Movado Group Inc. made news on two fronts on Tuesday: It reported a 12.9 percent gain in its third-quarter profits and announced a licensing agreement to produce a full line of watches under the Coach brand.
The licensing agreement is the first for the prominent Coach leather goods brand. The 10-year contract gives fine watchmaker Movado the exclusive worldwide rights to design, manufacture and distribute Coach watches for men and women.
The Coach watch collection will debut at the Basel Watch Fair in Switzerland in April 1998, and it be launched in Coach stores and fine jewelry departments of select department and specialty stores beginning that spring. In addition, the line will be sold through Coach’s catalog, which is mailed to more than 8 million households in the U.S.
After the U.S. launch, the watches will be rolled out internationally in fall 1998, according to Lew Frankfort, chairman and chief executive officer of Coach.
“Watches are a natural extension of the Coach franchise,” said Frankfort, interviewed along with Efraim Grinberg, Movado’s president. “According to our consumer research, fine watches are frequently associated with leather goods. Also, both are accessories, which are often sold in adjacent and similar environments.”
Frankfort added that quality and long-term value were the reasons behind choosing the higher-end watch market instead of the more volume-driven fashion watch arena.
“Our products need to provide lasting value. Both companies agreed that we needed to produce and position the watch line at a price that would meet and exceed our consumer’s expectations. We also found through our research that our customers own watches at and above these price levels,” Frankfort said.
This is Movado’s first foray into working with an established consumer brand outside of the watch field. While neither executive would give a sales projection, Grinberg predicted the venture will be a “home run,” positioned above such watch brands as Seiko and Citizen and very competitive with such names as Gucci, Raymond Weil and even his firm’s Movado brand.
“There is a big opportunity here. We are looking for voids in the marketplace. Coach will fill a void for classic dress and elegant sport watches,” said Grinberg.
The Coach line’s retail price range — from $195 to $795 — is higher than the Movado Group’s ESQ line and lower than its Movado line.
Coach watches will feature Swiss movements and both leather strap and bracelet models. Frankfort said the watch collection will also incorporate signature Coach elements like its range of colored leathers for straps, for example.
Coach, founded in 1941, is a division of Sara Lee Corp., with worldwide distribution of its products for men and women, which include handbags, business cases, belts, small leather goods and shoes. Coach men’s apparel, launched in September 1995, is sold in select U.S. markets.
Meanwhile, Movado’s profits in the third quarter ended Oct. 31 rose to $7.35 million, or $1.22 a share, from $6.5 million, or $1.08, a year ago. Sales also advanced 12.9 percent, to $76.9 million from $68.1 million.
“Gross margins improved throughout the year, benefiting from continued growth in our manufactured brands Movado, ESQ and Concord,” said Grinberg. Gross margins in the latest quarter increased to 55.9 percent of sales from 53.1 percent a year ago.
Grinberg said the company saw particularly strong performances of its new lines. “Veneto, our recent introduction in the Concord brand, and Vizio, our new Movado watch, have been well-received in both domestic and international markets,” he said.
In the nine months, profits rose to $8.6 million, or $1.42, from $6.9 million, or $1.15, after a $600,000 one-time pretax accounting charge in connection with adoption of new accounting standards relating to amortization of advertising production costs.
Sales moved ahead 13.1 percent to $158.6 million from $140.3 million. Gross margins rose to 55.4 percent of sales from 53 percent.
Although earnings in the latest quarter beat Wall Street estimates of $1.20, Movado’s stock in over-the-counter trading Tuesday slipped 3/4 to close at 26 1/2.
In addition to its Movado and ESQ watches, Movado manufactures and distributes Concordwatches. It also is the exclusive distributor of Swiss-made Piaget and Corum watches in the U.S., Canada, Central America and the Caribbean.