MOVADO GROUP INC annual report, FY2022

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MOVADO GROUP, INC. — FY2022 Form 10-K

Reporting period: Fiscal year ended January 31, 2022 (not a standalone fourth-quarter report). Movado designs, sources, markets and distributes watches, jewelry and accessories through owned and licensed brands, wholesale and e-commerce channels, and company outlet stores.

Financial performance

  • Net sales: $732.4 million, up 44.6% from $506.4 million in FY2021 and above FY2020’s $701.0 million. Foreign exchange added $9.2 million to the year-over-year increase.
  • Profitability: Gross profit was $419.1 million; gross margin was 57.2%, up from 53.4%. Operating income was $117.5 million, compared with an operating loss of $142.1 million. Net income attributable to Movado Group was $91.6 million, or diluted EPS of $3.87, versus a net loss of $111.5 million, or diluted loss per share of $4.80.
  • Costs and margins: SG&A was $301.6 million, up 17.5%, while falling to 41.2% of sales from 50.7%. Higher sales, a more favorable channel and brand mix, fixed-cost leverage and foreign exchange supported gross margin; increased shipping costs partly offset these benefits. Marketing expense was $119.1 million, or 16.3% of sales.
  • Cash flow: Operating cash flow was $130.8 million, versus $68.4 million. Investing used $7.9 million, including $5.7 million of capital expenditures. Financing used $66.6 million, including $22.6 million of share repurchases and $22.0 million of dividends.
  • Liquidity and debt: Cash and cash equivalents were $277.1 million at year-end, including $197.4 million at foreign subsidiaries; working capital was $402.4 million. No borrowings were outstanding under the $100 million revolving facility, with $99.7 million available. The facility maturity was extended to October 2026.
  • Other measures: Inventory was $160.3 million, up from $152.6 million; trade receivables were $91.6 million, up from $76.9 million. The company had $86.5 million of operating and finance lease obligations and $118.2 million of purchase obligations.

Changes versus the prior year

  • Sales increased across the Watch and Accessory Brands segment ($626.2 million, up 40.0%) and Company Stores ($106.2 million, up 79.8%). Company Stores benefited from stores being open for the year, greater demand, four new outlets and online outlet growth.
  • Both U.S. and international Watch and Accessory Brands sales rose. Direct-to-consumer and e-commerce growth, as well as increased sales of higher-margin owned brands, helped improve the sales mix.
  • FY2021 included $155.9 million of impairment charges—$133.7 million for goodwill and $22.2 million for MVMT intangible assets—related to pandemic-driven conditions. There were no comparable impairment charges in FY2022; this substantially affects the year-over-year profit comparison.
  • Fiscal 2021 also included $12.6 million of restructuring and other corporate-initiative charges. FY2022 included a $1.1 million reversal of certain prior-year charges.

Outlook, risks and contingencies

  • Management provided no specific FY2023 revenue or earnings guidance in the filing. It expects FY2023 capital expenditures of approximately $10 million and says it can manage discretionary spending. Management considers cash, operating cash flows and available credit adequate for operating, capital and debt-service needs over the next 12 months, and expects covenant compliance.
  • Management said pandemic-related impacts had diminished but could continue to affect supply chains, shipping, consumer behavior, tourism and retail traffic. Other cited risks include inflation, labor and commodity costs, shipping delays, foreign exchange, tariffs, online competition, fashion trends, smartwatches, customer credit and reliance on third-party manufacturers. More than 80% of products originate in Asia, mostly China; 52.7% of revenue was international.
  • Licensed brands generated 50.3% of net sales. The Scuderia Ferrari license ends June 30, 2022, with remaining inventory sell-through permitted through December 31, 2022. The Lacoste license was due to expire December 31, 2022; the company said it was working to finalize an extension through 2031. Calvin Klein products launched under the license in 2022.
  • Following Russia’s invasion of Ukraine, the company suspended sales to Russia and Belarus in March 2022; those sales were described as immaterial. Broader effects, including inflation and supply-chain impacts, remained uncertain.
  • A U.S. Customs dispute over watch-component values for tariff purposes could imply $5.1 million of duties, plus possible penalties and interest; the company disputes the proposed methodology and cannot predict the outcome. It also retained an accrual related to Chinese watch-case imports pending clarity on the retroactive effect of a tariff ruling.
  • During FY2022, the company committed up to $21.5 million to minority and fund investments, of which approximately $2.0 million was funded; remaining commitments may be called over time. Minimum license and endorsement commitments totaled $283.2 million, payable over five years.
  • Sales are seasonal: 57.9% of FY2022 net sales occurred in the second half. The company also identifies component-parts inventory valuation as a critical audit matter. PwC issued unqualified opinions on the financial statements and internal control over financial reporting.

Important facts for investors to verify

  • How much of the sales and earnings rebound reflects durable demand and channel growth versus recovery from pandemic-affected FY2021 comparisons?
  • Whether higher gross margins persist as sales mix, shipping costs, input costs and promotional activity change.
  • Progress and terms of the Lacoste license extension, and the sales and inventory implications of the Ferrari license ending.
  • Resolution, accrual adequacy and potential financial impact of the U.S. Customs duty dispute and tariff matters.
  • Inventory quality and component-parts assumptions, along with the timing of the $19.5 million of remaining investment commitments and other contractual obligations.
  • Cash availability for U.S. operations: $197.4 million of cash was held at foreign subsidiaries, while the credit agreement’s cash-netting provision applies to qualifying U.S. cash.