Movado Group, Inc. Announces Fourth Quarter and Fiscal Year 2017 Results

Movado Group, Inc. (NYSE:MOV) today announced fourth quarter and fiscal
year 2017 results for the periods ended January 31, 2017.

Efraim Grinberg, Chairman and Chief Executive Officer, stated, “In a
challenging holiday selling season, we were pleased to see our brands
outperform the overall watch category in key markets around the world
and to have delivered on our annual revenue and earnings targets. Our
global teams executed well against our strategies that are centered on
delivering innovative and beautifully designed watches. Notably, our
Ultra Slim collections across our portfolio and the relaunch of our
iconic Movado Esperanza during the holidays resonated well with
consumers. We also managed our expenses very well during the quarter
while continuing to invest in our global brand building initiatives.”

Mr. Grinberg continued, “Looking at fiscal 2018, we anticipate the
retail environment will remain difficult. We are seeing a significant
shift from brick and mortar to e-commerce and a continuing challenged
fashion watch market in the United States. As a result, we are taking a
more conservative view for fiscal 2018 compared to fiscal 2017 and are
implementing certain cost savings initiatives. Given the evolution of
the retail market place, we are consolidating certain operations and
shifting a greater portion of our investment into the continued
development and growth of our digital footprint, including allocating a
larger percentage of our marketing budget to online venues. While we
believe in the continued growth potential of the traditional watch
category, we are also excited about our recently announced partnership
with Google to launch a new smartwatch collection, Movado Connect. We
remain committed to our strategy which we believe positions us to
deliver sustained profitable long-term growth and increase shareholder
value through our strong balance sheet.”

The Company recorded no unusual items during the fourth quarter of
fiscal 2017. During the third quarter of fiscal 2017, the Company
recorded a charge to non-operating expense of $0.9 million, net of tax
of $0.4 million, or $0.03 per diluted share, for an impairment of a
long-term investment in a privately held company. During the first
quarter of fiscal 2017, the Company recorded a $1.1 million charge, net
of tax of $0.7 million, or $0.05 per diluted share, for the immediate
vesting of stock awards and certain other compensation related to the
announcement of the retirement of Rick Coté, the Company’s former Vice
Chairman and Chief Operating Officer (“COO’s retirement”). During the
fourth quarter of fiscal 2016, the Company recorded a $1.3 million
charge, or $0.06 per diluted share, related to operating efficiency
initiatives and other items. During the first quarter of fiscal 2016,
the Company recorded a $2.5 million charge, net of tax of $0.2 million,
or $0.10 per diluted share, also related to operating efficiency
initiatives and other items.

Fourth Quarter Fiscal 2017 Results (See
attached table for GAAP and non-GAAP measures)

  • Net sales decreased 8.7% to $130.8 million compared to $143.3 million
    in the fourth quarter of fiscal 2016. Net sales on a constant dollar
    basis decreased 7.5% compared to net sales in the fourth quarter of
    fiscal 2016.
  • Gross profit was $64.7 million, or 49.5% of sales, compared to $75.4
    million, or 52.6% of sales in the same period last year. Adjusted
    gross profit for the fourth quarter of fiscal 2016, which excludes a
    $0.1 million adjustment in expenses related to operating efficiency
    initiatives and other items, was $75.3 million, or 52.5% of sales. The
    decrease in adjusted gross margin percentage was primarily driven by
    an unfavorable shift in channel and product mix, partially offset by
    the favorable impact of changes in foreign currency exchange rates.
  • Operating expenses decreased $6.6 million or 10.3% to $57.2 million in
    the fourth quarter of fiscal 2017 from $63.8 million in the fourth
    quarter last year. For the fourth quarter of fiscal 2016, adjusted
    operating expenses were $62.4 million, which excludes $1.4 million of
    expenses related to operating efficiency initiatives and other items.
    The decrease in adjusted operating expenses was primarily the result
    of lower performance based compensation and payroll related expenses,
    the favorable impact of foreign currency exchange rates and a decrease
    in other operating expenses, partially offset by higher marketing
    expenses.
  • Operating income in the fourth quarter was $7.4 million compared to
    operating income of $11.5 million in the prior year period. Adjusted
    operating income for the fourth quarter of fiscal 2016, excluding $1.3
    million of expenses related to operating efficiency initiatives and
    other items, was $12.9 million.
  • The tax provision was $1.9 million compared to both a tax provision
    and an adjusted tax provision of $2.9 million in the fourth quarter of
    fiscal 2016.
  • Net income was $5.2 million, or $0.22 per diluted share, compared to
    net income of $7.9 million, or $0.34 per diluted share, for the same
    period in the prior year. Adjusted net income in the fourth quarter of
    fiscal 2016, excluding $1.3 million of expenses, net of tax, related
    to operating efficiency initiatives and other items, was $9.2 million,
    or $0.40 per diluted share.

Full Year Fiscal 2017 Results (See attached
table for GAAP and Non-GAAP measures)

  • Net sales decreased 7.1% to $552.8 million compared to net sales of
    $594.9 million in fiscal 2016. Net sales on a constant dollar basis
    decreased 6.0% compared to net sales in fiscal 2016.
  • Gross profit was $294.8 million, or 53.3% of sales, compared to gross
    profit of $316.9 million, or 53.3% of sales, last year. Adjusted gross
    profit for fiscal 2016, which excludes $0.6 million in charges related
    to operating efficiency initiatives and other items, was $317.6
    million, or 53.4% of sales. The decrease in adjusted gross margin
    percentage was primarily driven by reduced leverage of certain fixed
    costs as a result of lower net sales, mostly offset by the favorable
    impact of changes in foreign currency exchange rates.
  • Operating expenses decreased $6.0 million or 2.4% to $240.8 million in
    fiscal 2017 from operating expenses of $246.8 million last year. For
    fiscal 2017, adjusted operating expenses were $239.0 million, which
    excludes $1.8 million of expenses related to the COO’s retirement in
    the first quarter. For fiscal 2016, adjusted operating expenses were
    $243.4 million, which excludes $3.4 million of expenses related to
    operating efficiency initiatives and other items. The decrease in
    adjusted operating expenses was primarily the result of lower
    performance based compensation, lower depreciation and amortization
    expense, and the favorable impact of foreign currency exchange rates.
  • Operating income for fiscal 2017 was $54.0 million as compared to
    operating income of $70.1 million for fiscal 2016. Adjusted operating
    income for fiscal 2017, which excludes $1.8 million of expenses
    related to the COO’s retirement in the first quarter of fiscal 2017,
    was $55.8 million. Adjusted operating income for fiscal 2016,
    excluding $4.0 million of expenses related to operating efficiency
    initiatives and other items, was $74.1 million.
  • The effective tax rate for fiscal 2017 was 31.7% compared to 33.8% in
    the prior year. The adjusted effective tax rate for fiscal 2017 was
    31.9% as compared to the adjusted effective tax rate of 32.1% in
    fiscal 2016. The decrease in the adjusted effective tax rate is
    primarily due to the mix of global pre-tax income.
  • Net income was $35.1 million, or $1.51 per diluted share, for fiscal
    2017 compared to net income of $45.1 million, or $1.90 per diluted
    share, for the prior year. Adjusted net income in fiscal 2017, which
    excludes $1.1 million in expenses, net of tax, related to the COO’s
    retirement in the first quarter of fiscal 2017, as well as $0.9
    million, net of tax, related to the impairment charge on a long-term
    investment in a privately held company in the third quarter of fiscal
    2017, was $37.1 million or $1.59 per diluted share. Adjusted net
    income in fiscal 2016, which excludes $3.9 million of expenses, net of
    tax, related to operating efficiency initiatives and other items, was
    $49.0 million or $2.06 per diluted share.

Cost Savings Initiatives

Following a review of the Company’s current cost structure, Movado Group
is implementing a number of cost savings initiatives to better align its
global infrastructure with the current business environment by
consolidating certain operations and streamlining functions to reduce
costs and improve profitability. More specifically, the Company is
addressing the current challenging conditions of the U.S. fashion watch
category and traditional retail channels, while at the same time
increasing its investments in the fastest growth opportunities including
digital and e-commerce. While this is a difficult decision, the Company
believes these actions are necessary to compete in the shifting consumer
and retail marketplace. The cost savings initiatives include a reduction
in the Company’s workforce predominantly impacting the Company’s North
American and Swiss operations. The Company expects to realize
approximately $12.0 million of savings in fiscal 2018 and estimates
approximately $15.0 million in on-going annual pre-tax savings from
these initiatives, with the majority being in general and administrative
expenses. The Company expects to record a pre-tax charge in connection
with the completion of these initiatives in a range of approximately
$7.0 million to $10.0 million, predominantly in the first quarter fiscal
2018 with the balance throughout the remainder of the fiscal year.

Rebecca Minkoff License

As previously announced, the Company entered into a new long-term global
partnership with Rebecca Minkoff. The companies will collaborate on
design, development, distribution and marketing of women’s watches for
Rebecca Minkoff’s global lifestyle brand and men’s watches for the Uri
Minkoff brand. The collections will launch in North America in the
summer of 2017.

Fiscal 2018 Outlook

In fiscal 2018, the Company anticipates that net sales will be in a
range of $515.0 million to $530.0 million and operating income will be
approximately $50.0 million to $55.0 million. The Company anticipates
net income in fiscal 2018 to be approximately $33.0 million to $36.3
million, or $1.40 to $1.55 per diluted share, reflecting a 32%
anticipated effective tax rate. The Company’s outlook also assumes no
further significant fluctuations from prevailing foreign currency
exchange rates.

This outlook excludes the $7.0 million to $10.0 million pre-tax charge
related to cost savings initiatives in fiscal 2018. The Company expects
the majority of this charge to be recorded in the first quarter.

Regular Quarterly Dividend and Share Repurchase
Program

The Company also announced that on March 20, 2017, the Board of
Directors approved the payment on April 14, 2017 of a cash dividend in
the amount of $0.13 for each share of the Company’s outstanding common
stock and class A common stock held by shareholders of record as of the
close of business on March 31, 2017.

During the fourth quarter of fiscal 2017, the Company repurchased
approximately 20,000 shares under its share repurchase program. As of
January 31, 2017, the Company had $46.1 million remaining under the
$50.0 million share repurchase authorization which expires on September
30, 2017, subject to extension or earlier termination by the Board.

Conference Call

The Company’s management will host a conference call and audio webcast
to discuss its results today, March 20th, at 9:00 a.m.
Eastern Time. The conference call may be accessed by dialing (877)
545-1409. Additionally, a live webcast of the call can be accessed at www.movadogroup.com.
The webcast will be archived on the Company’s website approximately
one hour after the conclusion of the call. Additionally, a telephonic
re-play of the call will be available from 12:00 p.m. ET on March 20,
2017 until 11:59 p.m. ET on March 27, 2017 and can be accessed by
dialing (844) 512-2921 and entering replay pin number 1443480.

Movado Group, Inc. designs, sources, and distributes MOVADO®, EBEL®,
CONCORD®, COACH®, TOMMY HILFIGER®, HUGO BOSS®, JUICY COUTURE®, LACOSTE®
and SCUDERIA FERRARI® watches worldwide (REBECCA MINKOFF® watches will
launch in the summer of 2017), and operates Movado company stores in the
United States.

In this release, the Company presents certain financial measures that
are not calculated according to generally accepted accounting principles
in the United States (“GAAP”). Specifically, the Company is presenting
adjusted gross profit, adjusted gross margin, adjusted operating
expenses and adjusted operating income, which are gross profit, gross
margin, operating expenses and operating income, respectively, under
GAAP, adjusted to eliminate charges for the COO’s retirement and
operating efficiency initiatives and other unusual items. The Company is
also presenting adjusted tax provision, which is the tax provision under
GAAP, adjusted to eliminate charges for the impairment of a long-term
investment in a private company, the COO’s retirement and operating
efficiency initiatives and other unusual items. The Company believes
these adjusted measures are useful because they give investors
information about the Company’s financial performance without the effect
of certain items that the Company believes are not characteristic of its
usual operations. The Company is also presenting adjusted net income,
adjusted earnings per share and adjusted effective tax rate, which are
net income, earnings per share and effective tax rate, respectively,
under GAAP, adjusted to eliminate the after tax impact of the charges
for the impairment of a long-term investment in a private company, COO’s
retirement and operating efficiency initiatives and other unusual items.
The Company believes that adjusted net income, adjusted earnings per
share and adjusted effective tax rate are useful measures of performance
because they give investors information about the Company’s financial
performance without the effect of certain items that the Company
believes are not characteristic of its usual operations. Additionally,
the Company is presenting constant currency information to provide a
framework to assess how its business performed excluding the effects of
foreign currency exchange rate fluctuations in the current period.
Comparisons of financial results on a constant dollar basis are
calculated by translating each foreign currency at the same US dollar
exchange rate as in effect for the prior-year period for both periods
being compared.
The Company believes this information is useful
to investors to facilitate comparisons of operating results. These
non-GAAP financial measures are designed to complement the GAAP
financial information presented in this release. The non-GAAP financial
measures presented should not be considered in isolation from or as a
substitute for the comparable GAAP financial measures, and the methods
of their calculation may differ substantially from similarly titled
measures used by other companies.

This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Company has tried, whenever possible, to identify these forward-looking
statements using words such as “expects,” “anticipates,” “believes,”
“targets,” “goals,” “projects,” “intends,” “plans,” “seeks,”
“estimates,” “may,” “will,” “should” and variations of such words and
similar expressions. Similarly, statements in this press release that
describe the Company’s business strategy, outlook, objectives, plans,
intentions or goals are also forward-looking statements. Accordingly,
such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause the Company’s actual
results, performance or achievements and levels of future dividends to
differ materially from those expressed in, or implied by, these
statements. These risks and uncertainties may include, but are not
limited to general economic and business conditions which may impact
disposable income of consumers in the United States and the other
significant markets (including Europe) where the Company’s products are
sold, uncertainty regarding such economic and business conditions,
trends in consumer debt levels and bad debt write-offs, general
uncertainty related to possible terrorist attacks, natural disasters,
the stability of the European Union (including the impact of the June
23, 2016 referendum advising that the United Kingdom exit from the
European Union) and defaults on or downgrades of sovereign debt and the
impact of any of those events on consumer spending, changes in consumer
preferences and popularity of particular designs, new product
development and introduction, the ability of the Company to successfully
implement its business strategies, competitive products and pricing, the
impact of “smart” watches and other wearable tech products on the
traditional watch market, seasonality, availability of alternative
sources of supply in the case of the loss of any significant supplier or
any supplier’s inability to fulfill the Company’s orders, the loss of or
curtailed sales to significant customers, the Company’s dependence on
key employees and officers, the ability to successfully integrate the
operations of acquired businesses without disruption to other business
activities, the continuation of the company’s major warehouse and
distribution centers, the continuation of licensing arrangements with
third parties, losses possible from pending or future litigation, the
ability to secure and protect trademarks, patents and other intellectual
property rights, the ability to lease new stores on suitable terms in
desired markets and to complete construction on a timely basis, the
ability of the Company to successfully manage its expenses on a
continuing basis, information systems failure or breaches of network
security, the continued availability to the Company of financing and
credit on favorable terms, business disruptions, disease, general risks
associated with doing business outside the United States including,
without limitation, import duties, tariffs, quotas, political and
economic stability, changes to existing laws or regulations, and success
of hedging strategies with respect to currency exchange rate
fluctuations, and the other factors discussed in the Company’s Annual
Report on Form 10-K and other filings with the Securities and Exchange
Commission. These statements reflect the Company’s current beliefs and
are based upon information currently available to it. Be advised that
developments subsequent to this press release are likely to cause these
statements to become outdated with the passage of time. The Company
assumes no duty to update its forward looking statements and this
release shall not be construed to indicate the assumption by the Company
of any duty to update its outlook in the future.

MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
         
Three Months Ended Twelve Months Ended
January 31, January 31,
 
2017 2016 2017 2016
 
Net sales $ 130,785 $ 143,264 $ 552,752 $ 594,923
 
Cost of sales   66,098     67,913     257,935     277,993  
 
Gross profit 64,687 75,351 294,817 316,930
 
Operating expenses   57,246     63,807     240,836     246,823  
 
Operating income 7,441 11,544 53,981 70,107
 
Other expense (1,282 )
Interest expense (425 ) (382 ) (1,464 ) (1,109 )
Interest income   81     22     219     127  
 
Income before income taxes 7,097 11,184 51,454 69,125
 
Provision for income taxes   1,865     2,902     16,315     23,360  
 
Net income 5,232 8,282 35,139 45,765
 
Less: Net income attributed to noncontrolling interests       394     78     671  
 
Net income attributed to Movado Group, Inc. $ 5,232   $ 7,888   $ 35,061   $ 45,094  
 
Per Share Information:
Net income attributed to Movado Group, Inc. $ 0.22 $ 0.34 $ 1.51 $ 1.90
Weighted diluted average shares outstanding 23,334 23,317 23,267 23,774
MOVADO GROUP, INC.
GAAP AND NON-GAAP MEASURES
(In thousands, except for percentage data)
(Unaudited)
         
As Reported % Change
Three Months Ended % Change Constant
January 31,   As Reported   Dollar
 
2017 2016
 
Total Net sales $ 130,785 $ 143,264 -8.7 % -7.5 %
 
As Reported % Change
Twelve Months Ended % Change Constant
January 31,   As Reported   Dollar
 
2017 2016
 
Total Net sales $ 552,752 $ 594,923 -7.1 % -6.0 %
MOVADO GROUP, INC.
GAAP AND NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
                   

 

Net Sales Gross Profit Operating Income Pre-tax Income Provisions for Income Taxes

Net Income Attributed to Movado Group, Inc.

    EPS
Three Months Ended January 31, 2017
As Reported (GAAP) $ 130,785 $ 64,687   $ 7,441 $ 7,097 $ 1,865   $ 5,232 $ 0.22
 
Three Months Ended January 31, 2016
As Reported (GAAP) $ 143,264 $ 75,351 $ 11,544 $ 11,184 $ 2,902 $ 7,888 $ 0.34
Operating Efficiency Initiatives and Other Items (1)     (72 )   1,326   1,326   (7 )   1,333   0.06
Adjusted Results (Non-GAAP) $ 143,264 $ 75,279   $ 12,870 $ 12,510 $ 2,895   $ 9,221 $ 0.40
 
 
Twelve Months Ended January 31, 2017
As Reported (GAAP) $ 552,752 $ 294,817 $ 53,981 $ 51,454 $ 16,315 $ 35,061 $ 1.51
Impairment of a Long-Term Investment (2) 1,282 398 884 0.03
Retirement Charge (3)         1,806   1,806   687     1,119   0.05
Adjusted Results (Non-GAAP) $ 552,752 $ 294,817   $ 55,787 $ 54,542 $ 17,400   $ 37,064 $ 1.59
 
Twelve Months Ended January 31, 2016
As Reported (GAAP) $ 594,923 $ 316,930 $ 70,107 $ 69,125 $ 23,360 $ 45,094 $ 1.90
Operating Efficiency Initiatives and Other Items (1)     621     3,996   3,996   127     3,869   0.16
Adjusted Results (Non-GAAP) $ 594,923 $ 317,551   $ 74,103 $ 73,121 $ 23,487   $ 48,963 $ 2.06
  (1)   Related to a charge for severance, occupancy expenses and the
write-off of certain fixed assets.
(2) Related to the impairment of a long-term investment.
(3) Related to a charge for the retirement of the former Vice Chairman
and Chief Operating Officer.
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
       
January 31, January 31,
2017 2016

ASSETS

 
Cash and cash equivalents $ 256,279 $ 228,188
Trade receivables, net 66,847 71,030
Inventories 153,167 162,465
Other current assets   28,487   27,352
Total current assets   504,780   489,035
 
Property, plant and equipment, net 34,173 38,553
Deferred and non-current income taxes 24,837 20,323
Other non-current assets   44,012   37,259
Total assets $ 607,802 $ 585,170
 

LIABILITIES AND EQUITY

 
Loans payable to bank, current $ 5,000 $ 5,000
Accounts payable 27,192 27,308
Accrued liabilities 28,241 28,570
Accrued payroll and benefits 6,820 11,047
Income taxes payable   4,149   6,257
Total current liabilities   71,402   78,182
 
Loans payable to bank 25,000 35,000
Deferred and non-current income taxes payable 3,322 2,640
Other non-current liabilities 34,085 28,201
Noncontrolling interests 595
Shareholders’ equity   473,993   440,552
Total liabilities and equity $ 607,802 $ 585,170
MOVADO GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
Twelve Months Ended
January 31,
 
2017 2016
Cash flows from operating activities:
Net income $ 35,139 $ 45,765
Depreciation and amortization 11,507 13,156
Other non-cash adjustments 9,873 5,367
Operating efficiency initiatives and other items 3,996
Changes in working capital 3,969 5,290
Changes in non-current assets and liabilities   (2,070 )   1,016  
Net cash provided by operating activities   58,418     74,590  
 
Cash flows from investing activities:
Capital expenditures (5,920 ) (8,070 )
Restricted cash deposits (1,156 ) (435 )
Short-term investment (152 )
Trademarks and other intangibles   (328 )   (650 )
Net cash (used in) investing activities   (7,556 )   (9,155 )
 
Cash flows from financing activities:
Proceeds from bank borrowings 3,000 50,000
Repayments of bank borrowings (13,000 ) (10,000 )
Dividends paid (11,930 ) (10,312 )
Stock repurchase (3,864 ) (48,748 )
Purchase of incremental ownership of joint venture (1,320 ) (4,267 )
Other financing   (561 )   (395 )
Net cash (used in) financing activities   (27,675 )   (23,722 )
 
Effect of exchange rate changes on cash and cash equivalents 4,904 (13,377 )
Net change in cash and cash equivalents 28,091 28,336
Cash and cash equivalents at beginning of year   228,188     199,852  
 
Cash and cash equivalents at end of year $ 256,279   $ 228,188  
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