Movado Group, Inc. (NYSE:MOV) Q1 2024 Earnings Call Transcript - InvestingChannel

Movado Group, Inc. (NYSE:MOV) Q1 2024 Earnings Call Transcript

Movado Group, Inc. (NYSE:MOV) Q1 2024 Earnings Call Transcript May 25, 2023

Movado Group, Inc. beats earnings expectations. Reported EPS is $0.43, expectations were $0.26.

Operator: Good day, everybody, and welcome to the Movado Group Incorporated First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 Rachel Schacter of ICR. Please go ahead.

Rachel Schacter: Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; and Sallie DeMarsilis, Executive Vice President, 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’d like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Efraim Grinberg: Thank you, Rachel. Good morning, and welcome to Movado Group’s first quarter conference call. With me today is Sallie DeMarsilis, our COO and CFO. After I’ve had a chance to review the highlights of our first quarter results and our progress on our strategic initiatives, Sallie will then review our financial results in greater detail. We would then be glad to answer any questions you might have. As we had expected, the macroeconomic environment remained challenging during the beginning of the year, with inflation and rising interest rates continuing to affect purchases made by consumers of discretionary products in our key markets, the United States and Europe. Against that backdrop, we were pleased with the results that our teams delivered for the first quarter, which met our expectations while continuing to make progress with the key growth priorities we have for our business, delivering sought-after innovation and elevating our brand awareness.

This, along with continued expense discipline, has us well positioned to improve our performance as we move throughout the year. Reviewing the first quarter in more detail. Sales were $144.9 million, an 11.3% decline versus last year’s record first quarter and increased 7.5% from fiscal 2022’s first quarter. Currency negatively impacted sales growth by 1.2% in the first quarter. Gross margin remained strong at 56.6%. Adjusted operating profit was $11.6 million as compared to $26.1 million in the previous year and earnings per share on an adjusted basis were $0.43 versus $0.82 last year. We ended the quarter with a strong balance sheet, including $198.3 million in cash while paying $29.9 million in dividends, which included $1 per share special dividend that our Board had approved when we announced fiscal 2023 results.

As we have talked about during our year-end conference call, we had expected a more difficult first half of the year as we were comparing against a very strong record first half last year. This year, the consumer in both the U.S. and Europe is facing both elevated inflation and rising interest rates. As many retailers have already reported, this is clearly affecting discretionary spending. From a geographical perspective, both our international and U.S. sales declined with the U.S. declining 15.7% and international sales decreasing 8.1% and or 6% on a constant currency basis. On the international front, we had strong growth in Brazil, the Middle East, China and travel retail that was offset by a decline in Europe. As retailers in key markets deal with slowing economic growth, they are very focused on making sure that they control their inventories.

Movado, watch Pixabay/Public Domain

From a brand perspective, we are laying the foundation for an improving second half. In our Movado brand, we are beginning to introduce innovation through our Bold collection in our Bold Horizon family, which begins to fill price points that we had vacated over the last year. We’re getting a very good response from consumers on this collection, which opens at $695. Our elevated automatic models continue to perform well, both at our wholesale partners and on our own website with penetration doubling from last year. For Mother’s Day, we drove our marketing program with both [still] lives and video content to emotionally connect with consumers, and we have produced similar content for Father’s Day. For Mother’s Day, we saw strong results from our TV campaigns, particularly on our website.

Father’s Day will also feature television in addition to our digital campaigns. Throughout the year, we will invest in refreshing the Movado brand image in a bolder and more impactful way, and we are excited to make this investment behind our most important brand. In our licensed brands, we saw an 8.3% decline on a constant currency basis as consumers pulled back in our largest European markets. Somewhat offset by stronger trends in Brazil, the Middle East, China and travel retail. In all of our brands, we are driving innovation across the pricing matrix with a particular attention to introduce some value price points to reach consumers who have been impacted by inflation and slowing economies around the world. In Tommy Hilfiger, we saw a strong initial response to our new opening price point collections, Pipa for her and Norris for him and to our advertised styles, Lars and Monica.

In BOSS, where the parent brand has been highly energized by driving a new imaging campaign, we are seeing strong results from our new Troper collection, sporty, a 46-millimeter chronograph. We’re also seeing a strong reception for our new Gregor family, a classically styled chronograph family. Both families opened at $279. We’re also excited to partner with the BOSS brand’s high-profile ambassadors with a new campaign, which will feature Suki Waterhouse as our ambassador for women, both for jewelry and watches that will launch in the fall. In our Coach watches, our signature SE collections continue to perform well, and we are seeing renewed demand in China, both at retail and online as that market reopens. We are continuing to partner with Curley Gao as our ambassador in China and with Jennifer Lopez in our global campaign.

In Lacoste, we introduced a new interpretation of the iconic 12.12 Polo Shirt in a watch aluminum versions and a number of new colors, including Green Khaki. We’re also introducing new 12.12 watches that connect with Lacoste sponsorship of 3 Netflix series, Stranger Things, Sex Education and Lupin. Our Calvin Klein rollout continues to progress extremely well. We are successfully collaborating with the parent brand on the marketing front to build category awareness in watches and jewelry for the Calvin Klein brand. Within CK, we are driving some exciting innovation at appealing price points, including the introduction of Sensation for Her, which features a new unexpected dial opening on a bracelet and charming a new asymmetrically designed bangle.

For men, we are seeing a strong response for Ambitions, a new all-black chronograph bracelet. For the first quarter, we saw a 3.5% decline in our outlet business in a highly promotional environment in the U.S. We have seen improving traffic trends as we approach the Mother’s Day holiday, which we did have a calendar shift as Mother’s Day moved later into May against last year’s timing. As we look at the balance of the year, we are operating in a highly uncertain environment. Interest rates have risen at a very rapid pace, which is meant to curtail consumer demand in order to slow inflation in most developed markets. While the environment remains uncertain, we will continue to invest in our brands and drive innovation in our marketing and products to assure that our businesses will emerge strongly as more clarity develops in the marketplace.

Of course, we will continue to monitor — we will continue to closely monitor our expenses and prudently manage our inventory. With a strong cash position and no debt, our balance sheet affords us the opportunity to invest behind driving long-term profitable growth. We are excited in the initiatives that we are investing behind, predominantly refreshing the Movado brand image beginning in the second half of the year and supporting our licensed brands in their most developed and emerging markets. Our teams are energized and focused on executing and delivering against our strategic objectives. I would now like to turn the call over to Sallie.

Sallie DeMarsilis: Thank you, Efraim, and good morning. For today’s call, I will review our financial results for the first quarter of fiscal 2024 and balance sheet and then discuss our outlook. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the first quarter of fiscal 2024 and fiscal 2023 in our press release issued earlier today, which also includes the table for GAAP and non-GAAP measures. Overall, we are pleased with our performance for the first quarter of fiscal 2024, despite being negatively impacted by a challenging macro environment and lapping a record performance last year. While down year-over-year, we achieved our internal expectations, continuing to deliver compelling offerings, maintaining expense discipline and returning value to our shareholders through dividends and share repurchase activity.

Turning to a review of the quarter. For the first quarter of fiscal 2024, sales were $144.9 million as compared to $163.4 million last year, a decrease of 11.3%. In constant dollars, net sales decreased 10.1%. By segment, net sales decreased across owned brands, licensed brands and company stores. By geography, U.S. net sales decreased 15.7%. International net sales decreased 8.1% as compared to the first quarter of last year. On a constant currency basis, international net sales decreased 6%, with continued softening in our largest international market, Europe, partially offset by strong performances in certain markets such as the Middle East and Latin America. Gross profit as a percent of sales was 56.6% compared to 59.2% in the first quarter of last year.

The decrease in gross margin as compared to the abnormally high gross margin results of the same period last year was primarily driven by unfavorable channel and product mix and the unfavorable impact of foreign currency exchange rates, partially offset by lower shipping costs. The unfavorable channel and product mix from the prior year period is a result of sales shifts from our relatively higher margin brands to our relatively lower margin brands, lower sales in our higher-margin channels and product mix. We expect this tough comparison to continue in the second quarter went up against the same period of last year. Operating expenses were $70.4 million as compared to $70.6 million for the same period of last year. The slight decrease was driven by lower marketing and performance-based compensation expenses, partially offset by an increase in payroll-related expenses.

Primarily as a result of the reduction in sales and gross margin, operating income decreased by $14.5 million to $11.6 million as compared to the $26.1 million in the first quarter of fiscal 2023. We recorded approximately $1 million of other nonoperating income in the first quarter of fiscal 2024, which is primarily comprised of interest earned on our global cash position. We recorded income tax expense of $2.7 million in the first quarter of fiscal 2024 as compared to $6.2 million in the first quarter of fiscal 2023. Net income in the first quarter was $9.7 million or $0.43 per diluted share as compared to $19.1 million or $0.82 per diluted share in the year ago period. Now turning to our balance sheet. Cash at the end of the first quarter was $198.3 million as compared to $225.3 million in the prior year period.

During the first quarter of fiscal 2024, we paid $29.9 million of dividends to our shareholders, comprised of a special cash dividend of $1 per share in addition to the regular quarterly cash dividend of $0.35 per share. Accounts receivable were $94 million. Inventory at the end of the quarter was $195.2 million, an increase of $15.2 million or 8.5% above the same period of last year, primarily due to the timing of receipts for Swiss brands, which have longer lead times, and business extension opportunities, such as our newest licensed brand, Calvin Klein for watches and jewelry. In the first quarter, we repurchased approximately 14,000 shares under our share repurchase program. Capital expenditures for the quarter were $2.3 million and depreciation and amortization expense was $2.6 million, which included $700,000 related to the amortization of acquired intangible assets of Olivia Burton and MVMT.

Now I would like to discuss our outlook. As Efraim mentioned, we are operating in a highly uncertain environment with inflation and rising interest rates continuing to affect purchases made by consumers of discretionary products in our key markets, the United States and Europe. Taking these factors into account, we continue to expect fiscal 2024 net sales in a range of approximately $725 million to $750 million. Although for the year, we expect a sales decline of 3.6% to relatively flat, we continue to expect a bigger decline in the first half as we anniversary record results during the prior year. We would expect to see first half net sales to be down 9% to 12% from the same period of fiscal 2023. Assuming the current composition of channel and product mix and current FX rates, we continue to expect gross margin — gross profit of approximately 56% of net sales.

We are planning to prudently invest in our brand building initiatives, our employees and our customers, while we continue to tightly manage our discretionary spending, and therefore, we expect operating income in a range of $80 million to $85 million. Assuming no changes in the current tax regulations, our outlook assumes a 22% effective tax rate and results in an expected range of earnings of $2.70 to $2.90 per diluted share. As it relates to share repurchases as of April 30, 2023, we had $20 million — I’m sorry, $20.6 million remaining under our authorized share repurchase program. Subject to prevailing market conditions and business environment, we plan to utilize our share repurchase plan to offset dilution in fiscal 2024. This outlook does not contemplate significant further impact of economic deterioration and assumes no further significant fluctuations from prevailing foreign currency exchange rates.

I would now like to open the call up for questions.

Operator: [Operator Instructions] Our first questions come from the line of Oliver Chen with TD Cowen.

See also Top 15 Offshore Tax Havens in the World and 30 Most Forested Countries in the World.

To continue reading the Q&A session, please click here.

Related posts

Advisors in Focus- January 6, 2021

Gavin Maguire

Advisors in Focus- February 15, 2021

Gavin Maguire

Advisors in Focus- February 22, 2021

Gavin Maguire

Advisors in Focus- February 28, 2021

Gavin Maguire

Advisors in Focus- March 18, 2021

Gavin Maguire

Advisors in Focus- March 21, 2021

Gavin Maguire