Press release·03/03/2025 16:24:11

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 nine months ended October 31, 2024, net sales were $478.7 million, a 2.9% decrease from the same period in 2023. Gross profit margin declined from 55.5% to 54.4%, and SG&A expenses increased 6.5% to $247.4 million. This resulted in net income of $11.7 million, down from $34.6 million in the prior year.

Segment Performance

The Watch and Accessory Brands segment, which includes the company’s owned and licensed watch brands, saw net sales decline 2.3% for the nine-month period. In the United States, net sales were down 3.3% due to lower wholesale demand, partially offset by growth in online retail. Internationally, net sales decreased 1.7%, impacted by unfavorable sales mix, though this was partially offset by positive foreign exchange impacts.

Operating income in the Watch and Accessory Brands segment declined from $31.9 million to $7.5 million, as the decrease in gross profit and higher SG&A expenses more than offset the positive foreign exchange impacts.

In the Company Stores segment, which includes the company’s retail outlet business, net sales declined 6.8% for the nine-month period. Operating income decreased from $9.3 million to $5.4 million, primarily due to lower sales and gross margins.

Cost-Savings Initiative

During the third quarter of fiscal 2025, Movado implemented a cost-savings initiative to reduce operating expenses through headcount reductions. This resulted in $2.7 million in severance and payroll-related charges. The company expects the initiative to generate approximately $6.5 million in annual savings going forward.

Regulatory and Tax Matters

The Inflation Reduction Act of 2022 introduced a 1% excise tax on stock repurchases and a 15% minimum tax on certain large corporations’ adjusted financial statement income. Movado is evaluating the potential impact, but to date it has not had a material effect on the company’s financial statements.

The OECD has also issued new global minimum tax rules, known as Pillar Two, which are intended to be effective January 1, 2024. While several countries have adopted these rules, Movado’s current turnover does not meet the minimum requirements, and the company does not expect a material impact if the rules become applicable.

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. Working capital decreased from $412.1 million to $398.4 million, primarily due to a decrease in cash and an increase in accounts payable, partially offset by higher trade receivables and lower income taxes payable.

The company used $40.6 million in operating cash flow for the first nine months of fiscal 2025, compared to $7.4 million provided in the prior year period. This was mainly due to increases in trade receivables and inventories, as well as timing of tax and other payments.

Investing activities used $11.9 million, primarily for capital expenditures and long-term investments. Financing activities used $27.0 million, including $23.3 million in dividend payments and $2.6 million in stock repurchases.

Movado has a $100 million revolving credit facility, of which $99.7 million was available as of October 31, 2024. The company also maintains unsecured lines of credit with a Swiss bank totaling 6.5 million Swiss Francs (approximately $7.5 million).

Foreign Exchange and Commodity Risks

Movado has significant exposure to foreign currency exchange rate fluctuations, particularly the Swiss Franc, Euro, British Pound, Chinese Yuan, and Japanese Yen. The company has a hedging program in place to mitigate these risks, using forward and option contracts.

As of October 31, 2024, Movado’s net forward contracts hedging portfolio consisted of 7.3 million Chinese Yuan, 30.0 million Swiss Francs, 29.6 million U.S. dollars, 33.0 million Euros (including 9.0 million Euros designated as cash flow hedges), and 4.8 million British Pounds. Settling these contracts would result in a $0.1 million gain on the Swiss Franc contracts and a $0.2 million gain on the Euro contracts.

The company also considers its exposure to fluctuations in gold prices, a key raw material, to be a commodity risk. Movado did not hold any gold futures contracts as of the end of the reporting period, so changes in gold prices would have a direct impact on its cost of sales.

Outlook and Conclusion

Movado Group faced a challenging consumer spending environment during the first nine months of fiscal 2025, leading to declines in both revenue and profitability compared to the prior year. The company’s cost-savings initiative and focus on e-commerce and international markets provide some offsets, but overall performance remains under pressure.

Looking ahead, Movado will need to navigate ongoing macroeconomic headwinds, foreign exchange volatility, and potential regulatory changes. However, the company’s portfolio of owned and licensed watch brands, diversified geographic footprint, and liquidity position provide a solid foundation for weathering the current environment. Continued execution of strategic initiatives to drive efficiency and adapt to evolving consumer preferences will be critical for Movado to return to stronger financial performance.