Movado Group Inc

NYSE:MOV

Earnings Call Analysis

Movado Group Faces Challenges but Expects Strategic Improvements

In the third quarter, Movado's sales declined by 2.6%, totaling $182.7 million, as U.S. sales fell 7.1%. This decline led to a decrease in net income to $8.3 million, down from $17.4 million. The company anticipates full-year net sales of approximately $665 million and operating income of around $23 million, both at the low end of prior guidance. Movado plans to streamline costs, targeting $6.5 million in savings, and is optimistic about profitability improvements in fiscal 2026. A new $50 million share repurchase program has been initiated to enhance shareholder value amidst ongoing strategic brand initiatives.

Current Performance Overview

The Movado Group reported a challenging third quarter for fiscal 2025, with net sales of $182.7 million, reflecting a 2.6% decrease compared to the previous year. In constant dollars, this decline was approximately 3.5%. The U.S. market was particularly tough, showing a 7.1% drop in sales, while international sales had a slight growth of 0.4%, although it translated to a 1.1% decrease on a constant currency basis. The year-to-date net sales experienced a total decrease of 2.9%, reaching $478.7 million, down from $493 million in fiscal 2024.

Profitability Challenges

The company's gross profit margin saw a decline, falling to 53.8% in the third quarter, down from 54.5% a year earlier, primarily due to an unfavorable channel and product mix and higher fixed costs that were not sufficiently covered by declining sales. For the first nine months of fiscal 2025, operating income plummeted to $15.6 million from $41.2 million year-over-year, demonstrating a significant impact of both reduced sales and increased operational expenses, which rose to $89.1 million during the quarter.

Strategic Initiatives and Financial Outlook

Movado has embarked on several strategic initiatives. The company aims to enhance its profitability and is focused on cost reduction and operational efficiencies, which are expected to yield approximately $6.5 million in annualized savings. For the full fiscal year, they anticipate net sales to reach around $665 million, which is at the lower end of prior guidance, with an expected operating income of approximately $23 million. Furthermore, gross profit is anticipated to be roughly 54% of sales.

Balance Sheet Strength

Despite recent challenges, Movado maintains a robust balance sheet, ending the quarter with $181.5 million in cash. The company had no debt, making it well-positioned to invest in strategic growth opportunities while also returning value to shareholders. A significant announcement was made regarding the approval of a new three-year $50 million share buyback plan, indicating confidence in the company's long-term value despite current performance metrics.

Market Trends and Future Growth Potential

Looking ahead, Movado is excited about positive sales indicators, especially in emerging markets such as India, where sales surged by 20%. The company has identified growth potentials in key segments like jewelry, alongside enhancing existing brand portfolios such as Tommy Hilfiger and HUGO BOSS. The upcoming holiday season is critical, and Movado is optimistic about improved sales trends as they continue to refine their marketing approach and product offerings.

Conclusion: A Path Forward

Although current results reflect difficulties, Movado's strategic actions to cut costs and focus on profitable segments demonstrate a proactive approach to regain momentum. The anticipated results from their cost-saving measures, along with a strong cash position and shareholder return initiatives, indicate a robust plan to navigate through challenges while positioning for future growth. Investors should keep a close watch on the upcoming quarters, particularly during the critical holiday season, for signs of recovery in both sales and profitability.

Earnings Call Transcript 2025-Q3

[Operator]

Good day, everybody, and welcome to the Movado Group, Inc. Third Quarter Fiscal Year 2025 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Allison Malkin of ICR. Please go ahead.

[Allison Malkin, executive]

Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; and Sallie DeMarsilis, Executive Vice President and Chief Operating Officer and Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with.

The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties. All of which are described in the company's filings with the SEC, which includes today's press release. If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release.

Now I would like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

[Efraim Grinberg, executive]

Thank you, Alison. Welcome to Movado Group's third quarter conference call. With me today is Sallie DeMarsilis, our COO and CFO. I will first review our overall results and our progress against our strategic initiatives and then Sallie will review our financial results in greater detail.

Over the last year, we have made significant progress on a number of strategic initiatives, including the introduction of iconic new product families across our brand portfolio and revitalizing our marketing efforts and storytelling across our brands and regions. As we began the year, we made the decision to invest in driving revenue growth and brand awareness with increased marketing spend. While net sales are down 2.9% for the year-to-date period, we continue to believe that the investments we've made have strengthened our brands and provide a solid foundation for growth in the coming years.

Nonetheless, given the challenging environment for both our category and retailers in the U.S. and Europe and consistent with the message conveyed on our second quarter conference call, we have started to take the steps needed to drive improving financial performance. Our focus now is on a successful holiday season and building a strong business model for next year. that will reduce costs, continue our brand-building initiatives while rationalizing marketing investments, delivering on key growth opportunities such as jewelry and growth markets like India and Southeast Asia and returning North America and our Movado brand to higher levels of profitability.

With $182 million of cash and no debt, we continue to have a strong balance sheet and believe that our dividend is a priority to continue to return value to our shareholders. Today, we also announced that our Board of Directors approved a new $50 million share repurchase plan. During the third quarter, retailers continued to tightly manage inventories in both the U.S. and Europe. The U.S. retail environment was also further affected by the later Thanksgiving holiday and compounded by the uncertainty surrounding the election. As Election Day approached U.S. digital marketing costs escalated post the election, we have seen those costs begin to moderate.

In Movado, we began to launch our campaign featuring our new set of iconic brand ambassadors in early September, and we received a lot of positive feedback from consumers. On our movado.com website, we saw our quarterly sales increased by 16.9% with both September and October sales growing by over 25%. We we saw very strong performance in our Movado Bold and Heritage watch collections, driven by new introductions.

Our shipments to retail and digital partners in the U.S. and Europe were pressured by tighter inventory management. In addition, a delay in the launch of our Amazon Premier platform also pressured sales. This launch has now occurred, and we expect a strong holiday season on their platform. As it relates to holiday, while early in the season, our newness is resonating well, and our new campaign -- and our new marketing campaign is broadening consumer interest, which we expect to improve our trend at our retail partners. We continue to be excited about the power of this campaign and its ability to build brand image and demand.

On the international front, the Movado brand continues to perform well in India, where we saw a 20% increase and believe it can become a big market for us. In our licensed brands, our sales grew by 3.8% and driven by growth in Coach, Lacoste, Calvin Klein and HUGO BOSS during the third quarter. Coach has performed extremely well over the first 9 months of the year, driven by strong new product that -- product introductions that are resonating well with consumers, including our new same collection a unique [ oval ] collection inspired by the Coach brand's iconic turnlock and is generating demand from Gen Z consumers.

For men, our automatic charter collection is a top performer and is featured with basketball Superstar, Jason Kadam in our holiday campaign. In Tommy Hilfiger, our sales are being led by the iconic TH 85 chronograph and the new Henry family at an introductory price point for automatic watches. We continue to perform well in Tommy jewelry, especially for men with bracelets to complement our watches as well as the Love collection offering 2-tone hearts for her. We believe that we'll have an increased opportunity in Tommy Hilfiger as we increase the design quotient of our watches as we move forward.

In HUGO BOSS, we have returned to growth for the quarter and the 9 months with strong sales of our iconic time traveler collection and the introduction of our new Bosmatic family, which has received a strong reception from consumers. [ Bossmatic ] features an automatic core hybrid movement. In Lacoste, we had strong sales growth, powered by our jewelry collection, which features our best-selling metropole bracelet. Metropole has been a hit since we first introduced it, and it continues to grow at a double-digit rate. We are also excited to have introduced our new Lacoste LC 33 collection recently. L3 is an anti-digi sports watch that we're very excited about, and we're already seeing a strong response from consumers in our key markets.

The LC 33 collection is priced at $95. Finally, in the CK brand, we grew our overall business, driven by strong sales in jewelry, which we believe is a significant opportunity. We are also amplifying our women's offering of CK watches around our new Pulse family and our already successful twisted Bezel family. From a regional perspective, our U.S. business was down 7.1%, while our international markets grew by 0.4%, with a decline in Europe offset by growth in Latin America, the Middle East, India and Australia.

Our Movado company stores continue to perform at a similar pace as they did during the first 6 months of the year. The next few weeks are the most important selling period for our stores, which got off to a good start during the Black Friday weekend. Each day is now more important than last year with the shortened period between Thanksgiving and Christmas. As we plan for next year, we believe we will have increased opportunities with fine-tuning our assortments across our brand portfolios.

As a team, we recognize this year has not delivered our desired results. Together, we are energized on returning the company to a higher level of profitability while improving revenue trends. As you can see from our press release, we took some actions to begin to reduce our operating costs during the third quarter which will have a small benefit during the fourth quarter and a much greater benefit over the course of next year. As we build our plans for next year, we will be very disciplined in managing our variable expenses. We believe that we have additional opportunities to drive operational efficiencies and reduce costs while growing our brands. We have a proven track record in taking bold and decisive action to drive our performance. We have a great portfolio of brands in the jewelry and watch category and believe that we are well positioned to accomplish our goals for next year. We look forward to sharing our plans with you when we announce our year-end results.

I would now like to turn the call over to Sallie.

[Sallie DeMarsilis, executive]

Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the third quarter and year-to-date period of fiscal 2025, and then I will provide an update on our outlook for the year.

My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the third quarter and year-to-date period of fiscal 2025 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Overall, our performance for the third quarter of fiscal 2025 continued to be negatively impacted by a challenging environment, both in our category and by retailers in the United States and Europe. Despite being down year-over-year, as Efraim mentioned, we made good progress on our strategic initiatives and maintained an extremely strong balance sheet.

Turning to a review of the quarter. Sales were $182.7 million as compared to -- I'm sorry, $187.7 million last year, a decrease of 2.6%. In constant dollars, a decrease in net sales was 3.5%. Net sales decreased across owned brands and company stores, partially offset by an increase in licensed brands. By geography, U.S. net sales decreased 7.1% as compared to the third quarter of last year. International net sales increased 0.4%. On a constant currency basis, International net sales decreased 1.1% with continued softening in our largest international market, Europe.

Gross profit as a percent of sales was 53.8% compared to 54.5% in the third quarter of last year. The year-over-year decrease in gross margin rate was primarily driven by unfavorable channel and product mix and the deleverage of higher fixed costs over lower sales. Operating expenses were $89.1 million as compared to $81.6 million for the same period of last year. The increase was driven by an increased investment in marketing and in payroll-related costs. As a result of the reduction in sales and gross margin and the increase in operating expenses, operating income decreased to $9.3 million as compared to $20.7 million in the third quarter of fiscal 2024.

We recorded approximately $1.4 million of other nonoperating income in the third quarter of fiscal 2020, which is primarily comprised of interest earned on our global cash position as compared to $1.5 million during the same period of last year. We recorded income tax expense of $2 million in the third quarter of fiscal 2025 as compared to $4.5 million in the third quarter of fiscal 2024.

Net income in the third quarter was $8.3 million or $0.37 per diluted share as compared to $17.4 million or $0.77 per diluted share in the year ago period.

Now turning to our year-to-date results. Sales for the 9-month period ended October 31, 2024, were $478.7 million as compared to $493 million last year. Total net sales decreased 2.9% as compared to the 9-month period of fiscal 2024. In constant dollars, the decrease in net sales was 3.2%. The International net sales decreased 1.7% or 2.3% on a constant currency basis. U.S. net sales declined by 4.5%. Gross profit was $260.3 million or 54.4% of sales as compared to $273.6 million or 55.5% of sales last year. The decrease in gross margin rate for the first 9 months was primarily due to unfavorable channel and product mix and the deleverage of higher fixed costs on lower sales.

For the 9 months ended October 31, 2024, and Operating income was $15.6 million as compared to $41.2 million in fiscal 2024. We recorded approximately $5.2 million of other nonoperating income in the 9-month period of fiscal 2025, which is primarily comprised of interest earned on our global cash position as compared to $3.8 million during the same period of last year. Net income was $14.9 million or $0.66 per diluted share as compared to $34.6 million or $1.53 per diluted share in the year ago period.

Now turning to our balance sheet. Cash at the end of the third quarter was $181.5 million, as compared to $201 million at the same period of last year. Accounts receivable was $139.2 million, up 2.7% from the same period of last year due to timing and mix of business.

Inventory at the end of the quarter was down $3 million from the same period of last year and aligned with our sales performance. In the first 9 months of fiscal 2025, capital expenditures were $6.4 million and we repurchased approximately 120,000 shares under our share repurchase program. This morning, we also announced that the Board of Directors approved a new 3-year $50 million share buyback program. The previous share buyback program had expired on November 23, 2024.

I would now like to discuss our outlook. As Efraim mentioned, we continue to operate in a challenging environment. especially for our category and in our key markets of the United States and Europe. Our net sales are currently expected to be approximately $665 million, which reflects the low end of our previous guidance range. We expect gross profit of approximately 54% of sales for the year. As previously discussed, we are taking action to reduce our operating expenses and are managing our discretionary spending. We, therefore, expect operating income of approximately $23 million, also at the low end of our previous guidance. We continue to anticipate a 25% effective tax rate with expected earnings of $0.90 per diluted share.

As we plan for fiscal 2026, we are focused on delivering a meaningful improvement in profitability as compared to our expected outlook for fiscal 2025. This expectation includes $6.5 million in annualized savings from the cost savings initiatives taken this most recent quarter. I would now like to open the call up for questions.

[Operator]

[Operator Instructions]

Our first question comes from the line of Michael Legg with the Benchmark Company.

[Michael Legg, analyst]

On the new stock buyback authorization, is there any change to your usage of it as far as being active in stock buyback versus just offsetting dilution.

[Efraim Grinberg, executive]

Right now, it's focused on offsetting dilution. And then as we hopefully will generate more cash, we're open to change that as well.

[Michael Legg, analyst]

And then you mentioned that inventory levels at retail are light. Can you talk about historic when you see trends that you been indicated...

[Efraim Grinberg, executive]

You've gotten quiet, Mike. It's gone very quite.

[Michael Legg, analyst]

Can you hear me now?

[Efraim Grinberg, executive]

Yes, I can hear you.

[Michael Legg, analyst]

Okay. So retail inventory levels, you mentioned were light -- can you talk about any leading indicators that you've seen in the past as when purchasing trends change and how lead time you have with that and any of the leading indicators you look for positive consumer behavior?

[Efraim Grinberg, executive]

Sure. So I think the inventory levels now are pretty -- getting to a historic historically low level in both the U.S. and Europe, which are the 2 markets for us that are the most developed and the markets that are most sensitive and focused on that. Historically, as the economic environment improves and retail improves, I think that we've seen a bounce back and an openness to rebuild inventories as retailers realize that they're losing sales. I think 1 of the differences in the dynamic today is that people have built e-commerce businesses that carry less inventory than in-store businesses. But in really no cases is the is the dot-com business more than 20% to 25% of a retailer's overall business.

[Operator]

And we have reached the end of the question-and-answer session. I'll now turn the floor back to Efraim Grinberg for closing remarks.

[Efraim Grinberg, executive]

Okay. Thank you very much for being with us on the call today. I am optimistic about the category overall, beginning to see improvements in the future. But we are really focused as a company of continuing to focus on what we can control. and very focused on driving down our expenses next year as a company and returning to an acceptable level of profitability. With that, I'd like to wish everybody a great holiday season and wish you all the best. So thank you very much.

[Operator]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.