The Wristwatch Is Still Ticking

by Will Ashworth | August 20, 2012 12:37 pm

Recently, the Swatch I’ve been wearing for over a decade decided to check out permanently. I’ve been watchless ever since. For anyone with a cell phone, that’s no big deal. However, I’m one of those oddballs who doesn’t own a phone, and so I’m forced to check parking ticket machines to find out the time.

But it turn out that if I do buy a new wristwatch, I won’t be alone. The Los Angeles Times reported last week that wristwatches are making a comeback[1]. It seems the younger generation is using them as a fashion statement rather than a timekeeper. It’s all good for the industry.

And a careful reading of the LA Times article reveals several investment ideas.

The first is Swatch Group (PINK:SWGAY[2]), the makers of my recently deceased watch. In addition to the lower-end namesake brand, Swatch makes high-end brands like Omega, Breguet and Blancpain. Swatch Group is the world’s biggest watchmaker with profits expected in 2012 of $1.52 billion. Asia accounts for 50% of its worldwide revenue. In China, it has over 50% market share with Omega accounting for 25% of its revenues in the country.

Berenberg Bank predicts its company-owned stores, which currently account for 15% of revenue, could represent as much as 35% by 2016. It’s a company with $2.75 billion in net cash and lots of room to grow. As David Winters, portfolio manager of the Wintergreen Fund (MUTF:WGRNX[3]) and owner of 5% of Swatch’s stock suggests, “It’s a great company.”

Next up is Fossil (NASDAQ:FOSL)[4], the Dallas-based maker of watches and other fashion accessories. It’s been a crazy year for its stock, which is up 13% as of Aug. 17, despite a 40% drop in May after it announced lower expectations for the rest of 2012.

All is not lost, however, because Fossil shares gained more than 30%[5] after announcing stronger-than-expected second-quarter earnings and forecast 2012 earnings of $5.34 per share. Ironically, while Europe was part of the reason its stock dropped in May, it seems the continent will also be responsible for part of its future growth, thanks to the January acquisition of Skagen Designs, a Danish watchmaker.

With a whole generation of smartphone users realizing they’ve missed out on wristwatches as a fashion statement, look for Fossil to score big.

The company that I’m most impressed with is Movado (NYSE:MOV[6]), whose business until recently was on the industry’s scrap heap. After losses in fiscal 2010 and 2011, the founding Grinberg family chose to close its retail stores that were losing money in the second quarter of fiscal 2010 to focus on its wholesale business. The move paid off handsomely. At the end of May, while announcing its first quarter earnings, Movado projected revenues for the entire fiscal 2013 would increase by 9% to between $505 million and $510 million, with earnings increasing 25% to $1.15 a share.

In the biggest expression of confidence by management and its board, Movado paid a 50-cent special dividend in May in addition to its regular quarterly payment of 5 cents a share. With the watch business ticking smartly, look for its stock to easily push through its 52-week high of $29.97 by year-end.

Finally, although not mentioned specifically in the LA Times article, you could also invest in luxury conglomerates Richemont (PINK:CFRUY[7]) or LVMH (PINK:LVMUY[8]), which own several luxury watch brands including Cartier, Baume & Mercier, Tag Heuer and Hublot among others.

The wristwatch’s time is now.

As of this writing, Will Ashworth didn’t own any securities mentioned here.

Endnotes:
  1. wristwatches are making a comeback: http://www.latimes.com/business/la-fi-watches-comeback-20120816,0,3548179.story
  2. SWGAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWGAY
  3. WGRNX: http://studio-5.financialcontent.com/investplace/quote?Symbol=WGRNX
  4. FOSL): http://studio-5.financialcontent.com/investplace/quote?Symbol=FOSL)
  5. Fossil shares gained more than 30%: http://investorplace.com/2012/08/where-fossil-differs-from-luxury-brands/
  6. MOV: http://studio-5.financialcontent.com/investplace/quote?Symbol=MOV
  7. CFRUY: http://studio-5.financialcontent.com/investplace/quote?Symbol=CFRUY
  8. LVMUY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LVMUY

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