Rays of Light in an Uncertain Economy

 | Dec 02, 2011 | 11:30 AM EST  | Comments
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I admit that I have not been all that upbeat about the U.S. economy or its prospects. Part of that is due to the remnants of my undergraduate training in the Austrian school of economics, while part is derived from what I see happening around me. We can't seem to shake 9% unemployment, and that reported number is severely undercutting the true picture.

The real estate markets are still compromised and looking for a bottom. We continue to try and fix every issue by essentially printing more money. We are afraid to let anything fail, and are unwilling to take short-term pain, yet deep down we know that we may be creating even bigger problems down the road. There's nothing new here, and you've heard it all before, but it is frightening still the same. I hope that I'm wrong.

I am seeking the good though -- for indicators, even small ones -- that our economy is in some sort of recovery mode. Occasionally I find something interesting that gives me some hope. Perhaps they are meaningless in the scheme of things, but perhaps not.

For instance, there's fine watch maker Movado (MOV), a member of my JIMS CRAB FEST portfolio for cheapskates, which reported some pretty good third-quarter numbers yesterday. This is not the type of company that you'd expect to be doing well in tough economic times. For the quarter, revenue rose 16% to $142.6 million, while net income fell about 4% to $16.4 million, or $0.65 per share (last year's EPS was $0.52, excluding $4.3 million in a "nonrecurring benefit"). Earnings were well ahead of the $0.43 estimate, although there is just one analyst covering the stock. Gross margins rose 80 basis points to 56.8%.

Perhaps most interesting, the company also dramatically raised guidance for 2012, with earnings per share in now projected between $0.93 and $0.98, well ahead of the previous $0.60-to-$0.65 range. The balance sheet improved further, and Movado ended the quarter with $138 million in net cash, or about $5.50 per share, and no debt. If "Black Friday" and "Cyber Monday" are true indicators of the 2011 holiday retail season, next quarter -- which is typically not a very strong one for the company -- could be interesting, too. It's a ray of light, however small.

Krispy Kreme (KKD) also beat expectations for the third quarter. Revenue came in at $98.7 million, up 9.4% for the same period last year, and beating the $97.6 million consensus estimate. Net income doubled to $4.7 million, and earnings per share of $0.07 beat the $0.06 estimate. Perhaps not as potentially meaningful as Movado's results, it does represent the continued progress of Krispy Kreme, which seems to essentially be coming back from the dead. Krispy Kreme same-store sales rose a healthy 4% -- the 12th consecutive quarterly increase. The balance sheet still looks decent, with $37.5 million in cash and $27.5 million in debt. This is not the same Krispy Kreme we saw in the early 2000s.

I'll keep looking for small nuggets of good news. We could use some more of them.

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