is still undervalued at its current level based on various quantitative and qualitative factors.
The stock which has faced short term difficulties due to the severe recession was pushed down to irrationally low levels. Investors are overreacting due to Movado’s severe earnings decline and its suspension of its dividend for the foreseeable future. The company which has lost money the past several quarters is expected to lose money for the next several quarters. The stock is also undervalued because it is small and not covered by many analysts (as is the case with many small cap stocks)
One of the reasons Movado has a good future is that its balance sheet is as good shape as it has ever been. It is hard to find a company with a balance sheet as strong as Movado’s. The company has more cash and receivables than total debt. Its total assets are almost five times total debt. Furthermore the company has very little long term debt.
Movado based on its latest quarter 10Q, is trading at slightly above its liquidation value:
In Millions:
Cash * 100% 50,000
Receivables * 80% 84,375
Inventory * 65% 148,698
Other current assets * 50% 17,856
PP/E * 25% 14,535
Total 315,461
Minus Total liabilities 115,376
Total assets at
Liquidation value 200,085
Shares outstanding 24.57
Liquidation value
Per share 8.14
Movado closing price (Jan 10) 10.78
% trading above liquidation value 32%
Everyone has a different formula for liquidation value. For inventory I used 65% for its liquidation value. Inventory plays a big role here for Movado because a large percentage of their assets are inventory. I must note that most of their inventory is finished goods, which may have a higher value than raw materials or WIP. Therefore, it is possible a higher value should be assigned for the inventory, but to be conservative I am not using a higher value.
Below is the data from their recent 10-Q.
Inventories consist of the following (in thousands):
The company is also cheap on the basis of EPS. I never use TTM EPS, since I believe it I much more accurate to take an average of EPS over the past several years. Diluted EPS over the past three years is 1.69. Based on a current share price of 10.78 Movado is trading at a 6.4 EPS.
Movado is trading at 0.7 P/S, and 13.7 P/CF (3 yr average). The company has P/B of 0.6 (which should not be a surprised since they are trading below liquidation value).
Movado is expected to grow EPS at 12% per annum. I take this number with a grain of salt since forecasts are usually wrong. Even with no growth, the stock is priced cheap.
The company also has some qualitative measure that I will not put a value on but add to the attractiveness of the stock. Although most of the earnings come from the US, a large percentage comes from overseas. in 2009 38% of net sales came from overseas. This gives the company a diversified sales base overseas which is helpful with a weak domestic consumer.
Geographic Segment Data for the Three Months Ended October 31, 2009 and 2008 (in thousands):
Finally the company makes excellent watches that appeal to a variety of consumers. Its Tommy Hilfiger watches sell for as little as $40 and its Ebel watches sell for as much as $30,000.
The classic Movado watch has great brand recognition. A movado watch can be spotted from far away due to its unique looking design. In addition it makes high quality luxury watches for $1,000 that can compete with Rolexes that are several times the price. While I do not a number on these qualitative aspects it is clear that this is a great company selling far below its intrinsic value.
I am not the only investor who thinks Movado is a great value play. In a 13G released on Jan 07, 2010 Royce Funds run by guru Charles Royce revealed that they hold 10.59% of shares outstanding.
Long Movado
Movado which is based out of Paramus, NJ is a small company with a market capitalization of $265 million. Movado stock reached a high of $35 a share in July 2007. The stock reached as low as $4.65 a share in March 2009 before rallying to its current level of $10.78 a share. The stock which was dirt cheap at its low in March 2009, is still undervalued at its current level based on various quantitative and qualitative factors.
The stock which has faced short term difficulties due to the severe recession was pushed down to irrationally low levels. Investors are overreacting due to Movado’s severe earnings decline and its suspension of its dividend for the foreseeable future. The company which has lost money the past several quarters is expected to lose money for the next several quarters. The stock is also undervalued because it is small and not covered by many analysts (as is the case with many small cap stocks)
One of the reasons Movado has a good future is that its balance sheet is as good shape as it has ever been. It is hard to find a company with a balance sheet as strong as Movado’s. The company has more cash and receivables than total debt. Its total assets are almost five times total debt. Furthermore the company has very little long term debt.
| PERIOD ENDING | 31-Oct-09 | 31-Jul-09 | 30-Apr-09 | 31-Jan-09 | |
| Assets | |||||
| Current Assets | |||||
| Cash And Cash Equivalents | 49,478 | 47,474 | 74,568 | 86,621 | |
| Short Term Investments | - | - | - | - | |
| Net Receivables | 105,469 | 76,689 | 66,110 | 76,710 | |
| Inventory | 228,766 | 248,187 | 241,603 | 228,884 | |
| Other Current Assets | 35,711 | 41,560 | 55,185 | 47,863 | |
| Total Current Assets | 419,424 | 413,910 | 437,466 | 440,078 | |
| Long Term Investments | - | - | - | - | |
| Property Plant and Equipment | 58,142 | 60,920 | 62,903 | 66,749 | |
| Goodwill | - | - | - | - | |
| Intangible Assets | - | - | - | - | |
| Accumulated Amortization | - | - | - | - | |
| Other Assets | 28,648 | 24,502 | 31,357 | 57,163 | |
| Deferred Long Term Asset Charges | 10,014 | 27,020 | 23,215 | - | |
| Total Assets | 516,228 | 526,352 | 554,941 | 563,990 | |
| Liabilities | |||||
| Current Liabilities | |||||
| Accounts Payable | 61,617 | 55,515 | 65,933 | 68,910 | |
| Short/Current Long Term Debt | - | - | 65,000 | 65,000 | |
| Other Current Liabilities | - | - | - | - | |
| Total Current Liabilities | 61,617 | 55,515 | 130,933 | 133,910 | |
| Long Term Debt | 24,910 | 40,000 | - | - | |
| Other Liabilities | 20,763 | 20,190 | 19,975 | 22,459 | |
| Deferred Long Term Liability Charges | 6,116 | 810 | 6,527 | 6,856 | |
| Minority Interest | 1,970 | - | 1,855 | 1,805 | |
| Negative Goodwill | - | - | - | - | |
| Total Liabilities | 115,376 | 116,515 | 159,290 | 165,030 | |
Movado based on its latest quarter 10Q, is trading at slightly above its liquidation value:
In Millions:
Cash * 100% 50,000
Receivables * 80% 84,375
Inventory * 65% 148,698
Other current assets * 50% 17,856
PP/E * 25% 14,535
Total 315,461
Minus Total liabilities 115,376
Total assets at
Liquidation value 200,085
Shares outstanding 24.57
Liquidation value
Per share 8.14
Movado closing price (Jan 10) 10.78
% trading above liquidation value 32%
Everyone has a different formula for liquidation value. For inventory I used 65% for its liquidation value. Inventory plays a big role here for Movado because a large percentage of their assets are inventory. I must note that most of their inventory is finished goods, which may have a higher value than raw materials or WIP. Therefore, it is possible a higher value should be assigned for the inventory, but to be conservative I am not using a higher value.
Below is the data from their recent 10-Q.
Inventories consist of the following (in thousands):
| October 31, 2009 | January 31, 2009 | October 31, 2008 | ||||||||||
| Finished goods | $ | 144,287 | $ | 146,073 | $ | 147,424 | ||||||
| Component parts | 63,104 | 81,423 | 79,322 | |||||||||
| Work-in-process | 21,375 | 1,388 | 9,988 | |||||||||
| $ | 228,766 | $ | 228,884 | $ | 236,734 | |||||||
The company is also cheap on the basis of EPS. I never use TTM EPS, since I believe it I much more accurate to take an average of EPS over the past several years. Diluted EPS over the past three years is 1.69. Based on a current share price of 10.78 Movado is trading at a 6.4 EPS.
Movado is trading at 0.7 P/S, and 13.7 P/CF (3 yr average). The company has P/B of 0.6 (which should not be a surprised since they are trading below liquidation value).
Movado is expected to grow EPS at 12% per annum. I take this number with a grain of salt since forecasts are usually wrong. Even with no growth, the stock is priced cheap.
The company also has some qualitative measure that I will not put a value on but add to the attractiveness of the stock. Although most of the earnings come from the US, a large percentage comes from overseas. in 2009 38% of net sales came from overseas. This gives the company a diversified sales base overseas which is helpful with a weak domestic consumer.
Geographic Segment Data for the Three Months Ended October 31, 2009 and 2008 (in thousands):
| Net Sales | Operating (Loss) Income (2) | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| United States | $ | 79,615 | $ | 79,021 | $ | (4,883 | ) | $ | 3,595 | |||||||
| International | 49,351 | 56,825 | 7,822 | 11,025 | ||||||||||||
| Consolidated total | $ | 128,966 | $ | 135,846 | $ | 2,939 | $ | 14,620 | ||||||||
Finally the company makes excellent watches that appeal to a variety of consumers. Its Tommy Hilfiger watches sell for as little as $40 and its Ebel watches sell for as much as $30,000.
The classic Movado watch has great brand recognition. A movado watch can be spotted from far away due to its unique looking design. In addition it makes high quality luxury watches for $1,000 that can compete with Rolexes that are several times the price. While I do not a number on these qualitative aspects it is clear that this is a great company selling far below its intrinsic value.
I am not the only investor who thinks Movado is a great value play. In a 13G released on Jan 07, 2010 Royce Funds run by guru Charles Royce revealed that they hold 10.59% of shares outstanding.
Long Movado
