Movado Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2023, the first quarter of fiscal 2024. Comparisons are with the three months ended April 30, 2022. Financial amounts are in U.S. dollars; dollar figures below are in millions unless noted.
Business context and results
Movado designs, manufactures and distributes owned- and licensed-brand watches and accessories, and operates retail outlet stores. Its reporting segments are Watch and Accessory Brands and Company Stores.
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $144.9 | $163.4 | Down 11.3%; down 10.1% at constant currency |
| Gross profit / gross margin | $82.0 / 56.6% | $96.7 / 59.2% | Down $14.7; margin down 260 bps |
| SG&A | $71.1 | $71.4 | Down 0.4% |
| Operating income / margin | $10.9 / 7.5% | $25.3 / 15.5% | Down $14.4 |
| Net income attributable to Movado | $9.1 | $18.5 | Down $9.4 |
| Diluted EPS | $0.40 | $0.79 | Down $0.39 |
| Operating cash flow | $(21.5) | $(20.8) | Cash used increased $0.7 |
Financial position and liquidity
- At April 30, 2023, cash and cash equivalents were $198.3, down from $251.6 at January 31, 2023 and $225.3 a year earlier. Foreign subsidiaries held $117.9 of cash.
- Current assets were $525.4 and current liabilities $116.0, yielding reported working capital of $409.4. Inventories were $195.2, up from $186.2 at January 31, 2023 and $180.0 a year earlier.
- No borrowings were outstanding under the $100.0 revolving credit facility; $99.7 was available after letters of credit. No borrowings were outstanding under the Swiss bank lines either. The filing reports $113.0 in total liabilities, including operating lease liabilities, but no funded debt outstanding.
- Investing cash outflow was $2.9, including $2.3 of capital expenditures and $0.6 of long-term investments. Financing cash outflow was $30.3, primarily the $29.9 dividend payment and $0.4 of share repurchases.
Material changes and management commentary
- Sales declined in both principal segments: Watch and Accessory Brands revenue fell 12.4% to $125.6; Company Stores revenue fell 3.5% to $19.3. Lower wholesale demand and online retail sales were cited, partly offset by pricing increases. Foreign exchange reduced sales by $1.9.
- Gross margin fell 260 basis points, mainly due to unfavorable sales mix (about 260 bps) and foreign exchange (about 60 bps); lower shipping costs partly offset these impacts (about 70 bps). Segment operating income was $8.8 for Watch and Accessory Brands and $2.1 for Company Stores.
- SG&A was nearly flat: lower marketing and performance-based compensation were largely offset by higher payroll-related costs.
- The effective tax rate was 21.5%, versus 23.8% a year earlier. Other income included interest income and Swiss pension plan non-service items, partly offset by a $0.5 impairment of an equity investment.
Outlook, risks and unusual items
- The filing provides no specific quarterly or full-year sales, earnings or margin guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Risks discussed include consumer demand and economic uncertainty, inflation and interest rates, supply and shipping disruption, foreign-exchange movements, competition (including smartwatches), licensing arrangements, key suppliers and customers, and geopolitical developments. The company suspended sales to Russia and Belarus in March 2022; sales and assets in Russia, Belarus and Ukraine were described as immaterial.
- The company has $15.6 of remaining potential capital calls on venture-capital and other investment commitments. A $0.5 consumer-products investment was fully impaired in the quarter.
- A U.S. Customs audit had proposed $5.1 of duties, plus possible penalties and interest, for imports from 2011–2016. The company disputed the proposed methodology; the statute of limitations lapsed on May 1, 2023, and the company was analyzing the implications.
- The company paid a special dividend of $1.00 per share and a regular quarterly dividend of $0.35 per share. Future dividends remain at the board’s discretion. Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether lower wholesale demand and the weaker U.S. Watch and Accessory Brands results persist, and how sales mix and currency affect gross margin.
- Inventory levels, working-capital cash requirements and the timing of supplier payments and compensation payments.
- Cash available after the special dividend, future dividend decisions, and remaining share-repurchase capacity of approximately $20.6.
- Developments in the U.S. Customs matter following the statute-of-limitations lapse, and potential future calls on the remaining $15.6 of investment commitments.
- Exposure to currency movements and the effectiveness and financial-statement impact of the company’s hedging program.