MOVADO GROUP, INC. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. Comparisons are to the corresponding 2022 periods.
Business context and results
Movado designs, manufactures and distributes watches, jewelry and accessories through its Watch and Accessory Brands segment, and operates retail outlet stores through its Company Stores segment. Brands include owned labels such as Movado, Ebel, Olivia Burton and MVMT, and licensed labels including Coach, Tommy Hilfiger, Hugo Boss, Lacoste and Calvin Klein.
| Metric | Three months | Nine months |
|---|---|---|
| Net sales | $187.7 vs. $211.4; down 11.2% | $493.0 vs. $557.6; down 11.6% |
| Gross profit / margin | $102.3 / 54.5%, vs. $121.0 / 57.3% | $273.6 / 55.5%, vs. $324.6 / 58.2% |
| Operating income | $20.7 vs. $38.3 | $41.2 vs. $94.2 |
| Net income attributable to Movado | $17.4 vs. $29.3; diluted EPS $0.77 vs. $1.28 | $34.6 vs. $71.8; diluted EPS $1.53 vs. $3.12 |
| Operating cash flow | Nine months: $7.4 provided vs. $23.6 used |
Financial position and liquidity
- At October 31, 2023, cash and cash equivalents were $201.0, total assets $763.4, and working capital $412.1. Cash was $186.7 at October 31, 2022; working capital was $398.3.
- No borrowings were outstanding under the $100 million revolving credit facility; $99.7 million was available, net of letters of credit. The facility matures October 28, 2026. The company also reported no borrowings against its Swiss bank credit lines.
- Total liabilities were $260.5, including $92.8 of operating lease liabilities. The filing reports no conventional facility debt outstanding.
- Nine-month investing cash use was $8.8, including $6.6 of capital expenditures and $2.0 of long-term investments. Financing cash use was $48.6, including $45.4 of dividends and $2.3 of share repurchases. Cash, cash equivalents and restricted cash declined $50.4 from the start of the fiscal year.
Material changes and management commentary
- Sales declines reflected lower wholesale-customer demand and lower online retail across U.S. and international markets. Foreign exchange increased reported sales by $4.9 in the quarter and $5.7 for the nine months; excluding those benefits, sales fell 13.5% and 12.6%, respectively.
- Watch and Accessory Brands sales fell 11.3% in the quarter and 12.2% year to date. Company Stores sales fell 10.6% and 7.6%, respectively. Nine-month sales declined in both owned and licensed brand categories.
- Gross margin contracted by approximately 280 basis points in the quarter and 270 basis points year to date. Management cited unfavorable sales mix and lower fixed-cost absorption, partly offset by lower shipping costs; currency effects were a modest benefit in the quarter but a headwind year to date.
- SG&A declined 1.4% in the quarter but increased 0.9% year to date. Lower performance-based compensation helped offset higher payroll costs; foreign exchange increased SG&A by $1.7 in the quarter and $2.2 year to date.
- International sales were $111.1 in the quarter and $286.4 year to date; U.S. sales were $76.6 and $206.6, respectively. The filing’s geographic operating results show U.S. operating losses of $5.3 for the quarter and $17.9 year to date, versus income of $2.2 and $6.8 in the prior-year periods.
Outlook, risks and unusual items
- The filing does not provide a clear numerical full-year sales, earnings or margin guidance. Management cautions that interim results are not necessarily indicative of full-year results. It currently expects to continue declaring dividends, but each dividend is at the board’s discretion.
- Management identifies consumer spending and economic uncertainty, inflation and elevated interest rates, changing product preferences and competition from smartwatches, customer demand, supply and shipping disruptions, foreign exchange, tariffs, licensing relationships, and execution and investment risks among the factors that could affect results.
- After the statute of limitations expired on May 1, 2023 for the entries under a longstanding U.S. Customs tariff audit, the company released related reserves in the second quarter of fiscal 2024. The filing does not state the amount of the reserve release.
- The company recorded a $0.5 impairment of an equity investment after the investee sold its business and assets, with little or no expected return to equity holders. Other income also included interest income.
- The company had $14.2 of remaining commitments for minority and venture-capital investments, which may be called over periods generally ending up to ten years after the first capital call. It also disclosed a historical U.S. Customs claim implying $5.1 of duties, plus possible penalties and interest; the company says the limitations period has lapsed for all entries in the audit period and the related reserves were released.
- Ordinary-course legal matters were not expected to materially affect financial condition, future results beyond accrued amounts, or cash flows. The company reported effective disclosure controls and no material changes in internal control during the quarter.
Important facts for investors to verify
- Whether lower wholesale and online demand persists, and how sales and margins trend by geography, channel, and owned versus licensed brands.
- Whether the margin decline and reduced operating income stabilize as sales mix and fixed-cost absorption change.
- Cash conversion and working-capital movements, especially the $42.0 increase in trade receivables in the nine-month cash-flow reconciliation and the timing of customer receipts.
- The amount and earnings impact of the U.S. Customs reserve release, which is not clearly quantified in the filing text.
- Future capital returns and liquidity: dividends and repurchases alongside the $14.2 of remaining investment commitments and the $99.7 of revolver availability.