Q1 2022 Movado Group Inc Earnings Call
Good day, everyone and welcome to the Nevada Group's Inc. First quarter 'twenty 'twenty 2 earnings conference call. As a reminder, today's call is being recorded and may not be reproduced in whole or in part without permission from the company at this time I would like to turn the conference over to Rachel Schacter of ice.
Please go ahead.
Thank you and good morning, everyone with me on the call is that from Grinberg, Chairman and Chief Executive Officer, and Sallie herself, She executive Vice President Chief operating Officer, and Chief Financial Officer.
Before we get started I'd like to remind you the company's safe Harbor language, which I'm sure you're all familiar with.
Payments contained in this conference call, which are not historical facts may be deemed to constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC, which includes today's press release.
Any non-GAAP financial measure is used on this call a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release now I'd like to turn the call over to us from Grinberg, Chairman and Chief Executive Officer of Novato Group.
Thank you Rachel good morning, and welcome to Novato group's first quarter Conference call. This morning, I will review the highlights for the quarter and our strategic initiatives and then Sallie the Marcellus will cover our financial results in greater detail. We will then be glad to answer any questions you might have.
We had a very strong start for the year and are pleased with our financial and operational results. During the first quarter, we anniversaried the height and the height of the pandemic closures and although we still saw a significant closures during the quarter in Europe, and Latin America, we delivered a 93, 5% increase in sales to 134.
$4.8 million, our adjusted gross margin percentage expanded 420 basis points to 55% versus 58% last year, and we delivered $14.1 million and adjusted operating profit versus an adjusted operating loss of $17.6 million last year.
Our operating income represented a record for the first quarter of the year.
Our balance sheet continued to strengthen with net cash of $177 million versus net cash of $105 million last year.
Our U S sales exceeded our plan driven by strength in on Nevada E Commerce, and wholesale business, our coach brand and our Nevada company stores with all 3 areas exceeding our pre pandemic sales levels, our U S business increased 131% versus last year and 10.8.
<unk> versus the first quarter of fiscal 2020 or calendar 2019.
Our international business grew 67, 5%. Despite significant continued closures in Europe and Latin America, we are hopeful that as these mark that these markets will continue to reopen during the second quarter as vaccinations begin to accelerate and case counts and hospitalizations drop.
As a company we continue to focus on our strategy of expanding our digital footprint on our website, our customers' website and our marketing initiatives and driving product innovation, while keeping our stringent focus on our expenses as.
As we look at our brand we are very pleased with the performance of Nevada over the last 18 months, we focus on delivering an increasingly aspirational message to our consumers driving innovation in our products and drawing new customers to the brand.
This strategy has proven to be effective with the success of our new <unk> OSB introduced last fall and our most introduction and our most recent introduction and our bold collection versus <unk>.
During the quarter. We also introduced a collaboration with the world renowned photographer Alexia Luba Mirsky, a limited edition highlighting elect these doorways to veganism featuring our first vegan straps that received an excellent reception from consumers.
We also saw a strong and growing demand from Nevada, jewelry, which is only available on Nevada Dot com. During the first half of this year, we are supporting the <unk> brand with cable TV advertising as well as social and digital marketing efforts.
We were extremely pleased to see continued robust performance on our novato dotcom website, which grew by over 250% during the quarter demonstrating that our focus on digital is continuing to deliver results on Nevada wholesale results continue to be strong with our debt apartment store channel showing double digit increase.
<unk> over pre pandemic results for the quarter and showing strength in both digital and brick and mortar locations.
We're also beginning to see improvements in our chain jeweler channels.
During the second quarter, we are launching a new automatic that will be supported with a comprehensive digital marketing program that we are excited about.
And our license brands, we were pleased with our performance exceeding our plan with sales growing 89, 5% compared to last year and off 7.1% to pre pandemic levels. Despite the continued closure of some of our most important markets. The strong performance was driven by our e-commerce channels.
Around the world and the reopening in our U S market.
And Tommy Hilfiger, our performance was driven by our innovation in watches and jewelry, both Parker and Baker, featuring iconic Tommy Blue dials and our iconic I'd bracelet performed extremely well. We are also excited to introduce a collaboration this spring between Tommy jeans in the space Jam movie franchise.
<unk>.
In coach we saw strong results in both the U S and in China, driven by new products like Preston and Harrison, We're supporting code for the strong social media marketing campaigns, particularly in China with compelling key opinion leaders.
Hugo boss performed well in the U S Department store channel and in our E. Commerce partners in Europe are new pilot edition Chronograph, featuring a black style and Brown straps performed very well. We are also expanding our Hugo boss jewelry collection.
<unk> had a strong quarter in our U S Department store channel and in our key European markets through our E. Commerce partners, we introduced a new iconic Lacoste 12, 12, featuring multi colored crocodiles that performed very well.
In movement, we continue to focus on fine tuning our e-commerce business, while driving the efficiency of our brand building and marketing campaign. During the first quarter, we introduced a new white ceramic family, which quickly sold out of our best sellers with these models now replenished, we're running a new TV campaign on our wide ceramics for for.
<unk> day and graduation that we're very excited about.
Well, Olivia Burton's home market of the UK was closed for much of the quarter. Our E. Commerce sales drove performance, we're getting strong reception around the world to our new Tea Party collection of watches and we continue to see jewelry grow within our assortment.
I am Novato company stores are performing extremely well with our sales growing 190% over last year and 23% over our pre pandemic results. Our gross margin percentage for our company stores is trending substantially higher than our pre pandemic numbers showing that there is strong demand.
For our products.
In Novato group, our role as a corporate citizen has always been very important to us our company and our brands contribution to our society, how we take care of our environment and the importance of diversity and inclusion within our workforce have always been high priorities for us. This year, we're very proud to issue our first ESG report.
Which can be found on our corporate website Novato group Dot com in this report we are establishing baselines from which we can measure our improvement as we strive to be better in these areas.
In summary, we're extremely pleased with the results for the team is progressively delivered on as we've navigated our way through a global pandemic. We are not taking anything for granted and continue to remain steadfast in managing our company in an environment that will continue to contain a level of uncertainty certainty.
Even with 1 of our largest markets Europe closed for much of the first quarter, we were still able to deliver record operating results.
It's difficult to predict what will happen as we reach improving levels of normalcy from a pandemic. We are extremely focused on managing what we can control and trying to do it as close to the time of execution as possible. The investments that we've made across our e-commerce infrastructure and digital capabilities are paying off.
We will continue to focus on driving innovation and excellent design in our products and brands, which has been an important element to the results that we've been able to deliver I would now like to turn the call over to Sallie. Thank.
Thank you Ashwin and good morning, everyone for today's call I will review our financial results for the first quarter of fiscal 2022, and then I will provide an update on our outlook for the year.
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 first quarter of fiscal 2022, and fiscal 2021, and our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures.
Our performance for the first quarter of this fiscal year exceeded our expectations and resulted in record operating profit for.
For the first quarter of fiscal 2022 sales were $134.8 million as compared to $69.7 million last year, an increase of 93, 5%.
Consumer response to our brands on offerings, coupled with the beginning of the easing of restrictions that brick and mortar retail in certain geographies led to net sales increases across our segments of owned brands licensed brands and company stores as well as across certain geographies, most notably the United States.
U S net sales increased 139% and international net sales increased 67, 5% as compared to the first quarter of last year.
Total net sales decreased 8% as compared to the pre pandemic first quarter of fiscal 2020, with a 10, 8% increase in the United States offset by a 28% decrease in international net sales. This reflects continued closure of retail stores in Europe and Latin America.
Gross profit as a percentage of sales was 55% compared to 58% in the first quarter of last year.
The increase in gross margin was primarily driven by leveraging certain fixed costs as a result of higher sales favorable channel and product mix and favorable changes in foreign currency exchange rates.
Gross margin was 110 basis points higher than the pre pandemic first quarter of fiscal 2020, primarily due to favorable channel and product mix as well as favorable changes in foreign currency exchange rates.
Operating expenses were $60.1 million as compared to $53 million for the same period of last year.
The increase was driven by higher marketing expenses and performance based compensation, partially offset by the Companys continuing focus on operating expenses.
Impaired to the pre pandemic first quarter of fiscal 2020 operating expenses declined by $11.8 million.
Primarily due to corporate initiatives and restructuring programs executed to reduce such expenses.
As a percentage of sales operating expenses for the fourth quarter decreased to 44, 6% from 76, 1% in the first quarter of last year and 49% in the pre pandemic first quarter of the year before.
Expansion in gross margin and controlled spending in the first quarter drove a $31.7 million increase in operating income to $14.1 million as compared to $17.6 million loss in the first quarter of fiscal 2021.
Operating income for the first quarter of fiscal 2022 was almost double the operating income of the pre pandemic first quarter of fiscal 2020, which was $7.2 million.
We recorded income tax expense of $3.5 million in the first quarter of fiscal 2022 as compared to a benefit of $4.8 million in the first quarter of fiscal 2021.
Net income in the first quarter was $10.1 million or <unk> 43 per diluted share as compared to a net loss of $12.9 million or <unk> 56 per diluted share in the year ago period.
Now turning to our balance sheet cash.
Cash at the end of the first quarter was $187 million relatively flat to last year. However, we paid down $72.5 million of debt over the same period.
Accounts receivable was $78.6 million.
Up $28.8 million from the same period of last year, primarily due to the increase in sales.
Inventory at the end of the quarter was down $7.9 million for the same period of last year.
Capital expenditures for the quarter were $407000 and depreciation and amortization expense was $3.2 million. This included $800000 related to the amortization of acquired intangible assets, our Bolivian Burton and movement.
While we continue to see the negative impact of COVID-19 related store closures and restrictions on consumer mobility across several regions, including Europe, and Latin America, our operations in other parts of the world have benefited from the relaxation of restrictions and which along with continued strength in E. Commerce has contributed to our strong first quarter performance.
Yeah.
We remain hopeful that additional markets will begin to reopen and as more people as more people become vaccinated.
Taking these factors into account. We currently expect fiscal 2022 net sales to be in a range of approximately $650 million to $665 million for.
Gross profit of approximately 54% to 55% of sales and operating profit to be in the range of 10% to 11% of sales.
No changes to the current tax laws, we anticipate a 25% effective tax rate.
I would now like to open the call up for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad day confirmation tone will indicate your line is on the question queue. You May Press Star 2 share move your question from the queue for participants using speaker equipment and may be necessary.
For you to pick up your handset before pressing the star keys on.
Moment, while we poll for questions.
Our first question comes from the line of Oliver Chen with Cowen <unk> Co. You May proceed with your question.
Hi, the U S performance was really impressive, particularly U S. Wholesale what are the factors that contributed to upside in do you see the momentum continuing and how do you view the consumer environment and backdrop right now thank you.
So you have do you have a number of factors 1 I think.
Pretty much from the second quarter of last year. We saw we began to see increased demand for watches as a category overall within within the U S wholesale channel, especially the department store channel.
And we are now.
Starting to see a resurgence in the chain jewelry channel as well.
And.
That combined with I think the innovation in product that we've delivered.
Our brands.
And also you have you have.
U S consumer that is now pretty flush in terms of their resources for for discretionary spending and I.
I think all of those factors have contributed we're optimistic that with the things that we're doing within our brands, we're going to continue to create the innovation and excitement.
For for consumers to keep purchasing our products.
That from what's the nature of products.
Popular in terms of the reopening whether that'd be price points or styles as people go out now.
We're actually seeing less price resistance and more interest in innovation and new designs.
That's why I've called out on Nevada, OFC, which is an iconic watch the company redesign and re introduced last year.
In the second half that's doing extremely well we are introducing a new <unk>.
Darts at about $500 and goes up to $2000.
That we're very excited about and then we introduced the new bold versus so.
That's done extremely well.
So we continue to see that innovation and newness.
Is really creating demand.
And Sally inventory versus sales, how should we think about that going forward and also as we think about different.
Inflation factors labor and transport and others.
Do you see that impacting your pricing how might you manage that.
Okay. So we'll take it separately so on the inventory level, we are going to be.
Monitoring our purchases, but we do have obviously.
A nice top line sales number that we're forecasting that we will be adjusting our purchases in line with those sales numbers, but obviously.
Purchasing as tightly as possible for for the demand. So we're very happy with where we are right now on our inventory everything is current core product.
We will continue to manage that going forward.
And is that from said there for.
We're seeing high demand for our product and so as far as.
What we're seeing is cost coming in.
We are managing that as well with our supply chain.
Not seeing any major.
Increases in what it's costing us to get our product or deliver it.
On to where it needs to be.
And we had elevated our internal workforce.
And our warehouses about 2 years ago to a minimum of $15 an hour at that time and so.
While there is demand for labor, we think we're in a pretty good position.
In terms in terms of that but there is definitely some inflationary pressures in the marketplace and I think there's also pricing opportunities in the marketplace as well. So we're in the process, we have implemented some and we will be implementing others as well.
Thank you and congrats on your ESG report Cowen believes many new customers are much more attuned to environmental and social issues. How do you think about your ESG priorities in the context of demand creation.
Well I think I think.
Across our brands, we have we have different initiatives.
On the ESG front and from Tommy Hilfiger, where we put an emphasis on accessibility and product for <unk>.
Who have issues.
Being able.
To Buffalo <unk>.
Put on a revenue strapped for bracelets.
We think we.
<unk> enabled accessibility options on some of those products and in other areas.
Like movement were involved in the environment and in the ocean, because thats very close to their home.
In California, and there'll be introducing actually.
I'll watch of recycled Ocean plastics.
And the next month or 2 and we participate also with 1% for the planet.
And then in Nevada, we were really excited by the reception we got.
2 our pathways to veganism collection.
And vegan straps and our most current introduction.
Alexia on our on our website. So so I think we're taking a number of initiatives and using social media and digital marketing to be able to communicate those those initiatives with with consumers.
And we're excited about those.
For the last question as your digital innovation has been very strong.
As stores reopen what do you think happens to that growth rate and the interplay between the channels. Thank you.
I think youll see some balancing out of the growth of the E Commerce channel is.
And especially people are really welcoming the opportunity now as the weather gets better.
Masking requirements and vaccine vaccinations become more prevalent.
Masking requirements become.
More acceptable I think youre seeing a shift of a desire for people to go into stores I think youre still going to see e-commerce as.
Is it growing.
Area in the business and from our perspective, because people have become much more comfortable shopping that way as well.
So youll see really a true omni.
On the channel.
Performance, we continue to invest in.
Areas.
For for Omni channel development.
So we will be putting in a new point of sales system into our <unk>.
Into our Novato company stores.
Much more advanced than where we were in the past.
I think theyre going to be continued opportunities to grow the omnichannel environment.
Thank you best regards.
Okay. Thank.
Thank you all ladies and.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Ed from Grinberg for closing remarks.
I would like to thank first of all I'd like to thank all of our employees for the great job that they have been doing throughout.
The pandemic.
I am hopeful that we are beginning to see a return to normalcy and I would like to wish everybody in the United States are really happy holiday weekend. Thank you.
This concludes.
Today's conference you may disconnect your lines at this time. Thank you for your participation during the rest of your day.
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