Movado Group, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended January 31, 2023. Although the request metadata refers to 2022 Q4, this filing is an annual report; the figures below are for the full fiscal year, not a standalone quarter. Comparisons are with fiscal 2022.
Business context
Movado designs, sources, markets and distributes watches, jewelry and accessories through owned brands—including Movado, Concord, Ebel, MVMT and Olivia Burton—and licensed brands including Coach, Tommy Hilfiger, Hugo Boss, Lacoste and Calvin Klein. It reports Watch and Accessory Brands and Company Stores segments. Sales are seasonal, with the second half contributing 54.0% of FY2023 sales. International markets generated 55.6% of revenue. Calvin Klein watches and jewelry launched under the Company’s license in 2022; the Ferrari collaboration ended in June 2022, with remaining inventory sales permitted through December 2022.
Key financial results
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Net sales | $751.9 million | $732.4 million | Up 2.7%; up 7.0% on a constant-currency basis. Foreign exchange reduced reported sales by $31.8 million. |
| Gross profit / margin | $433.9 million / 57.7% | $419.1 million / 57.2% | Margin increased about 50 basis points, mainly from favorable sales mix, partly offset by currency and shipping costs. |
| SG&A | $313.5 million | $301.6 million | Up 4.0%; higher payroll and marketing costs were partly offset by lower performance-based compensation. |
| Operating income / margin | $120.4 million / 16.0% | $117.5 million / 16.0% | Operating income increased 2.4%. |
| Net income attributable to Movado Group, Inc. | $94.5 million | $91.6 million | Up 3.2%. |
| Diluted EPS | $4.12 | $3.87 | Up 6.5%. |
| Cash from operating activities | $54.3 million | $130.8 million | Down $76.5 million, primarily reflecting inventory investment and lower accounts payable and accrued payroll. |
| Capital expenditures | $7.1 million | $5.7 million | FY2023 cash flow after capital expenditures was approximately $47.3 million. |
| Cash and cash equivalents | $251.6 million | $277.1 million | Includes $114.0 million held by foreign subsidiaries, versus $197.4 million a year earlier. |
| Working capital | $424.8 million | $402.4 million | Increased $22.4 million. |
| Borrowings | $0 under the revolving facility | $0 at year-end | $99.7 million of availability under the $100 million facility; maturity October 2026. |
Segments and material changes
- Watch and Accessory Brands: Sales were $640.3 million, up 2.3%. International sales rose 8.1% to $413.1 million; U.S. sales fell 6.9% to $227.3 million. Growth reflected Calvin Klein, higher international wholesale demand and pricing, partly offset by currency effects and weaker U.S. owned-brand and online sales.
- Company Stores: Sales rose 5.1% to $111.6 million, supported by online outlet growth and new stores. Segment operating income declined to $25.3 million from $31.9 million as SG&A increased.
- Licensed-brand sales were $399.6 million, compared with $368.4 million; owned-brand sales were $230.3 million, compared with $249.9 million. Licensed brands represented 53.1% of FY2023 net sales.
- Cash from operations fell despite higher net income. Inventory increased $28.9 million in operating cash flow movements, primarily due to timing of receipts; accounts payable decreased $13.7 million and accrued payroll decreased $7.7 million.
- FY2022 included a $1.1 million reversal of certain prior corporate-initiative charges, which affects the year-over-year SG&A comparison.
Outlook, risks and unusual items
- Management expects approximately $10 million of capital expenditures in FY2024, principally for facilities, shop-in-shops, website development, computer systems and tooling. It stated that cash on hand, operating cash flows and credit lines are expected to fund operating, capital and debt-service needs and support covenant compliance for the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text.
- Management identifies inflation, higher interest rates, consumer spending, foreign exchange, shipping and supply-chain disruption, China-related tariffs, competition from smartwatches, fashion trends, wholesale-retailer exposure and inventory management as significant risks. More than 80% of product unit volume originates in Asia, predominantly China.
- The Company suspended sales to Russia and Belarus in March 2022; sales and assets in Russia, Belarus and Ukraine were described as immaterial. Foreign-exchange movements nevertheless reduced reported FY2023 sales by $31.8 million.
- A U.S. Customs dispute over watch-component tariff valuation could imply $5.1 million of underpaid duties for the period under review, plus possible penalties and interest. The Company disputes the proposed methodology and cannot predict the outcome. It also maintains an accrual for certain pre-August 2021 China-sourced watch-case imports pending clarity on the retroactive effect of a customs ruling.
- Minimum commitments under license and endorsement agreements were $278.0 million, payable over the next nine years; supplier purchase obligations were $62.9 million at year-end. The Company also had $16.2 million remaining under investment commitments that may be called over time.
- After year-end, on March 23, 2023, the Board declared a special dividend of $1.00 per share and a regular dividend of $0.35 per share, payable April 19, 2023. Dividends remain subject to Board discretion. FY2023 included $31.4 million in dividends paid and $31.4 million in open-market share repurchases.
- No impairment was recorded in FY2023, although a fourth-quarter assessment of Olivia Burton and MVMT long-lived assets followed a triggering event; management concluded the assets were recoverable. FY2021 included substantial goodwill and intangible impairment charges related to COVID-19 impacts.
Most important facts for investors to verify
- Whether the increase in international and licensed-brand sales can offset continuing weakness in U.S. owned-brand and online sales, and how the Calvin Klein launch performs.
- Whether higher inventory converts into sales and operating cash flow; inventory was $186.2 million at year-end, up from $160.3 million.
- The durability of gross margins amid foreign-exchange movements, shipping costs, tariffs and product/channel mix.
- Outcomes and potential financial exposure from the U.S. Customs duty matters, and the timing of the $16.2 million remaining investment commitments.
- The extent to which planned capital expenditures, dividends and repurchases are supported by recurring cash generation, including the effect of the post-year-end special dividend.
- License renewal terms and minimum commitments, as licensed brands account for 53.1% of sales; also assess supply concentration for mechanical Swiss watch movements.