MOVADO GROUP, INC. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2015, three months ended April 30, 2014. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The interim statements are unaudited.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Net sales | $120.9 | $110.0 | +9.9% |
| Gross profit / margin | $65.2 / 53.9% | $59.9 / 54.5% | Profit +8.7%; margin down 0.6 percentage points |
| Operating income | $10.9 | $10.0 | +9.2% |
| Net income attributable to Movado | $7.4 | $8.2 | -10.3% |
| Diluted EPS | $0.29 | $0.32 | Down $0.03 |
| Operating cash flow | $(12.1) | $(17.8) | Outflow narrowed by $5.7 |
SG&A rose 8.6% to $54.2 million. Operating margin was approximately 9.0%, versus 9.1% a year earlier; net margin was approximately 6.1%, versus 7.5%. The effective tax rate increased to 31.6% from 28.8%.
Business and material changes
- Wholesale sales rose 9.7% to $109.7 million; retail sales increased 12.0% to $11.2 million. Retail operated 35 outlet stores, versus 33 a year earlier.
- International wholesale sales increased 13.8% to $58.6 million, supported chiefly by licensed brands; U.S. wholesale sales rose 5.4% to $51.0 million. Coach watch sales benefited from repositioning as a fashion watch brand and geographic expansion. Movado brand sales also benefited from product launches and marketing.
- International operating income increased to $11.8 million from $7.5 million. The U.S. geographic presentation reported an operating loss of $0.8 million, versus income of $2.4 million. Separately, MD&A describes a U.S. wholesale operating loss, including unallocated corporate expenses, of $2.4 million versus income of $1.3 million; investors should note the differing presentation.
- Foreign exchange movements increased sales by $1.6 million but reduced gross margin by approximately 0.8 percentage points. Product/channel mix reduced margin by about 0.5 points, partly offset by 0.7 points of fixed-cost leverage.
- Prior-year results included a $1.5 million pretax gain from the sale of a building, a nonrecurring item that helped lift prior-period income. The prior-year sale generated $2.2 million of cash proceeds.
Cash, liquidity and capital
- Cash and cash equivalents were $137.8 million at quarter-end, down from $157.7 million at January 31, 2014 and $141.5 million a year earlier. Short-term investments were $34.1 million, a six-month time deposit maturing July 24, 2014.
- Current assets were $481.0 million and current liabilities $68.3 million; the current ratio was approximately 7.0. Inventory was $184.4 million, up from $175.1 million a year earlier.
- The company had no outstanding debt. Its $25 million secured revolving facility had $20.5 million available at April 30, 2014 and matures March 12, 2015. Swiss subsidiary credit lines totaled $5.7 million, with no amounts drawn.
- Investing cash outflow was $1.5 million, mainly capital expenditures. Financing cash outflow was $8.3 million, including $5.3 million of share repurchases and $2.5 million of dividends.
- Management said cash, expected operating cash flow and borrowing capacity should meet working-capital needs for at least 12 months. Most foreign cash is designated to support international operations and is treated as permanently reinvested.
Outlook, risks and other items
- The filing provides no numerical earnings or revenue guidance. Management’s liquidity assessment is subject to actual operating performance and other uncertainties.
- The board approved a $0.10-per-share dividend on May 22, 2014, payable June 16 to shareholders of record June 2. Future dividends remain at the board’s discretion. The company also increased its quarterly dividend to $0.10 during the quarter.
- A March 2014 amended Lacoste license agreement extends the term through December 31, 2022.
- Key stated risks include consumer demand and economic conditions, product preferences and competition, seasonality, customer and supplier concentration, licensing and intellectual-property matters, international and currency exposure, store execution, and access to financing. The company hedges Swiss-franc exposure; its forward-contract portfolio was CHF 37.0 million equivalent. It held no gold futures hedges.
- Legal claims arise in the ordinary course; management did not expect pending matters to materially affect financial position, results or cash flows. The company reported no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth and product-category momentum persist, particularly in licensed brands and international markets.
- Whether gross-margin pressure from currency and mix continues, and whether elevated SG&A and U.S. wholesale losses improve.
- How working-capital movements affect cash generation, given the quarterly operating cash outflow and sizable inventory and receivables.
- Facility availability, covenant compliance and refinancing or renewal plans ahead of the March 2015 maturity.
- The effect of the prior-year building-sale gain on year-over-year earnings comparisons and the differing U.S. operating-result presentations in the filing.