Movado Group (NYSE:MOV) has reported a decline in sales and profitability for the third quarter of fiscal 2024 due to challenging retail conditions in Europe and the US. Despite these challenges, the company remains optimistic about its future prospects, citing a strong balance sheet and promising marketing initiatives.
Key takeaways from the earnings call include:
- Movado Group's sales decreased by 11.2% to $187.7 million in Q3, and operating profit was $20.7 million, down from $38.3 million in the previous year.
- The company maintained a strong balance sheet with $201 million in cash and no debt.
- Despite challenging retail conditions, the company is confident in its ability to navigate global challenges and drive growth through product innovation and marketing initiatives.
- Movado Group's brands, including Movado, Tommy Hilfiger, BOSS, Coach, Calvin Klein, Olivia Burton, and Lacoste, are launching new products and featuring them in holiday marketing programs.
- The company's brick-and-mortar Movado company stores business declined by approximately 6% in the third quarter but is expected to improve in the fourth quarter.
- The company reported a softening in their largest international market, Europe, with a decrease in gross profit.
- Movado Group plans to invest an additional $3 million in marketing for the Movado brand and continue its stock buyback program.
Despite a decrease in sales and profitability, Movado Group (NYSE:MOV) has maintained a strong balance sheet with $201 million in cash and no debt. The company reported a decrease in gross profit, primarily due to unfavorable channel and product mix, and a softening in their largest international market, Europe.
The company's brick-and-mortar Movado company stores business declined by approximately 6% in the third quarter but is expected to improve in the fourth quarter. Despite the challenging retail environment, Movado Group is confident in its ability to navigate global challenges and drive growth through product innovation and marketing initiatives.
Movado Group's brands, including Movado, Tommy Hilfiger, BOSS, Coach, Calvin Klein, Olivia Burton, and Lacoste, are launching new products and featuring them in holiday marketing programs. The company plans to invest an additional $3 million in marketing for the Movado brand and continue its stock buyback program.
CEO Efraim Grinberg stated that retailers currently have lower stocking levels compared to the previous year due to uncertainty about the future. However, he also mentioned that some competitors are facing financial stress, leading to higher levels of promotional activity. Despite this, Movado Group will not change its promotional cadence to avoid entering the highly promotional landscape, which can be detrimental to brand-building efforts.
In conclusion, despite the challenging retail conditions, Movado Group remains optimistic about its ability to navigate these challenges and drive growth through product innovation and marketing initiatives. The company plans to continue investing in brand building initiatives and manage discretionary spending tightly.
InvestingPro Insights
Movado Group's recent earnings report highlights the company's resilience in a tough retail environment, underscored by a strong balance sheet and strategic marketing efforts. To further understand Movado's financial health and future prospects, here are some insights based on real-time data and InvestingPro Tips.
InvestingPro Data indicates that Movado Group has a market capitalization of $579.12 million and a P/E ratio of 10.33, reflecting investor perceptions of the company's earnings potential relative to its share price. The company's revenue for the last twelve months as of Q2 2024 stands at $710.97 million, despite a decline of 7.66%.
A notable InvestingPro Tip is that Movado yields a high return on invested capital, which is a positive sign for investors looking for efficient use of their capital. Additionally, the company holds more cash than debt on its balance sheet, providing financial flexibility and stability, which is particularly valuable in uncertain economic times.
Investors may also take interest in Movado's dividend history, as the company has raised its dividend for 3 consecutive years, with a current dividend yield of 5.35%. This could be appealing to income-seeking shareholders, especially when considering Movado's strong cash position.
For readers interested in deeper analysis, there are additional InvestingPro Tips available, providing further insights into Movado's financial performance and stock valuation. Subscribers to InvestingPro can access these tips to inform their investment decisions, especially now that a special Cyber Monday sale offers a discount of up to 60% on subscriptions. To enhance the deal, use the coupon code sfy23 to get an additional 10% off a 2-year InvestingPro+ subscription.
Full transcript - Movado Group Inc (MOV) Q3 2024:
Operator: Good day, everyone, and welcome to the Movado Group, Inc. Third Quarter Fiscal 2024 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Rachel Schacter of ICR. Please go ahead.
Rachel Schacter: Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; and Sallie DeMarsilis, Executive Vice President and Chief Operating Officer and Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release. If any non-GAAP financial measure is used on this call, our presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release. Now I'd like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.
Efraim Grinberg: Thank you, Rachel. Good morning, and welcome to Movado Group's third quarter conference call. This morning, I will review the highlights of the quarter, current operating environment and progress on our strategic initiatives, and then Sallie DeMarsilis, our COO and CFO, will review our financial results in greater detail as well as our outlook. In an ongoing challenging environment for discretionary products in our largest markets in Europe and the United States, our company continued to report strong profitability, maintain a durable balance sheet and generate strong cash flow while investing behind our brands, people and product innovation to position the company to accelerate growth in the future. For the third quarter, our sales declined 11.2% to $187.7 million or 13.5% on a constant dollar basis. Our operating profit was $20.7 million versus $38.3 million last year. Our adjusted earnings per share were $0.78 against $1.31 in the third quarter last year. While the environment was challenging, we achieved noteworthy accomplishments. We continue to maintain a strong balance sheet with $201 million in cash and no debt, and we returned $47.7 million in dividends and stock repurchases to our shareholders during the first 9 months of this fiscal year. As the year has progressed, we have seen the challenging retail environment advance into more categories and retailers. As we proceed through the important holiday quarter, we are taking a cautious view while supporting important marketing initiatives to ensure that our brands get stronger while we navigate the uncertain retail climate and steer clear of the excessive promotional environment. The continued strength of our balance sheet allows us to build a strong foundation for the next period of growth from Movado Group. While we remain cautious for the holiday season, we are confident in our ability to navigate the current global challenges and emerge stronger as we have throughout our history. We believe that now is the time to drive change, drive innovation in both products and marketing and support our most important markets while continuing to grow emerging markets like India and newer brands like Calvin Klein. During the review -- turning to the review of the quarter. For the third quarter, our U.S. business declined by 12.3% and our international business declined by 10.4% as the retail environment remained challenging and retailers around the world focused on bringing down inventories as they enter the fourth quarter. Despite this backdrop, we're excited about the key products that we are featuring in each of our brands and the marketing initiatives that we have in place to help drive holiday sales. As we have talked about on previous calls, we are pleased with the rollout of our Movado brand Refresh, which began in September and will hit critical mass during the important holiday quarter, iconic brands need to continue to evolve while staying true to their heritage and DNA. Having been founded in 1981 and with a rich history, Movado is one of those brands. In September, we rolled out new brand imaging inspired by Movado logo from the 1920s. In October, November, our new Movado brand advertising campaign began to appear in magazines, digital venues and out-of-home. We have already received very encouraging feedback from customers, and we expect to see the positive impact of both these new creative efforts as well as increased investments during the important holiday quarter. During the holiday season, consumers will see our new TV commercials on cable networks and on YouTube TV, an increasingly popular venue for consumers. We are also introducing new product families, and we're already seeing strong demand for our new Movado Bold Evolution 2.0, which was introduced during the third quarter. In addition, our continued emphasis on automatic watches saw Movado sales in this category increased by over 65% in the third quarter. As we had discussed during our second quarter conference call, we anticipated the fashion watch and jewelry category would remain challenging in Europe. For the quarter, our licensed brands declined by 12.6% as middle-class consumers were pressured by increasing inflation. Our team has worked diligently to update our fashion watch and jewelry strategy to succeed in an evolving landscape, and we expect this effort to begin to gain traction next year. In each of our brands, we are focused on introducing longer-lasting iconic families, supported by comprehensive marketing campaigns and compelling storytelling. This holiday season, we're seeing a strong response from our retailers to our new product introductions in each of our brands. In Tommy Hilfiger, we're introducing the new TH 85 automatic watch that we believe will be an icon for the Tommy Hilfiger brand. We will be featuring this family in our billboard campaign and in-store through a special feature display. In BOSS, we're introducing a new range of modern lux watches in the -- modern sport watches and the candor collection. Candor features an integrated bracelet and will be available both in automatic and quartz. Candor is right on trend, and we will continue to expand this collection and feature it in our seasonal marketing programs. In addition, we have introduced Troper aggressively priced Chronograph collection in both bracelets and straps. In the jewelry arena, we are featuring our Heavy Link Olympia collection and ads with British actress, Suki Waterhouse. In our Coach brand, we have seen a strong response from consumers to our Elliot collection, which was introduced earlier this year. We're also introducing a new small square shaped collection [indiscernible] , which is right on the current trend of smaller shaped watches. We're also expanding the iconic 12.12 family in Lacoste into automatics and introducing a new diver inspired collection for Lacoste Finn we'll be featuring both our new 12.12 automatic and Finn in our holiday marketing programs. A little more than 18 months into our launch of our Calvin Klein brand, we're building our distribution and fine-tuning the product assortment. We are seeing success in our iconic twisted bezel collection and our charming bangle watch collections in addition to our iconic jewelry families. For the holiday season, we are launching the new elated bangle family, which has received a strong response from retailers around the world. On the marketing front, we are featuring Lila Moss in our advertising campaign. For Olivia Burton, we're seeing a strong response from consumers to two new leading families, our Shaped Grosvenor watch and our new Collection, a boyfriend size family. Both of these new collections are driving strong performance on our OB website. In addition, we are encouraged by the positive response we've gotten to our new honeycomb jewelry collection. We saw a brick-and-mortar Movado company stores business declined by approximately 6% for both the third quarter and the first 9 months of fiscal 2024. We are already seeing improvements during the fourth quarter. As it relates to our outlook, while we have seen some trend improvement in recent weeks and are beginning to see the impact of our new Movado marketing initiatives, we felt that it was prudent to modify our outlook given the uncertain retail environment and the challenges that retailers are experiencing in the U.S. and even to a greater extent in Europe, our two largest markets. We remain excited about the opportunities that lie ahead and our teams are energized as they develop innovation on the product and marketing front for the balance of this year and most importantly, as we prepare for next year. As a company, we have a long history of overcoming significant changes, both in the watch and jewelry categories and in the retail marketplace and are confident that we will continue to do so. We have a healthy balance sheet with a strong cash position and no debt, which allows us to invest for the future while ensuring that we execute to support our brands and our businesses. I would now like to turn the call over to Sallie.
Sallie DeMarsilis: Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the third quarter and year-to-date period of fiscal 2024, and then I will provide an update on our outlook for the year. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the third quarter and year-to-date period of fiscal 2024 and fiscal 2023 and our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Overall, our performance for the third quarter of fiscal 2024 continued to be negatively impacted by a challenging retail environment. Despite being down year-over-year, we continued to make good progress on our strategic initiatives and maintained an extremely strong balance sheet. Turning to a review of the quarter. Sales were $187.7 million as compared to $211.4 million last year, a decrease of 11.2%. In constant dollars, the decrease in net sales was 13.5%. Net sales decreased across owned brands, licensed brands and company stores. By geography, U.S. net sales decreased 12.3% as compared to the third quarter of last year. International net sales decreased 10.4%. On a constant currency basis, International net sales decreased 14.4% with continued softening in our largest international market, Europe. Gross profit as a percent of sales was 54.5% compared to 57.3% in the third quarter of last year. The year-over-year decrease in the gross margin rate was anticipated and primarily driven by unfavorable channel and product mix and the deleverage of certain fixed costs over lower sales, partially offset by lower shipping costs and the favorable impact of foreign currency exchange rates. We expect the tough comparison to last year to continue into the fourth quarter. Operating expenses were $81.3 million as compared to $82.1 million for the same period of last year. The slight decrease was driven by a decrease in performance-based compensation, partially offset by an increase in payroll-related costs and marketing expense. As a result of the reduction in sales and gross margin, operating income decreased to $21.1 million as compared to $38.9 million in the third quarter of fiscal 2023. We recorded approximately $1.5 million of other nonoperating income in the third quarter of fiscal 2024, which was primarily comprised of interest earned on our global cash position as compared to $300,000 during the same period of last year. We recorded income tax expense of $4.6 million in the third quarter of fiscal 2024 as compared to $8.6 million in the third quarter of fiscal 2023. Net income in the third quarter was $17.7 million or $0.78 per diluted share as compared to $29.8 million or $1.31 per diluted share in the year ago period. Now turning to our year-to-date results. Sales for the 9-month period ended October 31, 2023 were $493 million as compared to $557.6 million last year. Total net sales decreased 11.6% as compared to the 9-month period of fiscal 2023. In constant dollars, the decrease in net sales was 12.6%. International net sales decreased 10.3% or 11.1% on a constant currency basis. U.S. net sales declined by 13.4%. Gross profit was $273.6 million or 55.5% of sales as compared to $324.6 million or 58.2% of sales last year. The decrease in the gross margin rate for the first 9 months was primarily due to unfavorable channel and product mix. The deleverage of higher fixed costs on lower sales and the unfavorable impact of foreign currency exchange rates, partially offset by decreased shipping costs. For the 9 months ended October 31, 2023, operating income was $42.9 million compared to $96.4 million in fiscal 2023. We recorded approximately $3.8 million of other nonoperating income in the 9-month period of fiscal 2024, which is primarily comprised of interest earned on our global cash position as compared to $300,000 during the same period of last year. Net income was $35.9 million or $1.58 per diluted share as compared to $73.5 million or $3.19 per diluted share in the year ago period. Now turning to our balance sheet. Cash at the end of the quarter was $201 million as compared to $186.7 million at the same period last year. During the first 9 months of fiscal 2024, we had positive cash flow from operations of $7.4 million. Accounts receivable was $135.5 million, flat to the same period of last year due to timing and mix of business. Inventory at the end of the quarter was down $43 million or 20% below the same period of last year due to the timing of receipts and alignment with sales. In the first 9 months of fiscal 2024, we repurchased approximately 86,000 shares under our share repurchase program. $18.6 million remains available under that program. Capital expenditures for the 9-month period were $6.6 million and depreciation and amortization expense was $7.3 million, which included $1.7 million related to the amortization of acquired intangible assets of Olivia Burton and MVMT. Now I would like to discuss our outlook. As Efraim mentioned, we are operating in a challenging retail environment, especially in our key markets, the United States and Europe. Our net sales are currently expected to be in a range of $665 million to $675 million. We continue to expect gross profit of approximately 55% of sales for the year. As previously discussed, we are prudently investing in our brand building initiatives while we continue to tightly manage our discretionary spending, and therefore, expect operating income in a range of $51 million to $55 million. Based on our global footprint and our estimated jurisdictional taxable income, we continue to anticipate a 23% effective tax rate with an expected range of earnings of $1.85 to $2 per diluted share. I would now like to open the call up for questions.
Operator: [Operator Instructions]. Our first question is from Michael Legg with the Benchmark Company. Please proceed. Michael, please check and see if your phone is muted.
Michael Legg: Sorry about that. A couple of questions. First, I just want to start with the general question. Digital watches seem to have been pretty strong during season so far. Can you comment on the impact, if you see any of that or if that's something that you're not competing with?
Efraim Grinberg: We really don't compete in that category. We will have a few anti-digi analog digital watches and I don't know if you're talking specifically about digital watches or smart watches and -- but we're not really in that category.
Michael Legg: But does it eat away at the share of the traditional watch market, is really the question.
Efraim Grinberg: I don't think so. I mean I think within the fashion category, we do have some digital watches, but we're not seeing any particular level of strength in that category versus any others. We're actually seeing better strength in products that actually have a more mechanical component to them like automatic watches.
Michael Legg: Okay. You noted in the fourth quarter that current trends you've seen some trend improvement. Obviously, we have the outlook you gave us, so we know where we are. But how important is the month of December in the quarter? And was that kind of a wildcard that we don't know about?
Efraim Grinberg: Yes. I think that the month of December is very important for us, especially in our direct channels, which has an impact obviously on our overall performance for the quarter, but as well as our wholesale channel, and again, in our biggest markets in Europe and the U.S. and how retailers do for that do during that period, which then leads to can lead to stronger replenishment in the month of January.
Michael Legg: Okay. And then when you look at today's current stocking levels at the retail level, how do you think that compares to where we were a year ago from the retailer stocking level?
Efraim Grinberg: Retailers are down. That is one of their -- they've really been focused as they don't have as much visibility into the future on bringing their inventories into control. Last year, I would say they went into the holiday season with much heavier inventories anticipating a stronger holiday season, and then we're disappointed.
Michael Legg: Okay. And what are you seeing from a competitive promotional activity perspective? Are you seeing a lot of discounting out there? What are you seeing?
Efraim Grinberg: Yes. I think there are some of our competitors within different companies that are stressed from a financial perspective, and you're starting to see them with a higher level of promotionality and that's why we're not changing our promotional cadence for this year versus what it's been and that certainly has an effect on the competitive channel. But I think eventually, it's the right thing to do, not get into promotional and into the highly promotional landscape, which, in the end, is a detriment to brand -- our brand-building efforts.
Michael Legg: And then talk about the brand building efforts, can you compare the level of marketing spend you expect to spend in current to '24 or I should say, fiscal '25 versus where you spent last year? Just kind of -- even though we're doing -- I know we're doing the brand-building campaign, but is this -- are we putting more money behind it also?
Efraim Grinberg: Yes. I think we are definitely putting -- we will invest in the U.S., I mean, behind the Movado brand, an additional $3 million versus last year, and that's built into our numbers. And we think it's an important investment to make, and we're happy to be able to do it, and are starting to see some green shoots around those efforts.
Michael Legg: Great. And then just last question. Any areas that you're pulling back on from a spend perspective given the difficult environment?
Efraim Grinberg: Yes. I think as we look at different markets around the world, we certainly adjust our marketing investments. And one of the things that we are focused on as a company and is to make bigger bets, but fewer of them, so to make sure that we get to critical mass levels in certain areas. And I'm looking forward to -- we're already planning for next year. And I think that as we do that, we're really going to be focused on building our biggest markets behind our biggest brands.
Michael Legg: Great. And then just on the stock buyback, clearly, you have $18.6 million left on that. I would expect you to continue to be doing that. Any other use of cash like a special dividend or anything like that?
Efraim Grinberg: I think our focus right now is maintaining our current dividend and offsetting dilution with our stock repurchases.
Michael Legg: Great. Thank you.
Efraim Grinberg: Thank you very much, Mike.
Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.
Efraim Grinberg: I'd like to thank all of you for participating today, and we look forward to regrouping with you on our next conference call after our year-end and wish everybody great holiday season. Thank you.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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