Movado Q2: Higher Marketing Spend Shows Little Returns So Far

Core Viewpoint - Movado Group, Inc. reported disappointing Q2 results, leading to a significant stock decline of -15% and a downward revision of its FY2025 outlook, indicating ongoing brand weakness and ineffective marketing efforts [1][2][9] Financial Performance - Q2 revenues were $159.3 million, a slight decline of -0.7$8.8 million; however, they fell short of the company's own forecasts [2][3] - Operating expenses increased by $3.7 million to$83.3 million, resulting in a shallow operating income of $3.0 million and an EPS of$0.16, missing consensus estimates by $0.03 [3][4] - The gross margin decreased by 1.5 percentage points to 54.2$665-675 million, a decrease of -0.4% year-on-year at the mid-point, down from a previous range of $700-710 million [3][9] - Operating income expectations were also lowered to$23-26 million from $32-35 million, with$20 million in earnings pressure due to increased marketing spend [3][9] Marketing Strategy - Movado launched a new marketing campaign featuring five brand ambassadors, which requires successful execution to justify the increased marketing expenditure [4][9] - The campaign's effectiveness is questioned due to the perceived decline in cultural relevance of some ambassadors, raising concerns about its potential impact on sales [4] Valuation and Investment Outlook - Updated DCF model estimates Movado's fair value at $16.31, indicating a 13% downside from the current stock price, with a more conservative sales outlook post-FY2025 [5][6] - The company's capital allocation strategy, characterized by high cash reserves, contributes to an unattractive investment case, suggesting a potential 45% downside instead of 13% [6] Market Context - The luxury watch market is facing challenges, with competitors like LVMH reporting a -3% decline in watch and jewelry sales, reflecting broader macroeconomic pressures [3][9] - Despite increased marketing efforts, Movado's sales performance remains weak, indicating that the current strategy has not yet yielded positive results [2][9]