MOVADO GROUP, INC. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 31, 2021, compared primarily with fiscal 2020. This is an annual report, not a standalone fourth-quarter filing. Movado designs, sources, markets and distributes watches and accessories through owned and licensed brands, wholesale and e-commerce channels, and 47 outlet stores.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $506.4 million | $701.0 million |
| Gross profit / margin | $270.5 million / 53.4% | $374.9 million / 53.5% |
| SG&A | $256.7 million (50.7% of sales) | $331.9 million (47.3% of sales) |
| Goodwill and intangible impairment | $155.9 million | None |
| Operating income (loss) | $(142.1) million | $43.0 million |
| Net income (loss) attributable to Movado | $(111.5) million; $(4.80) per diluted share | $42.7 million; $1.83 per diluted share |
| Cash from operating activities | $68.4 million | $32.1 million |
| Cash and cash equivalents at year-end | $223.8 million | $185.9 million |
| Bank debt at year-end | $21.2 million | $51.9 million |
| Working capital | $374.0 million | $355.3 million |
- Sales fell 27.8%, principally due to COVID-19 store closures and restrictions. Watch and Accessory Brands sales declined 26.9% to $447.4 million; Company Stores sales declined 33.3% to $59.0 million.
- Gross margin was nearly flat year over year despite lower sales. Cost savings and foreign exchange benefits were largely offset by reduced fixed-cost leverage, inventory reserves and tariffs. SG&A declined 22.7%, but increased as a proportion of sales.
- The $155.9 million impairment comprised $133.7 million of goodwill and $22.2 million of MVMT intangible assets. Goodwill was reduced to zero. Excluding the impairment, reported operating results would have been substantially different; the filing does not present a single consolidated adjusted operating-income measure.
- Operating cash flow increased year over year, supported in part by noncash impairment charges and lower inventory. Investing activities used $1.9 million; financing activities used $34.4 million, including net repayments of bank borrowings.
- At year-end, $150.9 million of cash was held at foreign subsidiaries. The $100 million revolving facility had $78.5 million available; the facility matures October 2023. The filing says management believes available cash, operating cash flow and credit lines are adequate for the next 12 months.
Material changes, outlook and risks
- COVID-19 response: The company reported approximately $90 million of FY2021 SG&A savings versus FY2020, with about half expected to recur in FY2022. A permanent workforce reduction generated about $9 million of FY2021 savings; management expected approximately $16 million of savings in FY2022 from that action. The company also received about $6 million in government payroll subsidies during FY2021.
- Outlook: No specific revenue or earnings guidance is provided. Management expected COVID-related adverse effects on retail and wholesale sales to continue into FY2022, while noting significant uncertainty around the pace of recovery. FY2022 capital expenditures were estimated at approximately $10 million, versus $3 million in FY2021.
- Capital returns: The company paid no dividends during FY2021, but paid a $0.10-per-share dividend on February 5, 2021 and declared a further $0.20-per-share dividend for April 21, 2021. In March 2021, the board authorized a new share repurchase program of up to $25 million through September 30, 2022.
- Debt covenants: COVID-related amendments temporarily relaxed or suspended certain facility covenants and restricted dividends and repurchases. The suspension period ended after the company met specified financial milestones as of January 31, 2021; investors should review the ongoing covenant requirements and borrowing costs.
- Contingencies and unusual exposures: U.S. Customs disputes the company’s method for allocating imported watch costs for tariff purposes; its proposed methodology implies $5.1 million of duties for the period under review, plus potential penalties and interest. The company disputes the position and cannot predict the outcome. Separately, management estimated potential gross-profit exposure from U.S. special tariffs of $2–$3 million in FY2022 if imports return to pre-COVID levels and no offsets occur; this is not company guidance.
- Other risks: The company relies on licensed brands, independent manufacturers and concentrated suppliers of Swiss movements; a key supplier announced it would stop selling mechanical Swiss movements to third parties. Additional risks include consumer demand and channel shifts, foreign exchange, tariffs, cybersecurity and data privacy, and the ongoing pandemic. The company also reported $292.2 million of minimum license and endorsement commitments payable over six years.
- Audit and controls: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Goodwill impairment valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether sales, margins and cash generation recover as pandemic-related restrictions ease, and whether the projected recurring cost savings are achieved without impairing growth.
- Whether the goodwill and MVMT intangible impairments indicate lasting deterioration in brand prospects, and whether further impairment tests are required.
- How much liquidity is practically available, including the location and usability of foreign-held cash, and whether the company continues to meet facility covenants.
- The outcome and potential financial impact of the U.S. Customs duty dispute and the effect of tariffs, sourcing changes and the mechanical-movement supply disruption.
- The renewal terms, minimum sales requirements and economics of major brand licenses, particularly the Lacoste and Scuderia Ferrari agreements expiring in 2022.