Q4 2020 Earnings Call

Good day, everyone and welcome to the Movado Group Inc. fourth quarter 2020 earnings Conference call.

As a reminder, todays call is being recorded and may not be reproduced in whole or in part without permission from the company at this time I'd like to turn the call over to Rachel Schacter I see our.

May now be good.

Thank you good morning, everyone with me on the caused a phone Greenberg chairman and Chief Executive Officer, That's all they do Marcellus Chief Financial Officer before we got Kartik I would like to remind you the company's safe Harbor language, which I'm sure all familiar with.

Stephens contained in this conference call, which are not historical back maybe deemed to constitute forward looking statements within the meeting of the private Securities Litigation Reform Act of 90 95.

Actual future results may differ materially from that's adjusted in such statements do you do a number of risks and uncertainties, all which are described in the company's filings with the FCC, which includes today's press release.

Any non-GAAP financial measure his views on this call a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure it won't be provided supplemental financial information in our press release.

Now I'd like to turn the call over to some Greenberg Chairman and Chief Executive Officer of Movado Group.

Good morning, and welcome to Movado groups Yearend conference call I will keep my remarks brief and then Sally will review, our fourth quarter and full year financial results in greater detail. Since we are operating remotely we will not be taking any questions.

We are today faced with an unprecedented global health health crisis and at this time, our principal concern is the well being up our associates and partners around the world.

We hope for a return to a more stable environment as soon as possible with a massive threats the people's health and wellbeing diminishes.

This pandemic has created a severe decline in discretionary consumer spending.

I speak to you today all of our offices around the world with the exception of China, and Hong Kong or closed and employees are working remotely.

All of our retail stores in the U.S., Canada, and the United Kingdom are closed.

Our warehouse in New Jersey, which is operating on a skeleton crew in order to promote the safety of our people is delivering E commerce orders from Avado, Libya burden, our European Hong Kong, and Kentucky warehouses are still open would skeleton crews most of our customers have close their store.

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We're working on contingencies, so that we can exit these unprecedented times successfully and for the long term.

Fortunately, we ended the year with a very strong balance sheet and a strong cash position.

We're curve carefully managing our cash and minimizing our expenses in order to be in a strong position when we exit into a more normalized environment.

Well it seems like a long time ago.

A number of our brands performed very well at retail over the holiday season in very challenging environment for the category and retail in general, including Tommy Hilfiger in Europe, India in Mexico, as well as Hugo boss and low cost in Europe, and Movado within the Department store channel.

I did state.

In our E Commerce business Movado continued to show strong growth.

Men face some significant performance challenges with its current web site over the holiday season.

Although we have now partially rectified. These issues we are focusing on upgrading the salesforce is commerce cloud platform that's coming June.

Olivia burden and coach both performed well in E Commerce in China.

We have a fabulous portfolio of brands customers and partners and a dedicated team of employees.

We are reducing costs and inventory and reallocating our resources to the areas of the business that we believe will drive our long term success.

We have been in this business for many years and endured many downturns and believe our powerful brands focus on innovation and operating discipline position us well to successfully navigate through these unprecedented times.

Before I turn the call over to Sally to conclude the call with her remarks I would like to thank all of you for listening and hope that all of you and your families remains safe.

Sally.

Thank you out from and good morning, everyone.

For today's call I will review our financial results for fiscal 2020.

Before I begin I'd like to point out the special items included in our fourth quarter and full year results for fiscal 2020 in fiscal 2019.

Our press release also described these items and include the table of GAAP and non-GAAP measure.

Well a lot of group acquired movement on October 2018 included in the annual consolidated results for fiscal 2020 was $4.6 million a pretax charges, primarily comprised of the amortization of intangible asset purchase accounting adjustment and deferred compensation related to the movement.

Position.

After tax the charge equated to 3.5 million dollar or 15 cents per diluted share.

1 million pretax dollars or $800000. After tax this charge was in the fourth quarter fiscal 2020.

Our consolidated GAAP results for fiscal 2019 included $14.4 million, a pre tax charges, primarily related to the integration and acquisition of movement.

After tax that's hard to equates to $11.4 million or 48 cents per diluted share.

2.4 million pre tax dollars or $2.5 million after tax and this charge was recorded in the fourth quarter.

Additionally, non operating income for fiscal 2020 included a noncash gain associated with the Remeasurement of a contingent consideration liability related to the movement acquisition of 15.4 million dollar pretax.

$1.7 million of this gain was reported in the fourth quarter and $13.6 million in this gain was reported in the second quarter.

After taxable year benefit equates to 11.7 million dollar or 50 cents per diluted share.

A lot of group acquired Olivia Burton underlying third 2017 included in the results for fiscal 2020 was approximately 2.8 million dollar of non cash amortization of acquired intangible asset.

Oh boy approximately 700000 dollar within the fourth quarter.

After tax charge for the full year related to the acquisition equates to $2.3 million or 10 cents per diluted share.

Similarly fiscal 2019 included approximately $2.9 million I've ever later chart.

$700000 of which was in the fourth quarter.

After tax the charge for the full year equated to $2.4 million or 10 cents per diluted share.

Included in the consolidated results for fiscal 2019, where tax benefits of $12 million or 51 cents per diluted share related to finalizing our accounting for the impact of the 2017 tax act as well as certain discrete foreign tax item.

$4.4 million or 18 cents per diluted share was recorded in the fourth quarter.

Our GAAP results for both fiscal 2020 in fiscal 2019 include a 300000 dollar pre tax benefit, which equates to $200000 aftertax or one cents per diluted share in connection with the change in estimate of the remaining accrual for fiscal 2018 cost savings initiatives.

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For fiscal 2019 this benefit occurred in the fourth quarter.

The bounce in my remarks, well excluding special items.

Now turning to our result.

For the fourth quarter fiscal 2020 sales were $191 million, an 8.4 million dollar or 4.2% decrease from the fourth quarter of fiscal 2019.

In constant dollars these sales decreased 3.8%.

The decrease in overall sales was driven by a decline in our own brand.

This decrease was partially offset by strength in our licensed brand business and our retail outlets door, which increased 10.8% and 15.8% respectively over last year's fourth quarter.

And then sales were down 14.6% in the U.S.

And in constant dollar increased 8.5% internationally.

Sales in our watch and accessories brands segment were 158.5 million dollar as compared to sales of 171.3 million dollar for the same period of last year.

In constant dollars these sales decreased 7.1%.

By geography, the U.S. blocks and accessories brand business decreased 24.7% to 59.3 million dollar compared to $78.8 million last year.

This decrease was primarily driven by our own brand with a large impact being from E. Commerce sales of the movement brand, which was adversely impacted by the website performance issues that from cited.

The International Watson accessories brand business increased 7.2% to 99.2 million dollar as compared to $92.5 million in the prior year.

In constant dollar international sales increased 7.9%, but our strongest sales growth being in Europe, and the middle East.

For the quarter.

The company's retail business was up 15.8% from last year.

At the end of the quarter. We operate is 47 outlet locations, including two Canadian store as compared to 44 locations last year.

Gross profit was $100.6 million or 52.7% of fail compared to 111.1 million dollar or 55.7% in the fourth quarter up last year.

The 300 basis points increase in gross margin was primarily driven by the on favorable impact our channel and product mix.

On favorable change in foreign currency exchange rate additional vessel U.S. tariff and the impact of fixed costs and lower fail.

Operating expenses were $92.3 million, increasing 1.3% from last year fourth quarter.

This increase was primarily due to approximately $5.6 million of operating costs related to recent business initiatives.

Your growth, including our joint ventures in Spain, and Australia, and our newest company retail outlet location offset by a decrease in performance based compensation.

Lower sales and an increase in operating expenses drove a decline in operating income to 8.3 million dollar compared to $19.9 million in the year ago period.

Income tax expense was 4.5 million dollar compared to $3.9 million in the same period last year.

Net income in the fourth quarter fiscal 2020 were $3.5 million or 15 cents per diluted share versus net income of 15.9 million dollar or 67 cents per diluted share in the fourth quarter fiscal 2019.

Looking at the results for the full year ended January 31020.

Sales were 701 million dollar an increase of 3.1 person from fiscal 2019.

On a constant dollar basis sales increased 4.9%.

Gross profit was 375 million dollar, 53.5% fail as compared to 369.9 million dollar 54.4% of sales last year.

The decrease in gross margin was primarily driven by the same item as for the fourth quarter.

Operating income was $50 million or 7.1% of sale compared to $79.2 million or 11.7 person sales in fiscal 2019.

Income tax expense was $13 million compared to $15.6 million for last year, and our effective tax rate was 26.4% for fiscal 2020 compared to a 19.9% effective tax rate last year.

The effective tax rate was higher than last year and higher than expected due to the limitation of a portion of the foreign tax credits related to the guilty Tac as a result of the mix of our jurisdictional earnings.

Net income was $36.5 million compared to net income of $63.1 million in the prior year.

Diluted earnings per share decreased to $1.57 cents per fair in the current fiscal year compared to $2 from 67 cents per share last year.

Now turning to our balance sheet during the fourth quarter fiscal 2020, we generated $76.6 million of operating cash flow and our cash at year end was 185.9 million dollar as compared to $189.9 million last year.

Accounts receivable were down $5.6 million as compared to the same period of last year and inventory was up $6.1 million or 3.7% from the prior year.

Well the here, we repurchased approximately $4.2 million stock under our $50 million share repurchase program.

Capital expenditures for the year were 12.7 million dollar.

Depreciation and amortization expense was 16.4 million dollar, which included $5.7 million related to the amortization of acquired intangible assets of movement and Olivia Burton.

In light of be increasing uncertainty regarding the evolving cobot 19 pandemic, we're not providing any financial outlook at this time.

We are however, implementing strategic walk production across all functional areas as well as reducing our capital expenditure.

Although we have a strong balance sheet to preserve financial flexibility and to increase our cash cash position. The company offense drawn down an additional $30 million on our credit facility.

We have also decided to discontinue our regular quarterly dividends with an expectation to resume a dividend when business conditions warrant that as well as to suspend our share repurchase program until further notice.

What the strength of our strength of our balance sheet in this important focus of our entire management team. We believe we have the ability to navigate these challenging time.

Adam and I, both feel communication to you is important but at the same time, we're taking the necessary precautions and working remotely.

As such we will not be taking any questions. This morning.

I hope that you and your loved ones are saying well.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a wonderful day.

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