Q1 2021 Movado Group Inc Earnings Call
[music].
Hey, everyone and welcome to be Movado group Inc. first quarter fiscal 2021 earnings conference call.
Reminder, todays call is being recorded and may not be reproduced in whole or part without permission from the company.
Hi, I'd like to turn the conference over to Rachel Schacter of IDR. Please go ahead.
Thank you good morning, everyone with me on the call. It a from Greenberg, Chairman and Chief Executive Officer, and Sallie Demarsilis Chief Financial Officer before we get started I would like to remind you of the company's safe Harbor language, which I'm sure all familiar with it.
Siemens contained in this conference call, what you're 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 who adjusted in such statements due to a number of risk and uncertainties all of which are described in the.
Companies filings with the S U C, which includes today's press release.
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 supplemental financial information in our press release now I'd like to turn the call over to ask from Greenberg, Chairman and Chief Executive Officer of Movado Group.
Thank you Rachel and thank you all for joining US. This morning for Movado Group first quarter conference call I want to open my comments by recognizing how upsetting I found the recent senseless stats George Floyd Ahmad Arberry Ambriano Taylor over the last 10 days, we've had numerous discussions with our associates over the issues.
Oh racial discrimination and as a company we have tried to do what we can to support the continuation of the discussion racism exists and it has no place in our society or country, where our world as a company we have been focused on having the difficult discussions surrounding raised diversity inclusion and the bias is that.
Exist within all of US, we all need to do better our support goes out to the peaceful protesters who are focused on eliminating racism discrimination from our planet as a company. We have an obligation to take a position and I know our employees feel very strongly about that.
As we entered this year, we had a solid strategy in place focusing on growing our profits and preparing ourselves for continued growth in an evolving landscape for retail and the watch category for the month of February and the beginning of March we were exceeding our internal plan efficiently managing our expenses, even while continuing.
Even while we were continuing to experience supply constrained due to the effects of covert 19 in China, then by the Middle of March Cobot, 19 began making its way throughout the rest of the world with the safety of our colleagues and customers at the forefront we acted swiftly to close most of our operations around the world.
Including our retail stores most of our wholesale customers began doing the same our teams acted quickly to manage our expenses and our cash flow, we drew down approximately $30 million on our revolver and slowed the inflows inventory in our warehouses, we began to manage our business remotely I am proud of how proag.
Actively and effectively our teams executed around the world as can be seen by the strength of our balance sheet and the 26% reduction in adjusted operating expenses during the first quarter.
We ended with almost $188 million in cash and with inventories slightly down from the same period last year, despite significantly lower sales due to the pandemic. All of this was accomplished while seeing a reduction in our accounts payable and accrued liabilities of 29% from last year.
Our leadership team has developed a plan to optimize our results for the balance of the year, while continuing to build and prepare ourselves for the future. It is widely believed that the pandemic and the closure of many global businesses will accelerate trends already in progress such as video conferencing work from home the.
One of marketing and of course, the growth of E. Commerce, while we had invested in these areas for a number of years, we recognize that the pandemic would provide for a sea change in the retail industry and our selling channels Satya Nadella. The CEO of Microsoft has had said that they had seen two years worth of digital transformation.
In just two months.
In aligning with this belief we know we have to adapt our company in our management structure to this new environment to that end today, we announced the significant realigning our leadership team to make ourselves a truly consumer focused company for this evolving environment, we have elevated base odds soltani, our chief digital officer and present.
One of our direct to consumer business to executive Vice President in charge of our whole commercial organization, including both our wholesale and direct to consumer businesses as well as our digital center of excellence and our IP group.
We believe that we will now be able to place the consumer first wherever they choose to shop around the world from our own E Commerce site to our wholesale accounts their website, our own retail doors and digital marketplaces. We will also see a much closer integration of our web sites and our ERP system focus.
Moving on servicing our customers.
In addition, we have elevated Sally the Marcellus, our CFO to executive Vice President and Chief operating officer in this role she will add our end to end value chain and our global distribution operations to her responsibilities not only are these two proven executives within our team, but they will be supported by a seasoned and.
Proven management team.
Our company has been all about building and partnering with strong brands connecting effectively with the consumer and designing beautiful products for them at compelling values. We also have established tremendous collaborations with our wholesale partners around the world who will continue to support.
We believe that the pandemic will have a sustained effect on global economies end markets and we are bringing our expense infrastructure in line to maximize result, while ensuring that we continue to support and build our brands through innovation and effective marketing.
As we operate in an economic environment with a higher level of uncertainty we will maximize the variability of our operating expenses and commitment. We've always succeeded in adapting our organization to challenging environments and I am confident that we will do that now our teams are energized by the challenge.
During this time to make we've seen a universal strengthening of our already strong E commerce trends for both our own website as well as our customers web sites on Movado Dot com, we saw double digit growth. Despite the fact that our principal distribution warehouse in New Jersey was closed for most of the month of.
April since reopening at the end of April we have seen an acceleration in those trends Olivia burden in the UK has also shown strong growth and we have seen significant improvement in our movement website in both sales and profitability trends as we prepare to migrate them to the Salesforce E Commerce.
Form in July.
We are encouraged by an improved performance in our customer acquisition metrics and we are continuing to invest in our digital capabilities.
In China, which enjoyed the effects of the business closures related to the pandemic early in our quarter, we have seen strong demand in our E commerce channel throughout and improving trends in our retail business today, all of our retail doors in China have reopened.
As certain markets around the world have begun to reopen many of our customers are exceeding both their own NR set and our own sales expectations in Europe. Our strongest performance has been in Germany, where may wholesale sales are approaching the prior year.
In North America, we have opened 14 of our 47 Movado company stores and expect to have 41 opened by June 17.
In the 14 stores, we have opened we have performed better than expected with sale down 10.6% when compared to the same period last year in all of these stores, we've increased the safety measures to protect both our employees and our customers.
As a whole we're seeing some green shoots as businesses reopened but we are still planning conservatively with a focus on maximizing cash flow for the year, we're taking the necessary actions to rightsize our costs our cost structure on an ongoing basis.
I am pleased but in a challenging quarter, we protected our gross margin delivering 15, 50.8% on adjusted basis, Despite lower volumes volumes and increased tariffs in the us versus last year.
While operating in an environment with limited visibility prevents us from being able to provide a specific outlook, we're focusing on maintaining a high level of flexibility in order to optimize our performance, while maintaining a solid balance sheet.
This has been a started the year that no one could have anticipated or prepared for but I'm very proud of our teams resilience and how they embrace the challenge and how they embraced the challenges and and they have put us on a solid footing to operate within the current environment as we continue to open our business operations around the world.
I would now like to turn the call over to Sally who will provide details on our financial results.
Thank you have from and good morning, everyone for today's call given our attention has been on navigating the disruption to our business created by the Cobot 19 pandemic My remarks will focus on the key highlights of our first quarter fiscal 2021, and then I'll provide an update on our financial performance.
As reported in this mornings release, the first quarter of fiscal 2021, we recorded two charges related to the impact on our business of the cobot 19 pandemic.
First we recorded $155.9 million and goodwill and intangible asset impairment charges associated with recent acquisitions. This noncash charge was $131.1 million after tax or $5.66 per share.
The company revised its internal forecast, resulting in a reduction in both current and future expected cash flows due to the Covance 19 pandemic any uncertain business environment.
As a result during the first quarter fiscal 2021, the company recorded impairment charges related to goodwill of $133.7 million and intangible assets related to movements trade name and customer relationships of $22.2 million.
Second the company took a $7.2 million charge $5 million after tax or 22 cents per share for cost due to the impact on our business of the cobot 19 pandemic.
The $7.2 million included $3.5 million related to an additional inventory as a reserve, which impacted gross margins and $3.7 million related to unfunded trade show deposit additional reserves against accounts receivable and restructuring charges, which impacted EPS DNA.
For the first quarter fiscal 2021.
I'm sorry, the first quarter fiscal 2021 was also impacted by 700000 of pre tax amortization of intangible and deferred compensation for the movement acquisition accorded prior to the impairment and $700000 of pre tax amortization of acquired intangible assets for Olivia Burton.
The first quarter fiscal 2020 had similar amortization of $1.5 million related to movement in $700000 related to Olivia.
Our press release also described these items and include the table of GAAP and non-GAAP measures.
The balance of my remarks will exclude the special items just discussed.
For the first quarter fiscal 2021 sales were $69.7 million as compared to $146.5 million last year.
Currency negatively impacted sales by approximately $700000.
As I mentioned for the first half of this quarter, we are exceeding our internal plan.
The second half of our first quarter was adversely impacted as the company and the majority of our wholesale customers closed all of their retail stores as shelter in place orders were imposed.
Sales declined across all segments owned brands licensed brands and company stores and were down in both our USA and international businesses.
Although ecommerce sales were strong they were not nearly enough to offset the declines in our wholesale and company stores businesses.
Gross profit was 50.8% of sales compared to 53.9% in the first quarter of last year.
The decrease in gross margin was primarily driven by reduced leverage on fixed costs due to lower sales additional special U.S. tariff unfavorable channel and product mix and the unfavorable change in foreign currency exchange rate.
As part of the Swift actions taken to control spend which I will discuss Nick we were able to reduce the portion of the fixed costs and cost of goods sold.
Operating expenses were $53 million as compared to $71.9 million over the same period of last year.
The decrease was driven by actions taken to minimize all non essential operating costs.
This includes rightsizing marketing expenses to the lower lower revenue base, while maintaining focus on digital and ecommerce customer acquisition.
And temporarily reducing the company's workforce in furloughs or other available government programs in various countries and temporarily reducing compensation for the company's management and salaried employees as well as its board of directors.
The reduction in sales resulted in an operating loss of $17.6 million for the first quarter of 2021.
An income tax benefit of $4.8 million, a 27.1% effective tax rate was recorded in the first quarter fiscal 2021 as compared to an income tax expense of $1.3 million or 19.2% effective tax rate in the first quarter fiscal 2020.
The tax benefit was favorably impacted by the care that which enabled the company to carry back us net operating losses generated in fiscal 2021 into prior taxable years with the us statutory rate of 35%.
Partially offset by the recording of valuation allowances on certain foreign deferred tax assets.
Net loss in the first quarter was $12.9 million or 56 cents per share as compared to net income of $5.6 million or 24 cents per share in the year ago period.
Now turning to our balance sheet. In addition to minimizing non essential expenses strengthening the company's balance sheet and enhancing financial flexibility has been a top priority.
During the quarter, we drew down an additional $30 million under our credit agreement to add to cash balances. We are tightly managing inventories by delaying or canceling inventory receipts as deliveries are prioritized and we have reduced capital expenditures, allowing only projects with short term return on investment such as certain.
Unit.
As we announced with our year end release, we have also suspended the company's quarterly cash dividend and share repurchase program until further notice.
Cash at the end of the first quarter was $187.8 million as compared to $150.7 million in the prior year period.
Our total liquidity as of April Thirtyth, 2020 was $205 million, including the availability under our credit facility.
Accounts receivable was $49.8 million down $36 million from the same period of last year, primarily due to the decrease in sales.
Inventory at the end of the quarter was relatively flat to the same period of last year at $177.8 million due to the actions taken to cancel or delay inventory receipts.
Capital expenditures for the quarter were just under $1 million and depreciation and amortization expense was $3.9 million, which included $1.2 million related to the amortization of acquired intangible assets of Olivia Burton and movements reported prior to the impairment.
As just mentioned capital expenditures will be at a minimum this year, although we plan to complete the migration of movements ecommerce platform, our largest ecommerce business to our global platform.
As announced today on June 5th the company amended its existing credit agreement to increase flexibility regarding its financial maintenance covenants in light of the impact of the coated 19 pandemic. It's amendment was effective as of April Thirtyth 2020.
In terms of outlook, while we're not providing specific guidance, we would like to share that we expect our second quarter to continue to be significantly impacted by the crisis.
Although we expect trends will improve in the second half of the year. Our topline is expected to remain below last year.
As previously mentioned, we are implementing strategic cost reductions across all functional areas to better align our cost structure to the lower sales level to maximize our operating results.
I would now like to open the call up for questions.
Thank you and time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation Tony will indicate your line is in the question Q you May Prestart seems like your question.
Sure participants using speaker equipment, maybe necessary to pick up your against that before pressing the star Keith one moment. Please only pull for your question.
Our first question comes from the line of Oliver Chen with Cowen and company. Please proceed with your question.
Hey, Good morning says Ross on for all of our thanks for taking our question Im just learning Ross the volume.
Morning.
90% productivity of stores that have reopened is pretty impressive.
Definitely among the highest that we've heard.
In our in our coverage just.
Can you talk about we attribute the strengths there to whether you think its pent up demand or or some sort of stimulus benefit or otherwise.
Okay, So I actually think.
That this pandemic has kind of two to a certain expense.
Really fortified the need for a certain amount of brick and mortar.
So that centers, and especially outdoor ones and so we're seeing that that that consumers like to shop, and they're coming to our stores.
And and shopping it at a pretty high level and while traffic is generally down.
In those stores.
About 40% I, we're seeing higher conversion rates and higher average transaction. So both of those things.
When people are going into stores, they really going with the thought of buying.
And so we're excited about about that our people are excited to be back in the in the stores.
And we're opening more every week.
Got it thanks, and then in terms of the digital prioritization dominant reorient off. This morning can you just talk about how you expect digital and physical things are play out over the longer term versus how it does today.
Sure. So so we we obviously expect digital to be a bigger part of our business both in our direct to consumer business and our E com.
Businesses so in mountain.
It is that over the last two three years, we've acquired Olivia burden and movement, which are which are more digitally native brands and reach their consumers.
At a high level through through digital aspects.
And in addition to that with our retailers.
We're seeing a much more significant part of their business around the world.
Become E commerce oriented and so so in many cases, even during the first quarter their sales performance.
Penetrated a much higher level on the digital front, obviously, but but also made up for some of the losses in stores that that were closed and then in the third fronts.
Marketplaces people like Amazon.
And T mall in China.
That I believe have a big future also.
For us and we're seeing that around the world as well Amazon in the us in Europe.
T mall in China.
So.
I think the the idea of aligning.
To reach the consumer wherever they choose to shop.
I think we'll pay some significant benefits for that for the company.
And just a follow up on the cost side of that I guess in terms of sequencing the investments.
Could you just talked about that in terms of building out the digital.
Your digital digital presence, but also against the context of cash preservation and then secondly on the marketing side, just how the marketing strategy might evolve in terms of how you show up to your customers as we build out digital capabilities. Thanks for sure. So.
We've actually invested most of the cash resources that we've needed to invest in in our digital initiatives over the last few years. So so for example, what we're doing now with movement is rolling them onto our Salesforce.
On on our Salesforce, our cloud solution for E Commerce, and so our whole company will be on one platform are the rest of the company is already on that float platform and really have all the support services and organization in place.
To support that.
It from from a customer acquisition and digital investment point of view, we think also bye bye.
Really consolidating a lot of that effort also will gain significant.
Efficiencies, we've already begun to experience that.
Towards the end of the first quarter.
And.
As we as we enter the second quarter.
Great. Thanks, so much.
Thank you there is no further questions at this time I'd like to turn the call back over to management for any closing remarks.
So.
Yes.
Really I would like to thank everybody for participating with US today I would like to bank our team for the Fabulous job that I believe.
We've been they've been doing around the world in navigating this challenging environment and while the world has been in a challenging place I am optimistic that better days are ahead on on many fronts and the progress will be made.
Both on the racial initiatives that have been going on.
And protests that have been.
Occurring.
As well as as dealing with a pandemic and.
The world returning to a new normal.
And we are preparing ourselves.
Very diligently for that so thank you very much.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[music].
[music].
Hey, everyone and welcome to be Movado group Inc. first quarter fiscal 2021 earnings conference call.
During todays call is being recorded and may not be reproduced and order part without permission from the company.
Hi, I'd like to turn the conference over to Rachel Schacter I see our please go ahead.
Thank you good morning, everyone with me on the call affirming Greenberg, Chairman and Chief Executive Officer, and Sally do I suppose Chief Financial Officer before we get started I would like to remind you of the company's safe Harbor language, which I'm sure all familiar with.
The same is 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 adjusted in such statements due to a number of risk and uncertainties, all what you're describing the company's filings with the FCC, which includes todays press release.
If any non-GAAP financial measure is use on this call a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided supplemental financial information in our press release now I'd like just for the call over to Exome, Greenberg, Chairman and Chief Executive Officer of Movado Group.
Thank you Rachel and thank you all for joining US. This morning for Movado group's first quarter conference call I want to open my comments by recognizing how exciting I found the recent senseless stats George Floyd Ahmad Arberry Ambriano Taylor.
Over the last 10 days, we've had numerous discussions with our associates over the issues of racial discrimination and as a company. We have tried to do what we can to supports a continuation of the discussion racism extent and it has no place in our society, our country or world as a company we have been focused on having the difficult.
Gosh in surrounding raised diversity inclusion and the biases that exist within all of US we all need to do better our support goes out to the peaceful protesters who are focused on eliminating racism discrimination from our planet as a company we have an obligation to take a position and I know our employees feel very soon.
Sorry about that.
As we entered this year, we had a solid strategy in place focusing on growing our profit and preparing ourselves for continued growth in an evolving landscape for retail and the watch category for the month of February and the beginning of March we were exceeding our internal plan officially managing our expenses, even while continuing.
Even while we were continuing to experience supply constrained due to the effects of coded 19 in China, then by the Middle of March Cobot, 19 began making its way throughout the rest of the world with the safety of our colleagues and customers at the forefront we acted swiftly because most of our operations around the world.
Oh, the including our retail stores most of our wholesale customers began doing the same our teams acted quickly to manage our expenses and our cash flow, we drew down approximately $30 million on our revolver and slow the inflow of inventory in our warehouses, we began to manage our business remotely I am proud of how pro.
Actively and effectively our teams executed around the world as can be seen by the strength of our balance sheet and the 26% reduction in adjusted operating expenses during the first quarter.
We ended with almost $188 million in cash and with inventory slightly down from the same period last year, despite significantly lower sales due to the pandemic. All of this was accomplished while seeing a reduction in our accounts payable and accrued liabilities of 29% from last year.
Our leadership team has developed a plan to optimize our results for the balance of the year, while continuing to build and prepare ourselves for the future. It is widely believed that the pandemic and the closure of many global businesses will accelerate trends already in progress such as video conferencing work from home the digital is.
Nation of marketing and of course, the growth of E. Commerce, while we had invested in these areas for a number of years, we recognize the pandemic would provide for a sea change in the retail industry and our selling channels Satya Nadella. The CEO of Microsoft has had said that they had seen two years worth of digital transformation.
Jason in just two months.
And aligning with this belief we know we have to adapt our company at our management structure to this new environment to that and today, we announced a significant realigning our leadership team to make ourselves a truly consumer focused company for this evolving environment, we have elevated base odd soltani, our chief Digital officer and PRASM.
One of our direct to consumer business to executive Vice President in charge of our whole commercial organization, including both our wholesale and direct to consumer businesses as well as our digital center of excellence and our IP group. We believe that we will now be able to place the consumer first wherever they choose.
To shop around the world from our own E Commerce site to our wholesale accounts their website, our own retail doors and digital marketplaces. We will also see a much closer integration of our website and our ERP system focusing on servicing our customers.
In addition, we have elevated saleeby Marseille, our CFO to executive Vice President and Chief operating officer in this role she will add our end to end value chain and our global distribution operations to her responsibilities not only are these two proven executives within our team, but they will be supported by a seasoned and.
Steven management team.
Our company has been all about building and partnering with strong brands connecting effectively with the consumer and designing beautiful products for them at compelling values. We also have established tremendous collaborations with our wholesale partners around the world who will continue to support.
We believe that the pandemic will have a sustained effect on global economies and market and we are bringing our expense infrastructure in line to maximize results, while ensuring that we continue to support and build our brand through innovation and effective marketing.
As we operate in an economic environment with a higher level of uncertainty we will maximize the variability of our operating expenses and commitment we have always succeeded and adapting our organization to challenging environment and I am confident that we will do that now our teams are energized by the challenge.
During this pandemic, we've seen a universal strengthening of our already strong E commerce trends for both our own website as well as our customers web sites on Movado Dot com, we saw double digit growth. Despite the fact that our principal distribution warehouse in New Jersey was closed for the most of the month of.
April since reopening at the end of April we have seen an acceleration in those trends.
Livia burden in the UK has also shown strong growth and we have seen significant improvement in our movement website in both sales and profitability trends as we prepare to migrate them to a sales force E Commerce platform in July.
We are encouraged by an improved performance in our customer acquisition metrics and we're continuing to invest in our digital capabilities.
In China, which enjoyed the effects of the business closures related to the pandemic early in our quarter, we have seen strong demand in our E commerce channel throughout and improving trends in our retail business today, all of our retail doors in China have reopened.
As certain markets around the world the begun to reopen many of our customers are exceeding both their own NRC and our own sales expectations and Europe. Our strongest performance has been in Germany, where may wholesale sales are approaching the prior year.
In North America, we have opened 14 of our 47 Movado company stores and expect to have 41 opened by June 17th.
In the 14 stores, we have opened we have performed better than expected with sales down 10.6% when compared to the same period last year and all of these stores. We've increased the safety measures to protect both our employees and our customers.
As a whole we're seeing some green shoots as businesses reopened, but we're still planning conservatively with a focus on maximizing cash flow for the year, we're taking the necessary actions to rightsize our cost our cost structure on an ongoing basis.
I am pleased that in a challenging quarter, we protected our gross margin delivering 15, 50.8% on adjusted basis, Despite lower volumes volumes and increased tariffs in the us versus last year.
While operating in an environment with limited visibility prevents us from being able to provide a specific outlook. We are focusing on maintaining a high level of flexibility in order to optimize our performance, while maintaining a solid balance sheet.
This has been a starts for the year that no one could have anticipated or prepared for but I'm very proud of our teams resilience and how they embrace the challenge and how they embraced the challenges and and they have put us on a solid footing to operate within the current environment as we continue to open our business operations around the world.
I would now like to turn the call over to Sally who will provide details on our financial results.
Thank you have from and good morning, everyone for today's call given our attention has been on navigating the disruption to our business created by the Cobot 19 pandemic My remarks will focus on the key highlights of our first quarter fiscal 2021, and then I'll provide an update on our financial performance.
As reported in this mornings release, the first quarter of fiscal 2021, we recorded two charges related to the impact on our business of the cobot 19 pandemic.
First we recorded a $155.9 million and goodwill and intangible asset impairment charges associated with recent acquisitions. This noncash charge was $131.1 million after tax or $5.66 per share.
The company revised its internal forecast, resulting in a reduction in both current and future expected cash flows due to the cobot 19 pandemic any uncertain business environment.
As a result during the first quarter fiscal 2021, the company recorded impairment charges related to goodwill of $133.7 million and intangible assets related to movements trade name and customer relationship of $22.2 million.
Second the company took a $7.2 million charge $5 million after tax or 22 cents per share for costs due to the impact on our business of the cobot 19 pandemic.
The $7.2 million included $3.5 million related to an additional inventory as a reserve, which impacted gross margins and $3.7 million related to unfunded trade show deposits additional reserves against accounts receivable and restructuring charges, which impacted EPS DNA.
The first quarter fiscal 2021.
I'm sorry, the first quarter fiscal 2021 was also impacted by 700000, a pre tax amortization of intangible and deferred compensation for the movement acquisition accorded prior to the impairment and $700000 of pre tax amortization of acquired intangible assets for Olivia Burton.
The first quarter fiscal 2020 had similar amortization of $1.5 million related to movement in $700000 related to Olivia.
Our press release also described these items and include the table of GAAP and non-GAAP measures.
The balance of my remarks will exclude the special items just discussed.
For the first quarter fiscal 2021 sales were $69.7 million as compared to $146.5 million last year.
Currency negatively impacted sales by approximately $700000.
As that from mentioned for the first half of this quarter, we are exceeding our internal plan.
The second half of our first quarter was adversely impacted as the company and the majority of our wholesale customers close all of their retail stores as shelter in place orders were imposed.
Sales declined across all segments owned brands licensed brands and company stores and were down in both our U.S. and international businesses.
Although ecommerce sales were strong they were not nearly enough to offset the declines in our wholesale and company stores businesses.
Gross profit was 50.8% of sales compared to 53.9% in the first quarter of last year.
The decrease in gross margin was primarily driven by reduced leverage on fixed cost at a lower sales additional special U.S. tariff unfavorable channel and product mix and the unfavorable change in foreign currency exchange rate.
As part of the Swift actions taken to control spend which I will discuss Nick we were able to reduce the portion of the fixed costs and cost of goods sold.
Operating expenses were $53 million as compared to $71.9 million over the same period of last year.
The decrease was driven by actions taken to minimize all non essential operating costs.
This includes rightsizing marketing expenses to the lower lower revenue base, while maintaining focus on digital and ecommerce customer acquisition.
And temporarily reducing the company's workforce in furloughs or other available government programs in various countries and temporarily reducing compensation for the company's management and salaried employees as well as its board of directors.
The reduction in sales resulted in an operating loss of $17.6 million for the first quarter of 2021.
Income tax benefit of $4.8 million, 27.1% effective tax rate was recorded in the first quarter fiscal 2021 as compared to an income tax expense of $1.3 million or 19.2% effective tax rate in the first quarter fiscal 2020.
The tax benefit was favorably impacted by the care that which enables the company to carry back us net operating losses generated in fiscal 2021 into prior taxable years with the us statutory rate of 35%.
Partially offset by the recording of valuation allowances on certain foreign deferred tax assets.
Net loss in the first quarter was $12.9 million or 56 cents per share as compared to net income of $5.6 million or 24 cents per share in the year ago period.
Now turning to our balance sheet. In addition to minimizing non essential expenses strengthening the company's balance sheet and enhancing financial flexibility has been a top priority.
During the quarter, we drew down an additional $30 million under our credit agreement to add to cash balances.
Our tightly managing inventories by delaying or canceling inventory receipts as deliveries are prioritized and we have reduced capital expenditures, allowing only projects with short term return on investment such as certain digital initiatives.
As we announced with our year end release, we have also suspended the company's quarterly cash dividend and share repurchase program until further notice.
Cash at the end of the first quarter was $187.8 million as compared to $150.7 million in the prior year period.
Total liquidity as of April Thirtyth, 2020 was $205 million, including the availability under our credit facility.
Accounts receivable was $49.8 million down $36 million from the same period of last year, primarily due to the decrease in sales.
Inventory at the end of the quarter was relatively flat to the same period of last year at $177.8 million due to the actions taken to cancel or delay inventory receipts.
Capital expenditures for the quarter were just under $1 million and depreciation and amortization expense of $3.9 million, which included $1.2 million related to the amortization of acquired intangible assets of Olivia Burton and movement reported prior to the impairment.
As Jeff mentioned capital expenditures will be at a minimum this year, although we plan to complete the migration of movements ecommerce platform, our largest ecommerce business to our global platform.
As announced today on June 5th the company amended its existing credit agreement to increase flexibility regarding its financial maintenance covenants in light of the impact of the Cobot 19 pandemic. It's amendment was effective as of April Thirtyth 2020.
In terms of outlook, while we're not providing specific guidance, we would like to share that we expect our second quarter to continue to be significantly impacted by the crisis.
Although we expect trends will improve in the second half of the year. Our topline is expected to remain below last year.
As previously mentioned, we are implementing strategic cost reductions across all functional areas to better align our cost structure to the lower sales level to maximize our operating results.
I would now like to open the call up for questions.
Thank you and time will be conducting a question and answer session. If you like to ask a question. Please press star one on your telephone keypad.
Confirmation tonal indicate your line is in the question Q you May proceed Sir.
A question for.
Sure participants using speaker equipment, maybe necessary to pick up your against that before pressing the star Keith.
Please always will for your question.
Our first question comes from the line of Oliver Chen with Cowen and company. Please proceed with your question.
Hey, Good morning says Ross on for all of her thanks for taking my question Im just learning Ross volumes.
Morning.
90% productivity of stores that has reopened is pretty impressive.
Definitely among the highest that we've heard.
In our in our coverage just.
Can you talk about we attribute this strength there to weather I get pent up demand or or some sort of stimulus benefit or otherwise.
Okay, So I actually think.
That this pandemic has kind of two to a certain extent.
Really fortified the need for a certain amount of brick and mortar.
So that centers, and especially outdoor ones and so we're seeing that that that consumers like to shop, and they're coming to our stores.
And shopping it at a pretty high level and while traffic is generally down.
In those stores.
About 40% I, we're seeing higher conversion rates and higher average transaction. So both of those things.
When people are going into stores they really.
Going with the thought of buying.
And so we're excited about vowed that our people are excited to be back in the stores.
And we're opening more every week.
Got it thanks, and then in terms of the digital prioritization dominantly already announced this morning can you just talked about how you expect digital and physical interplay kind of over the longer term versus how it does today.
Sure. So so we we obviously expect digital to be a bigger part of our business both in our direct to consumer business and our E com.
Businesses so in that.
It is that over the last two three years, we've acquired Olivia burden and movement, which are which are more digitally native brands and reach their consumers.
At a high level through through digital aspect.
And in addition to that with our retailers.
We're seeing a much more significant part of their business around the world.
Become E commerce oriented and so in many cases, even during the first quarter their sales performance.
Penetrated a much higher level on the digital front, obviously, but but also made up for some of the losses in stores that were closed and then on the third front.
Marketplaces people like Amazon.
And team all in China.
That I believe have a big future also.
For us and we're seeing that around the world as well Amazon into you asked in Europe.
T mall in China.
So.
I think the the idea of aligning.
To reach the consumer wherever they choose to shop.
I think we'll pay some significant benefits for that for the company.
And just a follow up on the cost side of that I guess in terms of sequencing the investments.
Could you just talked about that in terms of building out the digital.
Your does it digital presence, but also against the context of cash preservation and then secondly on the marketing side, just how the marketing strategy might evolve in terms of how you show up to your customers as we build out digital capabilities. Thanks for sure. So.
We've actually invested most of the cash resources that we've needed to invest in in our digital initiatives over the last few years. So so for example, what we're doing now with movement is rolling them onto our Salesforce.
On on our Salesforce, our cloud solution for E Commerce, and so our whole company will be on one platform are the rest of the company is already on that float platform and really have all the support services and organization in place.
To support that.
It from from a customer acquisition and digital investment point of view, we think also bye bye.
Really consolidating a lot of that effort also will gain significant.
Efficiencies, we've already begun to experience that.
Towards the end of the first quarter.
And.
As we as we enter the second quarter.
Great. Thanks, so much.
Thank you there no further questions at this time I'd like to turn the call back over to management for any closing remarks.
So.
Yes.
Really I would like to thank everybody for participating with US today I would like to bank our team for the Fabulous job that I believe.
We've been they've been doing around the world in navigating this challenging environment and while the world has been in a challenging place I am optimistic that better days are ahead on on many fronts and the progress will be made.
Both on the racial initiatives that have been going on.
And protests that have been.
Occurring.
As well as as dealing with the pandemic and.
The world returning to a new normal.
And we are preparing ourselves.
Very diligently for that so thank you very much.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.