Q3 2021 Movado Group Inc Earnings Call
Good day, everyone and welcome to the Movado Group, Inc. Fourth quarter 2021 earnings Conference call I jump on your todays call is being recorded and may not be reproduced in whole or in part without permission from the company.
Hi, I would like to try the office overcome Miss Rachel Schacter of I see our please go ahead.
Thank you good morning, everyone with me on the cause of from Greenberg, Chairman and Chief Executive Officer inside the merciless Chief Financial Officer.
Before we get started I would like to remind you of the come the 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 one.
95, actual future results may differ materially from those adjusted in such statements due to a number of risks and uncertainties all of which are described in the companys filings with the US you see which includes today's press release if.
The non-GAAP financial measure is used on this call a presentation of the most directly comparable GAAP financial measure. The this non-GAAP financial measure will be provided a supplemental financial information in our press release now I'd like to turn the call over <unk> of two Greenberg, Chairman and Chief Executive Officer of Movado Group.
Thank you Rachel good morning, and welcome to the Movado group third quarter called the wouldn't.
With me today, the Sally the Marcellus, our COO and CFO I will share with you some highlights of the quarter as well some of ours as well some of the initiatives for the important holiday selling season, and then Sally will cover the details on our financial results and we would then be glad to answer any questions you might have.
We continue to operate a mid of global pandemic, which is now experiencing a resurgence in Europe and the United States within this environment, we have prioritized the safety and well being of our associates and customers around the world. Most of our teams have been working from home, we have been able to keep our warehouses and stores operational.
With strict safety protocols in place.
Within the context, we're very pleased with how our teams around the world have been operating and the results that we were able to the liver for the third quarter. We saw sequential improvement in sales trends, which led to revenues of $169.9 million that exceeded our expectations.
We delivered strong adjusted gross margin of 54.5% of 100 basis point improvement from last year.
Margin expansion and expense management gave us the adjusted operating income of $25.1 million versus $24.3 million last year, even with the decline in sales and the while investing in the innovation on price on the product front and marketing programs to support our brands.
Adjusted earnings per share were 70 cents versus 82 cents last year on the higher tax rate during the third quarter of this year, which of which accounted for approximately 11 cents per share.
We also further strength in our already strong balance sheet at quarter end net cash was $126 million almost doubling over the last years $65.3 million and inventory declined by 12% on expenses and cash management discipline contributed to another quarter of positive.
Operating cash flow.
Operationally, we continue to make great progress, especially on the digital from where we saw strength across our portfolio during the quarter. We we experienced an acceleration of our trends in our movado dot com business with sales more than doubling the.
Movado brand also had strong E commerce results across our brick and mortar.
Our brick and mortar partners and marketplaces with sales in those channels growing over 150%.
In the UK, we saw our Ob or Libya burden of Dot com business, the liver over 50% growth in movement, we migrated the brand onto the Salesforce Dot com cloud solution to better align the brand with our other digital platforms during the quarter and gain significant synergies in our infrastructure over the.
The final six weeks of the quarter, we fine tune the movement Dot com website in order to prepare for the holiday season, we're very pleased with the improved website performance and the already seeing it pay dividends, particularly on the international front.
A very important part of our direct to consumer business, our Movado company stores, while sales in our stores were down 11% for the quarter on lower traffic and reduce store hours. We saw conversion increased by 25% our stores provide an important place for our consumers the C and buy our products at an excellent value.
In our stores our focus has been on driving strong gross margin, which has led to a double digit increase in profit.
The brick and mortar department store, a portion of our wholesale business saw significant improvement in our sell through trends in stores, while experiencing a more than doubling of their online sales of our products.
In Europe, we saw improving sales trends in France, and Germany with more challenging results in the UK, France from the UK and close the retail for the month of November to try to flatten the curve and we are hopeful that they will reopen in December prior to the important holiday shopping season.
E Commerce sales in Europe have been very strong both through our brick and their partners as well as E Commerce marketplaces.
In China, we have also seen sales trends improve in brick and mortar and outstanding results from our team all the sites from Movado in coach.
In the Middle East we have also seen a shift the E commerce sales in our key markets.
Latin America has been more challenging as that region has suffered both economically and from co of it.
As we enter the holiday season, we're particularly excited by our new product introductions across our portfolio, Brad Let me share of some highlights.
Beginning with the <unk> beginning with the Movado group.
Earlier this month, we introduced our new Movado S. C. A redesign of 'em Avado Classic initial response has been excellent with strong sell through already happening I'm about to the dot com as well as our wholesale partners, we have a new television commercial launching this week nationally to support the new at the and we're really excited of.
We began testing our own movado jewelry last spring and following the strong response, we have expanded the collection and support supported it with additional digital marketing efforts. We've also introduced Movado men Movado men's jewelry and have begun to see strong sell through there as well.
And movement, we're seeing the strong consumer response to our new product introductions as well as some of our well known classics I knew in light of new legacy Slim a soon to be classic is already a best seller from Matt. We're also excited to introduce our new minimal sport automatic at $350. This is our most expensive moving.
And watch and is available at the limited edition of 500 units.
The women are international waters styles have been selling particularly well across the number of our collection. This is the pale blue dial that has garnered the strong consumer response.
Movement has also introduced several new sunglasses and ever scroll blue like glasses for the holiday season, our theme for the fall is around gift, giving with the new holiday gift guide as well as allowing consumers to create their own gifts that on line.
For the holiday season movements digital marketing programs will be supported in podcasts and television as well.
Liddy of burden on introducing the ice Queen watch collection for the holiday season, and expanding our jewelry with the introduction of our new Snowflake collection.
As we look at our license and we're very pleased with the results that we've experienced during the third quarter as we received an excellent reception across our brand portfolio to on new product introductions and have innovative marketing programs in place to support our businesses.
And Tommy and Tommy Hilfiger, we're seeing strong sell through from our Bank collection introduced in the spring and consumer response has also been strong to Mason, a new multifunction stainless steels raised the collection.
Connick, Tommy Red White and Blue accent.
On the women's side of our holiday on the women side of our holiday campaign revolves around Blake, a gray Multifunction watch with rose accident.
We've also seen strong results for our Tommy Hilfiger jewelry, which will also be featured in our holiday campaign, Tommy Hilfiger will get strong digital support across numerous platforms around the world.
At coach we're excited by the Arden collection, which has quickly taken off with very strong sell through in the U.S. in China.
Art and his iconic we coach with the signatures the crown protector, we will further develop this iconic element across the portfolio.
And Hugo boss will have strong support behind our Sky Master Chronograph.
In addition to our digital campaigns, we will be supporting Hugo boss with the holiday television campaigns in Germany and France.
And then the cost Alright, Konik Al 12, 12 continues to perform and we are introducing our new Boston sport Chronograph, a stainless steel watch with an iconic lacoss screen Basil.
As you can see I am excited about her how our team has executed around the world under very challenging circumstances, none of US has ever operated during a pandemic and our people have truly stepped up in creative ways. We have learned to operate on a leaner cost structure, while continuing to invest in our brands of our products and our bid.
Mrs. We of further strengthened our balance sheet and made strong advances on our digital development, increasing our E commerce penetration around the world.
We have partnered with our wholesale customers to help drive their success since our mutual businesses of reopened.
As we look to the finish of the year, we're continuing to manage our expenses carefully while we are optimistic about how our brands will perform for the holiday season, we're cognizant of the resurgence of the Corona virus around many parts of the world and recognize that this years holiday shopping will be very different than any we've ever.
First the with people shopping to a much greater extent on line with safety restrictions in place the brick and mortar stores and with the longer more spread out shopping season as we move forward. We will continue to put the safety of our employees.
Customers and businesses for and business first I would now like to turn the call over the Sally.
Thank you I from and good morning, everyone for todays call I will address the key highlights of our third quarter and year to date period of fiscal 2021, and then I will provide an update on our financial position.
My comments today will focus on adjusted results.
Please refer to the description of all of the special items included in our results for the third quarter and the every day period of fiscal 2021 fiscal 2020, and our press release issued earlier this morning.
This also includes the reconciliation table of GAAP and non-GAAP measure.
Our third quarter performance improved sequentially from the second quarter and was highlighted by continued strength in ecommerce sales expansion in gross margin and the disciplined management of expenses.
We ended the quarter with the strong balance sheet and made progress on our effect on our strategic initiatives on navigating the significant impact of Coke of 19 on our own and our retail partner store based on sales.
For the third quarter of fiscal 2021 sales were $169.9 million as compared to $205.6 million last year, driven by the impact of the COVID-19 pandemic.
By the end of the second quarter and throughout the third part or all of our retail store and the majority of the store and of our wholesale customers had reopened however.
However, these stores have been impacted by a decrease in retail traffic and reduced our that many locations.
During this time sales trends improved as the COVID-19, resections began easing in various stages across the world, enabling some return of the traffic in the company's retail stores and those of its wholesale partners.
Wholesale customer however, due to the restrictions affecting brick and mortar retail sales declined across all segments.
Oh, the brand license brands and company store were down in both our U.S. and international businesses, Yes.
Yeah, we did have a strong ecommerce sales both on our own website and those of third party marketplaces.
Gross profit out of the percent of sales was 54.5% compared to 53.5% in the third quarter of last year. The increase in gross margin was primarily driven by the favorable change in foreign currency exchange rates.
Favorable channel channel on product mix and savings on the picks up on albeit on lower sales.
Operating expenses were 64 $67.4 million as compared to $85.8 million over the same period of last year.
The decrease was driven by actions taken to minimize all non of central operating costs.
Moving rightsizing marketing expenses to the lower revenue base, while maintaining a focus on digital and ecommerce customer acquisition.
And a decrease in the overall payroll related expenses.
Strong gross margin and controlled spending in the third quarter drove an increase in operating income to $25.1 million compared to $24.3 million in the third quarter of fiscal 2020.
We reported an income tax expenses of $8 million in the third quarter of fiscal 2021 as compared to an income tax expense of $5.3 million in the third quarter of fiscal 2020.
Net income in the third quarter was $16.4 million or 70 cents per diluted share as compared to net income of $19 million or 82 cents per diluted share in the year ago period.
Now turning to our year to date results.
Sales for the nine month period ended October 31, 2020, $328.1 million as compared to $510 million last year.
The decrease in net sales was primarily attributable to the ongoing impact of the profit 19 tend on it.
Gross profit was $173.3 million or 52.8% of sales as compared to $274.4 million or 53.8% of sales.
In the last years nine month period.
The decrease in gross margin rate for the first nine months, what do the due to the unfavorable channel on product mix, partially offset by favorable changes in foreign currency exchange rates.
The the nine month ended October 31, 2020, operating income of $6.9 million compared to operating income of $41.7 million in fiscal 2020.
Net income of $1.7 million or seven cents per diluted share as compared to net income of $33 million or one dollar and 41 cents per diluted share in the year ago period.
Now turning to our balance sheet.
In addition to minimizing non of central expenses, maintaining a strong balance sheet has been a top priority.
We are closely managing inventory and we have reduced capital expenditures generally, allowing only projects, providing a relatively near term return on investment such as certain digital initiatives.
Cash at the end of the third quarter was $163.2 million as compared to $116 million in the prior year period.
But the decrease in debt of $13.4 million.
Accounts receivable was $103.5 million down $32.8 million from the same period of last year, primarily due to the decrease in sales.
Inventories at the end of the quarter was $176.8 million down 12.1% as compared to $201.2 million last year. This is due to the actions taken to closely manage our working capital in fact, our operating cash flow improved over $37 million in the first nine months of this fiscal year.
As compared to the same period of last year.
Capital expenditures for the nine month or $2.4 million and are lower than the first nine months of last year by $7.6 million as the result of the disciplined the accident just the Scott.
Depreciation and amortization expense of $10.5 million, which included $2.6 million related to the amortization of the remaining acquired intangible assets the of Olivia Burton and movement.
In terms of outlook, we are not providing an outlook today given the dynamic nature of the COVID-19 pandemic.
As that from mentioned, we're pleased with the progress we have made and the challenging environment and believe we are taking the right actions to drive our business.
However, we do remain cautious.
Due to the continued uncertainty around the duration of the cobot pandemic and the resurgence in Europe, and the United States, our two biggest market.
I would now like to open the call up for questions.
That's the time, we'll be conducting a question and answer session. If you have like the asked the question. Please press star one on your telephone keypad confirmation from will indicate your line is in the question queue. You May Press Star true. If you would like true of your questions from the queue for participants using speaker equipment. It may be.
Necessary for you to pick up your handset before pressing the star key one moment, while we poll for questions.
Our first question comes from the line of Oliver Chen with Cowen. Please proceed with your question.
Hi, Thank you good morning regarding the revenues and geographic exposure of which regions, where you most impressed by on which regions would you say have more risk going forward on.
Also gross margins were encouraging just what underpins the other performance there and whats your doctors on May continue through the next quarters. Thank you.
So so I'll start I'll start with on then turn it over over the Sally and see if she has anything to add in in terms of of of performance. We were really pleased with our licensed brand performance in Europe.
And despite despite still a resurgence of of Cove. It occurring at the end of the third quarter. We did see increase sell through in many markets in in Europe, particularly from its in Germany, which are two of our biggest markets I'm now on Europe.
So I would say that was probably the strength geographically on the digital front, we saw a lot of strength in the U.S., because especially on our Movado Dot com site and that's that's becoming a really important part of our business I believe as we move forward and that also contributed to it.
Hi, Anthony <unk> of <unk> of.
Our overall gross margin as well as the performance of our outlet stores that are on the continue the good really grew a gross margin and profitability during the quarter. So a sea of Sally of some bad.
Oh, absolutely concur with other from Thankyou the growth in gross margin of the talked about sales mix was the component of that and having a larger direct to consumer business.
And the improvement of our gross margin in the outlet definitely contributed to that.
Okay, and you kind of and.
And then I think that the follow up all of our fourth quarter.
You know we have generally a larger direct to consumer business in the fourth quarter anyway of gift, giving you taking place now we do know that it started earlier this year.
Probably wouldn't continue with that in the fourth quarter, which is generally at the stronger gross margin quarter for us.
Okay E Commerce is a big topic in the you mentioned that.
The times in the prepared remarks so.
How should we think about how big that business will get over time and also on the margin implications I know you have ecommerce wholesale partners on your own E commerce as well.
So so I think the the combined the combination of of of our own web sites and our customers web sites is a really powerful combination and we think that ultimately that will be a much more significant part of our business and for our customers as well, obviously and then that will be for us.
Should be margin accretive.
I'm also both on a on an operating on a gross margin basis, but also on on on operating basis, where we're really pleased with how our how our web sites are performing and think Theres still lot of opportunity ahead in the next the number of years.
Within that the within that segment.
Okay, and some of your comments where else are encouraging with traffic less negative than we would have thought on what we're seeing at some other so its traffic continued to be fairly volatile and do you expect it to.
The continue alone of the trends you're seeing now.
And also from this holiday season is unlike any other you know the promotion starting earlier on what's your interpretation of how how its proceeded relative to all the dynamics of that are happening with the crisis and the other competitors.
Yes, so I I think on on the traffic from I think you're still seeing traffic, it's down significantly from last year, what you're getting is that is the people who are going to stores have a much higher intention of of purchasing I think they're not going as much to browse ER and were seeing.
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Better than expected I would say demand for our success. So we're pleased with that and the conversion has been really good.
And so so so we're really pleased with that I think that the the unknown. This holiday season is the fact that people will be shopping for a longer period of time I don't think you're going to have the the black Fridays the in the department store or.
Matt or.
Brick and mortar channel that you have had in the past and and so you'll see that go on the it'll just be very different from of the probably came forward and then I think some of it will actually go later as as at the end people will be in stores people the.
The choose the second day shipping options or the next day shipping options and in some cases, we'll add those to our you know is our products get more expensive, we get we end up giving that anyway. So I think it's going to be very very different and and and off.
As it is the resurgence right now.
But it does not seem to have impacted traffic dramatically from where it was the which is still the negative number.
Okay on our last question the on your wholesale partners, particularly in the United States.
How do you think about selling source of sell outs as well as your inventory position on and freshness and slowing the in the context of some of your earlier comments.
Comments your inventories seem very clean but.
How are you generating the right level of newness and flow.
So what I'm I'm really pleased with how our teams of executed on that front in terms of the delivering innovation in the at the same time, many making a meaningful impact.
Total return on our our inventory ER and we think our retail partners with us as a whole, especially on the department store channel are doing better than than than expected and and and especially given the on the brick and mortar front and on the digital from just becoming a.
Really significant part of the of their overall business, so and our inventories are and we think in very good shape of the lot of newness now in stores and really ready for for this holiday season.
And as I said earlier.
So if you if you look at our Movado assay, which we think is going to be a best seller really quickly. It already is the best seller and in less than a month out there. So we just see a lot of opportunity out there as we continue to deliver on our strategies.
Thank you very much happy holidays.
Okay. Thank you thank god for each other.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to trend this call back over to Mr. EPS from Grinberg for closing remarks.
I would like to thank all of you for participating on on today's call and I wish everybody, a happy and obviously, a very unusual Thanksgiving and and.
ER, hoping that next year on Thanksgiving, So can return to normal against the thank you very much in the.
And we look forward the talking to you again next year.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
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