Press release·12/05/2024 20:38:42

Financial Performance Overview

Movado Group, Inc. is a leading designer, manufacturer and distributor of watches and accessories. The company operates in two main business segments - Watch and Accessory Brands, and Company Stores.

For the three months ended October 31, 2024, Movado reported net sales of $182.7 million, a 2.6% decrease from the prior year period. Both operating segments saw declines, with the Watch and Accessory Brands segment down 2.0% and the Company Stores segment down 7.5%. The decrease was primarily due to lower demand from wholesale customers, partially offset by growth in online retail.

Gross profit for the quarter was $98.4 million, or 53.8% of net sales, compared to 54.5% in the prior year. The lower gross margin was driven by unfavorable sales mix, decreased leverage of fixed costs, and negative foreign exchange impacts.

Selling, general and administrative (SG&A) expenses increased 12.5% to $91.8 million, mainly due to higher marketing and payroll costs, including $2.7 million in severance related to a cost-savings initiative.

As a result, operating income in the Watch and Accessory Brands segment declined from $18.5 million to $5.3 million, while the Company Stores segment saw operating income decrease from $2.2 million to $1.3 million. Overall, net income attributable to Movado Group was $5.1 million, down from $17.4 million in the prior year period.

For the first nine months of fiscal 2025, net sales were $478.7 million, a 2.9% decrease from the same period last year. Gross profit margin declined from 55.5% to 54.4%, and SG&A expenses increased 6.5% to $247.4 million. This resulted in a 66.2% decrease in net income attributable to Movado Group, from $34.6 million to $11.7 million.

Segment Performance

The Watch and Accessory Brands segment, which includes the company’s owned and licensed watch brands, saw net sales decline 2.0% in the third quarter and 2.3% year-to-date. This was driven by lower demand from wholesale customers, particularly in the United States, partially offset by growth in online retail.

In the United States, Watch and Accessory Brands net sales fell 6.7% in the quarter and 3.3% year-to-date, due to unfavorable sales mix and decreased volumes. The owned brands category saw a 13.1% decline in the quarter and 8.4% decline year-to-date, while the licensed brands category grew 20.6% in the quarter and 13.3% year-to-date.

Internationally, Watch and Accessory Brands net sales increased 0.4% in the quarter, but declined 1.7% year-to-date. The positive impact of foreign exchange was offset by unfavorable sales mix. The owned brands category saw a 2.3% increase in the quarter but a 10.9% decline year-to-date, while the licensed brands category grew 1.3% in the quarter but declined 0.8% year-to-date.

The Company Stores segment, which includes the company’s retail outlet business, saw net sales decrease 7.5% in the third quarter and 6.8% year-to-date. This was primarily due to unfavorable sales mix, partially offset by growth in online outlet sales.

Profitability

Gross profit margin declined from 54.5% to 53.8% in the third quarter, and from 55.5% to 54.4% year-to-date. This was driven by unfavorable sales mix, decreased leverage of fixed costs, and negative foreign exchange impacts.

SG&A expenses increased 12.5% in the third quarter and 6.5% year-to-date, primarily due to higher marketing and payroll costs, including $2.7 million in severance related to a cost-savings initiative.

As a result, operating income in the Watch and Accessory Brands segment declined from $18.5 million to $5.3 million in the third quarter, and from $31.9 million to $7.5 million year-to-date. The Company Stores segment saw operating income decrease from $2.2 million to $1.3 million in the quarter, and from $9.3 million to $5.4 million year-to-date.

The company’s effective tax rate increased from 20.4% to 31.5% in the third quarter, and from 22.0% to 31.7% year-to-date, primarily due to the tax consequences of a foreign currency gain, limitations on foreign tax credits, and increased valuation allowances against certain foreign losses.

Overall, net income attributable to Movado Group decreased from $17.4 million to $5.1 million in the third quarter, and from $34.6 million to $11.7 million year-to-date.

Liquidity and Capital Resources

As of October 31, 2024, Movado had $181.5 million in cash and cash equivalents, down from $201.0 million a year earlier. The decrease was primarily due to $40.6 million in cash used in operating activities, $11.9 million in cash used in investing activities, and $27.0 million in cash used in financing activities.

The company has a $100 million revolving credit facility, of which $99.7 million was available as of October 31, 2024. There were no outstanding borrowings under the facility during the quarter or year-to-date periods.

Movado paid $23.3 million in dividends during the first nine months of fiscal 2025, and repurchased $2.6 million of its common stock. The company has $15.2 million remaining under its November 2021 share repurchase authorization, and the full $50 million under its December 2024 authorization.

Strengths and Weaknesses

Strengths:

• Strong portfolio of owned and licensed watch brands, including Movado, Concord, EBEL, Olivia Burton, and MVMT
• Diversified geographic presence, with international markets accounting for over 60% of sales
• Vertically integrated business model, with both wholesale and retail operations
• Solid liquidity position with no outstanding debt

Weaknesses:

• Declining sales and profitability in both operating segments
• Margin pressure from unfavorable sales mix, fixed cost deleverage, and foreign exchange impacts
• Increasing SG&A expenses, particularly in marketing and payroll
• Rising effective tax rate

Outlook and Future Initiatives

Movado faces a challenging consumer spending environment, which has contributed to the declines in sales and profitability seen in fiscal 2025 so far. To address this, the company has implemented a cost-savings initiative that is expected to generate $6.5 million in annual savings.

Looking ahead, Movado will need to focus on driving growth in its key brands, both through its wholesale channels and direct-to-consumer e-commerce and retail operations. Improving the sales mix and managing costs will be critical to restoring profitability.

The company will also need to monitor the potential impact of regulatory changes, such as the Inflation Reduction Act and the OECD’s Pillar Two global minimum tax rules. While Movado does not currently expect a material impact, these developments could affect its tax position going forward.

Overall, Movado faces near-term headwinds, but the company’s strong brand portfolio, diversified geographic presence, and healthy financial position provide a solid foundation for navigating the current environment and positioning the business for long-term success.