Q4 2022 Movado Group Inc Earnings Call
Good day, everyone and welcome to the Nevada Group, Inc, fourth quarter and fiscal year 2022 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'd like to turn the conference over to Rachel Schacter of ICR. Please go ahead.
Thank you good morning, everyone with me on the call is that from Grinberg, Chairman and Chief Executive Officer, and Sallie do My son, Executive Vice President Chief Operating Officer, and Chief Financial Officer.
Before we get started I would like to remind you the company's safe Harbor language, which I'm sure you're all familiar with.
If he was 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 SBC, which includes today's press release.
If 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 Adam Grinberg, Chairman and Chief Executive Officer of Nevada grid.
Thank you Rachel good morning, everyone and welcome to the Nevada group's fourth quarter and year end conference call. Joining me today is Sally D Marsalis, our Chief operating officer, and Chief Financial Officer, I will provide an overview of our performance and our progress against our strategic initiatives and then Sallie will review our.
Fourth quarter and fiscal 2022 financial performance in greater detail.
We will then be glad to answer any questions you have for us today.
We are extremely pleased with our performance in fiscal 2022.
As our actions over the past several years enabled us to accelerate growth with powerful brands compelling innovation and an elevated omnichannel experience as.
As we enter fiscal 2023, the world is in a precarious position, while we saw the effects emanating from the pandemic begin to improve over the last six months and into the early part of this year. We are now operating in a world that is being greatly affected by the devastation in Ukraine or how.
Hearts and prayers go out to all those affected by this untenable situation. We're not sure. How this war will end, but we know that millions of innocent Ukrainians are being impacted.
The Nevada <unk> Foundation made a donation of $100000 evenly split between the International Rescue Committee and the United Nations Refugee fund to aid and rescue efforts and to support Ukrainian refugees.
As we began fiscal 2023, we knew the world is being affected by the heightened concerns around inflation and increased energy costs.
We now can see that these issues have been compounded by the effects of the war. These economics and these economic and geopolitical events at heightened uncertainty to the macro backdrop as we continue to navigate a dynamic operating environment. We are fortunate to possess a strong balance sheet and an agile organization.
And that has proven ability to navigate during uncertain times.
Now, let's turn to our own performance for fiscal 2022.
First I would like to recognize our teams around the world for a stellar performance not only did we surpassed pre pandemic resolved, but we set many records for the year across a variety of metrics from sales to operating profit to adjusted earnings per share.
We ended the year on a strong note with sales for the fourth quarter of $206 million up 15, 5% over last year and up seven 8% versus pre pandemic fiscal 2020.
This resulted in record sales of $732 $4 million for the year up 44, 6% over last year, and four 5% versus two years ago.
Our gross profit percentage for the quarter was 58, 7% versus an adjusted gross profit of 54, 9% last year for the year. Our gross profit percentage was 57, 2% versus an adjusted gross profit of $53 six last year.
Our adjusted operating profit was $37 $9 million in the fourth quarter and reached a record $119 $7 million for the year driving increases of 59% and 290% respectively.
We were extremely pleased that we delivered 18, 4% adjusted operating margin for the quarter and a record 16, 3% adjusted operating margin for the year. Our adjusted earnings per share were $1 32 for the quarter versus 84 cents in the prior year period.
This brought adjusted earnings per share to $3.94 for the year more than Triple last years earnings of 92 status.
In terms of our balance sheet and cash flow, we generated $138 million in cash flow from operations for the year, our net cash position at year end was $277 $1 million versus $202 six.
Dollars.
Last year, despite having reinstated our dividend and purchased $22 $6 million in stock.
We are delighted to announce today that our board has decided to increase our quarterly dividend by 40 by 40% to 35 per share. In addition, we expect to continue to create value for our shareholders through our share repurchase program.
While we believe that operating in the current economic and global environment, well certainly presented challenges we feel that our teams are well prepared over the last few years, we have navigated extremely well during a global pandemic and have done an excellent job of rationalizing expenses, while investing in the areas.
To provide the highest return for the company and building for the future. We will continue to be nimble and adapt to the current environment, while staying focused on delivering for the long term.
For the quarter, our international business grew by 12, 7% led by strong performance in key European markets, Latin America, and India for.
For the year, our international sales grew 32, 5% from the prior year, but were slightly down by three 1% from pre pandemic levels.
In the U S. Our sales for the quarter increased by 18, 5% with double digit growth in our most important brand Nevada.
For the year, our domestic business grew by 61, 1% and 14, 4% versus two years ago.
As we have continued to grow we are pleased to have diversified to have a diversified and balanced business model with slightly more than half of our sales coming from international markets.
From a brand perspective, we were pleased to see that our novato elevation strategy continues to resonate with consumers with our average price increased almost 15% during the hot during the holiday season.
We continued to see improved performance in our brick and mortar distribution, while seeing stellar performance in our E comm business.
Nevado Dot com.
Which is now a significant business grew by 33, 7% for the quarter with the average unit retail increased by 17%.
For the year, our Nevada Dot Com sales grew by 61, 2% for.
For the quarter watches that retail for over $1000 accounted for over 20% of Nevada ourselves.
Nevada jewelry that is only available on novato dotcom was 12% of the brand's e-commerce sales during the quarter and more than doubled compared to last year.
Well, we would expect our dotcom growth to moderate as consumers shift back to buying more in store. We are excited about the important role that it plays in the overall brand experience.
The holiday season, our iconic Novato SC continued to perform very well with increased penetration of RSC automatic.
Our bold evolution and verso collections continue to perform both online and brick and mortar.
Our series 800 sports collections continued to drive sales at retail.
This spring, we will continue to support in Nevada, with both digital and TV marketing programs.
Our licensed brands performed extremely well for both the quarter and the year sales grew by 11, 6% for the quarter and 44% for the year licensed brands also grew against pre pandemic sales both for the quarter and the year.
And Tommy Hilfiger, we continue to drive very strong growth, particularly in key European markets in both jewelry and watches we continue to collaborate with key Influencers and athletes like Premier League Star Leon Guerette. Scott. We also continue to support our growing India market with Bollywood star So he'd Kapoor.
For this spring, we will introduce two new multi I collections and Matthew for him and lay off of her.
In Hugo Boss, we saw strong results and are excited that we have a strong foundation as the parent brand continues to gain momentum as they implement their claim five growth strategy for both the quarter and the year. We grew over pre pandemic levels in Hugo boss, we drove the key markets of Germany, France and the UK.
K with strong digital support as well as strong Billboard marketing programs in major cities in those important markets.
We have strong results for our leading grandmaster family for him this spring.
This spring, we will introduce our new boss Admiral model constructed promotion plastic and featuring a solar movement catering to a younger environmentally conscious consumer.
Last week, we renewed our license agreement with Hugo Boss through December 31, 2026, with certain rights to extend for an additional five years thereafter, we are.
We're delighted to continue this very successful partnership which has been expanded beyond watches to also include boss branded jewelry.
In coach we continued to see strong results in both the U S and China, leading iconic families like Arden impressed and continued to perform well we're excited to collaborate with Jennifer Lopez featured in our spring marketing campaign, and introducing our new Grace and ceramic watch.
Lacoste also performed extremely well against both last year and two years ago led by new executions, and our two leading families Lacoste 12, 12 and tie breaker.
This spring, we will introduce our new minecraft collaboration and low cost as well as our first active lifestyle collections in swing for her and replay for him.
We're very excited to begin the introduction of the Calvin Klein brand in both watches and jewelry, we are targeting about 2500 retail doors around the world with Europe , and the Middle East representing our biggest markets. We're also excited about the opportunities in Asia, we are expecting the jewelry will represent.
15% to 20% of total sales on an annual basis. We are seeing strong response from all of our markets, thus far and we're ready and we're already seeing some promising initial sell through we continue to believe the CK can be a significant long term growth driver both in jewelry and watches.
We're very pleased with the results in our outlet stores, we drove improved profitability by maintaining pricing discipline and improving gross margin. Our average selling price grew by 19, 6% over last year and almost 32% over two years ago.
And Olivia Burton, we were down single digits for the year with challenges in our key market. The U K, we believe strongly in the medium term prospects for Olivia Burton and a reinvigorated both the leadership and the design talent and the Olivia Burton brand Olivia Burton has continued opportunities and unique watch and jewelry.
Designs with a British sensibility and were committed to support this evolution.
In movement. We also saw a single digit decline for the brand for the year as we moderated customer acquisition costs due to decreased marketing efficiencies.
We were pleased to see continued strong performance in our higher price point families like our unique ceramic last y Y which will be expanded into other color ways. This year as announced last night. We're excited to have a season marketing and product executive join our team to lead the movement brand in Iran. Cohen, who has previously this.
<unk> St John Ned.
As part of his initial priorities Ron will establish a comprehensive growth strategy for movement.
In summary fiscal 2022 was an exceptional year for Nevada group I could not be proud of our prouder of our teams around the world as they executed against our strategic plan and delivered record breaking results both in sales and profitability as we remain focused on executing against our strategic goals we will.
To make sure that we remain disciplined in our investments and continue to support our biggest opportunities. Additionally, as we operate in these uncertain times, we will make our we will continue to make our marketing and expense commitments as close to the time of execution as possible.
As we look ahead, we are excited about the prospects of the future, but I understand that there are inflationary pressures, including wage and labor pressures along with additional inflationary cost increases we hope to offset some of these pressures through price increases that we have begun to implement we will stay focused on improving our gross.
<unk> and continuing to operate efficiently to offset these increased costs in our operations. We also expect that we will see headwinds in the U S. As we lapsed stimulus programs and consumers are able to spend on travel dining and other activities. Despite this for the coming years reflected in our outlook for fiscal 2020.
Three we expect to grow sales in the mid to high single digits, while continuing to deliver growth in operating profit.
I would now like to turn the call over to Sally.
Thank you Adam and good morning for today's call I will review, our financial results for the fourth quarter and fiscal 2022, and then introduce our outlook for fiscal 2023.
My comments today will focus on adjusted results.
Please refer to the description of the special items included in our results for the fourth quarter and full year of fiscal 2022, and 2021 and our press release issued earlier today.
The table for GAAP and non-GAAP measures.
Our record performance for the fourth quarter and fiscal year was highlighted by overall strength in global sales expansion in gross margin and the disciplined management of expenses.
We ended the fiscal year with a strong balance sheet and significant progress on our strategic initiative.
For the fourth quarter of fiscal 2022 sales were $206 million as compared to $178 $3 million last year, an increase of 15, 5%.
Strong response to our brands and offerings led to net sales increases across our segments at the owned brands licensed brands and company stores.
As well as across most geographies, most notably the United States.
We also saw year over year growth in Latin America, Europe and India.
U S. Net sales increased 18, 5% and international net sales increased 12, 7% as compared to the fourth quarter of last year.
Gross profit as a percent of sales was 58, 7% compared to 54, 9% in the fourth quarter of last year.
The increase in gross margin was primarily driven by favorable channel and product mix and leverage on certain fixed costs, primarily due to the increase in sales over the prior year period.
Operating expenses were $82 $9 million as compared to $74 1 million for the same period of last year.
Increase was driven by higher marketing expenses and general operating expenses that directly support the significant increase in sales, while continuing to be disciplined and operating expenditures.
As a percentage of sales operating expenses for the quarter decreased to 43% from 41, 6% in the fourth quarter of last year.
Expansion in gross margin and controlled spending in the fourth quarter drove a $14 $1 million increase in operating income to $37 9 million compared to $23 $9 million in the fourth quarter of fiscal 2021.
We recorded income tax expense of $6 $5 million in the fourth quarter of fiscal 2022 as compared to $3 7 million in the fourth quarter of fiscal 2021.
Net income in the fourth quarter was $31 2 million or $1 32 per diluted share as compared to $19 $7 million or <unk> 84 per diluted share in the year ago period.
Now turning to our fiscal year results.
Sales were $732 4 million, an increase of 44, 6% from fiscal 2021 the.
The increase in net sales was primarily attributable to the partial recovery from the ongoing COVID-19, pandemic and higher demand.
Gross profit was $419 $1 million or <unk> 57, 2% of sales as compared to $271 2 million or 53, 6% of sales last year the.
The increase in gross margin rate was due to favorable channel and product mix leverage on certain fixed costs and favorable changes in foreign currency exchange rates.
Operating income was $119 $7 million compared to operating income up $37 million in fiscal 2021.
Net income was $93 4 million or $3 94 per diluted share as compared to net income of $21 4 million.
Or <unk> 92 per diluted share in the year ago period.
Now turning to our balance sheet cash at the end of the year at the end of the fiscal year with $277 $1 million, an increase of $53 $3 million over last year, even as we paid down $21 $2 million of debt and repurchased $22 $6 million of common stock during the year.
During fiscal 2022, we generated $138 million of operating cash flow.
Accounts receivable were $91 6 million up $14 $6 million from the same period of last year, primarily due to the increase in sales.
Inventory at the end of the quarter was up $7 7 million or 5% above the same period of last year, while sales increased 15, 5% in the fourth quarter.
Capital expenditures were $5 7 million and depreciation and amortization expense was $12 5 million, which included $3 $3 million related to the amortization of the remaining acquired intangible assets of Olivia Burton and movement.
As Evan mentioned, we are pleased with the progress we have made in this challenging environment and believe we are taking the right actions to drive our business.
However, as we look into fiscal 2023, we remain cautious due to the current uncertainty around the impact of rising interest rates, increasing inflation and supply chain disruptions and geopolitical issues.
Taking this into account we currently expect fiscal 2023 net sales in a range of approximately $780 to $800 million gross profit of approximately 58% of net sales and operating income in a range of $125 million to $130 million.
Assuming no changes to the current tax regulations, our outlook assumes a 25% effective tax rate.
As it relates to share repurchases during fiscal 2022, the company repurchased approximately 867000 shares under its share repurchase program.
As of January 31, 2022, the company had an aggregate of $52 $4 million remaining under its authorized share repurchase programs.
Subject to prevailing market conditions, and the business environment. The company plans to execute a share repurchase plan at an accelerated pace in fiscal 2023.
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'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Oliver Chen with Cowen. Please proceed with your question.
Hi, there. Good morning. This is Katie on for Oliver.
I think some of our first question yeah, great results.
Would love to know so like what are your learnings so far from the Calvin Klein launch.
And it's you know.
How much did stimulus impact your Q1 sales last year, if you could quantify that that would be really really helpful. And then I've got a few follow ups. Thank you.
Okay.
Thank you Katie and good morning.
Thank.
So from the from the Calvin Klein.
Launch I think our team has just done a fabulous job of executing against the brand DNA and so we're really excited we've seen.
Really good reception to our product we've seen very strong initial sell through again, it's it's.
It is anticipated to be pretty small.
At the beginning of the year, but as we roll it out.
Ultimately it will be a significant contributor.
To Nevada groups. So we're really excited about that launch.
Certainly stimulus in the fourth in the first quarter of last year had an effect on domestic sales.
We don't know the exact impact of that.
But we do know it was probably predominantly in the month of March early April .
But you have a number of different variables.
Probably that will impact retail sales I would assume in the first quarter in the U S including.
Inflation.
Higher energy cost.
The war.
As well as the stimulus.
Okay, Great and then maybe more broadly would love to know your thoughts around product category expansion and sort of how you're thinking about jewelry.
And maybe some of the the sort of.
<unk> that expansion as it relates to your gross margin.
And then staying on gross margin what is sort of the primary drivers behind that about.
About 80 basis points expansion planned for 23. Thank you.
I think it's.
We're selling more expensive product, which is which and really across our across our brands which is.
Which is very helpful to gross margin.
And I.
I think we will continue to expand jewelry, it's still about 5% of our sales as we as it becomes a bigger piece of.
Of our overall business.
I believe that we will be able to manage the gross margins to fit within our total mix.
So we don't really see expanding right now into other product categories beyond that we do have.
Sunglasses in Iowa.
Blue like classes called ever scroll and movement, which is which is a nice business for the movement brand, but I don't see that expanding that into other other brands.
Okay. That's really helpful. And then my last question is just around price increases and they are really impressive.
AUR growth that you've been able to implement across the business. So.
How consumers responded to those price increases so far and do you have any price increases planned yet.
For fiscal 'twenty three.
Great.
So we implemented limited price increases last year, particularly specifically in the Novato brand.
And that went quite smoothly. We are now doing some follow on increases as costs, including labor costs and.
Store personnel and things like that cost more.
Across all of our brands. So that so we are in the process of doing that implementation.
Now that we've seen.
And a fairly good acceptance and historically as we've rolled.
Price increases.
And I think consumers are are used to paying.
Paying more for things right now we also continue to add value to a product that was really probably the biggest.
The biggest push in.
Raising price in the AUR is going up our average unit retail going up is that we're at we're giving more value so things like ceramic and movement.
The SEC family is really a sport luxury family.
At the upper end of our Novato collection, so it's really nice.
To see that the consumers are willing to spend more money when you deliver more value.
Absolutely. Thank you so much.
Thanks, Katie Thank you.
Yeah.
We have reached the end of the question and answer session and I will now turn the call over to Mr. Greenberg for closing remarks.
I would like to thank all of you.
For participating today, we're again very pleased with our our results.
For for last year, and we look forward to talking to you again.
For our first quarter earnings call. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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