Movado Group, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2025, the three months ended April 30, 2024. Comparisons are with the three months ended April 30, 2023 unless noted. Movado designs, manufactures and distributes watches and accessories through owned and licensed brands, and operates retail outlet stores.
Key financial results
| Metric | Q1 FY2025 | Q1 FY2024 | Change |
|---|---|---|---|
| Net sales | $136.7 million | $144.9 million | Down 5.7% |
| Gross profit / margin | $75.5 million / 55.3% | $82.0 million / 56.6% | Margin down 1.3 percentage points |
| Operating income | $3.3 million | $10.9 million | Down $7.6 million |
| Net income attributable to Movado | $2.9 million | $9.1 million | Down $6.2 million |
| Diluted EPS | $0.13 | $0.40 | Down $0.27 |
| Cash used in operating activities | $18.1 million | $21.5 million | Outflow narrowed by $3.4 million |
Sales weakness reflected lower wholesale customer demand in the U.S. and international markets, partly offset by stronger U.S. online retail sales and a $0.6 million favorable foreign-exchange impact. Gross margin fell mainly due to sales mix and lower fixed-cost absorption, partly offset by lower shipping costs. SG&A rose 1.5% to $72.2 million, primarily from higher payroll costs.
Segments and material period changes
- Watch and Accessory Brands: Sales were $119.4 million, down 4.9%; operating income was $2.9 million versus $8.8 million. Owned-brand sales declined to $39.9 million from $45.1 million; licensed-brand sales declined to $76.4 million from $80.2 million.
- Company Stores: Sales were $17.3 million, down 10.7%; operating income was $0.5 million versus $2.1 million. The company operated 55 outlet locations in both periods.
- Other income increased to $2.2 million from $1.0 million, primarily reflecting interest income; the prior-year period included a $0.5 million impairment of an investment.
- The effective tax rate increased to 42.9% from 21.5%, primarily because of limits on certain foreign tax credits and GILTI-related deductions and no tax benefit recognized on certain foreign losses.
- Comprehensive loss attributable to Movado was $7.3 million, versus comprehensive income of $13.2 million, primarily reflecting a $10.3 million foreign-currency translation loss.
Cash, debt and liquidity
- At April 30, 2024, cash and cash equivalents were $225.4 million, compared with $198.3 million a year earlier and $262.1 million at January 31, 2024. Foreign subsidiaries held $155.5 million of cash.
- Working capital was $410.3 million, compared with $409.4 million at April 30, 2023. Current assets were $517.3 million and current liabilities were $107.0 million.
- Inventory was $159.6 million, down from $195.2 million year over year but up from $148.0 million at January 31, 2024. Management attributed the quarterly operating cash outflow in part to a $16.0 million inventory increase related primarily to receipt timing, and net tax-related payments of $8.8 million.
- No revolving-credit borrowings were outstanding. The $100 million facility had $99.7 million available and matures October 28, 2026. The Swiss subsidiary also had an undrawn $7.1 million equivalent line of credit.
- Investing cash outflow was $4.8 million, including $3.1 million of long-term investments and $1.6 million of capital expenditures. Financing cash outflow was $9.9 million, including $7.8 million of dividends and $1.1 million of open-market share repurchases.
Outlook, risks and unusual items
- The filing provides no specific fiscal 2025 revenue or earnings guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management cites risks including consumer demand and economic uncertainty, inflation and elevated interest rates, geopolitical disruptions and shipping costs, foreign-exchange movements, competition and changing consumer preferences, supplier and customer concentration, licensing arrangements, and execution of business strategies. The filing reports no material changes to the risk factors in the fiscal 2024 Form 10-K.
- The company hedges certain currency exposures; it held no gold futures at quarter-end, leaving gold-price changes to affect cost of sales. Forward contracts carried a net $0.7 million liability for non-designated derivatives and a $0.1 million asset for designated hedges.
- The company had $10.0 million remaining under investment commitments to venture-capital funds and other investments, which may be called over time. Its board-approved repurchase program had $16.8 million remaining and was scheduled to run through November 23, 2024.
- Routine legal matters were not expected to materially affect financial condition, results or cash flows beyond accrued amounts. A prior U.S. Customs tariff matter was resolved for reserve purposes after the limitations period expired in May 2023; the company released related reserves in fiscal 2024. Other legal proceedings are described as not expected to have a material effect.
- The company expects to continue considering quarterly dividends, but future declarations and amounts are at the board’s discretion. The current-quarter dividend was $0.35 per share; the prior-year quarter included an additional $1.00-per-share special dividend.
Important facts for investors to verify
- Whether wholesale demand and owned-brand sales stabilize, and whether online growth can offset weakness in wholesale and company stores.
- Whether gross margin recovers from the effects of unfavorable mix and lower fixed-cost absorption.
- How inventory levels, tax-payment timing and foreign-currency movements affect cash generation and reported results.
- The geographic availability and use of cash held by foreign subsidiaries, and progress on remaining investment commitments.
- Future dividend and repurchase decisions, including the status of the repurchase authorization expiring in November 2024.