Q1 2023 Movado Group Inc Earnings Call
Yeah.
Good day, everyone and welcome to the mobile DAU Group incorporated first quarter 2023 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 ICR. Please go ahead.
Thank you good morning, everyone with me on the call is at home Greenberg, Chairman and Chief Executive Officer, and Sallie Marcellus 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 this.
The statements contained in this conference call, which are not historical fact, maybe 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.
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 but natural information in our press release now I would like to turn the call over to us from Grinberg, Chairman and Chief Executive Officer of Novatel grid.
Thank you Rachel good morning, and welcome to Nevado group's first quarter Conference call I will review, our first quarter performance and our strategic initiatives and then Sallie will review our financial results in greater detail. We would then be glad to answer any questions you might have.
We are very pleased with our strong results. Despite operating in an increasingly volatile environment. We delivered very strong first quarter performance net sales grew by 21, 2% to $163 $4 million or by 24, 3% on a constant currency basis, our gross.
For the quarter was 59, 2%.
420 basis point improvement over last year, our adjusted operating profit for the quarter was $26 1 million or 15, 9% of sales versus $14 1 million or 10, 5% of sales last year. We also ended the quarter with cash of $225 three.
And know that while we delivered a very strong quarter. We recognize that we are operating in an increasingly challenging environment in the U S. We grew sales by six 6% in the first quarter, reflecting solid growth. Despite lapping increased stimulus that began during the first quarter last year.
In the beginning impact of inflationary pressure on the domestic consumer as interest rates rise, we expect the U S economy to moderate and as such we are maintaining a disciplined approach to spending while continuing to strategically invest appropriately to support our brands and our businesses in our biggest markets.
Internationally, we saw very strong growth during the first quarter with sales, increasing 35, 3% and 41, 3% on a constant currency basis, we continue to see a certain amount of resiliency, especially in Europe and the middle East. We're also seeing significant growth rates in Latin America.
America, and India as these markets to begin to improve from the impact of the pandemic.
As we look ahead, while our first quarter was extremely strong we're seeing a heightened level of uncertainty and as such we are not increasing our outlook. We believe we are taking the appropriate actions to navigate an environment of slowing U S growth higher inflation increased currency volatility and geopolitical instability we are.
So I've seen a shift to brick and mortar as people return to return to work and ramp up travel and other activities.
Returning turning to our Nevada brand for the quarter I'm Novato brand continued to perform well with an increase in our wholesale revenues as retailers replenished inventory. This was partially offset by a 13% decline in our novato dot com business as we lap a very strong quarter last year, where we more than <unk>.
Tripled the business.
Despite our strong sales performance overall from Nevada.
Our strong sales performance from Novato, we did see U S retail become more challenging as the quarter progressed.
On the product front, we continue to see strong performance of our FC collection and increasing penetration of our <unk>.
<unk> offerings during the second quarter, we began introducing green dials within our FC collection and have received very strong reception.
And our license brands, we saw a very strong year over year performance as much as Europe was closed at various times during the first quarter of last year.
Coach continues to be led by strong product innovation and associations. We were pleased to continue our partnership with Jennifer Lopez supporting our <unk> family of watches and China sales were challenged as Covid related closures continue and we're seeing customers returning to online channels during the second quarter.
And Tommy Hilfiger, our newness continues to resonate with consumers our spring campaign introduced Matthew.
Our modern casual family dining Tommy's iconic blue color.
Her we're featuring Layla on a mesh bracelet and our spring marketing campaign.
We had a very strong start to the year and Hugo boss as the brand takes on an important marketing refresh with new brand associations like Hailey Bieber and take stock tick Tock Star Kabi. We also participated in the brand SKU go house branding event, the Coachella in both Boston Hugo We plan to introduce new strong innovation.
In both watches and jewelry throughout the year and Lacoste, we launched a new sport watch and replay done in black in both strap and mesh bracelets. We also had a strong reception from our customers to the lacoste to the Lacoste Minecraft collaborations.
During the quarter, we rolled out Calvin Klein in watches and jewelry and about 400 points points of sale with our key partners throughout the world with a very positive response, we are seeing strong sell through to our signature CK branded watches in our everyone gender inclusive segment representing about 20%.
The business. We are excited to continue Calvin Klein rollout as the year progresses and believe it will become an important brand for Nevado group.
In our outlet saw in our outlet store division, we saw sales fluctuate throughout the quarter with a modest increase in sales in brick and mortar. We continued to focus on profitability and delivered higher gross margin than last year somewhat offset by increased compensation and occupancy expenses.
And our movement in the Olivia Burton brand, we're making a great deal of progress with our new leaders in place for both brands Olivia Burton will have some exciting new products for the fourth quarter and we are in the process of updating the brand experience and movement, we expanded our ceramic watch assortment and are already seeing some quick wins in this category.
At higher price points, we're in the process of develop developing movement long term strategy for the future with almost 1 million movement customers in our database. We're excited about the long term potential of the movement brand.
While we had a very strong quarter, which has enabled us to maintain our outlook for the year the macro environment presents a heightened level of uncertainty over the last several years our teams have executed at a very high level.
As we have had to evolve our plans while navigating a global pandemic, we will use the discipline that we have acquired as we continue to navigate economic risks, including a war in Ukraine higher energy prices around the world rising interest rates, a strong dollar and increased inflation in many categories, we expect to.
Deliver solid gross margin, while continuing to carefully manage operating expenses with our strong balance sheet and cash position. We are focused on delivering sustainable profitable growth I would now like to turn the call over to Sallie.
Thank you everyone and good morning, everyone.
For today's call I will review our financial results for the first quarter of fiscal 2023 and balance sheet and then discuss our outlook.
My comments today will focus on adjusted results. Please refer to the description of all the special items included in our results for the first quarter of fiscal 2023 in fiscal 2022 in our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures.
Overall, our performance for the first quarter was a strong start to fiscal 2023, our sales were $163 $4 million as compared to $134 $8 million last year, an increase of 21, 2%.
In constant dollars the increase in net sales was 24, 3% net.
Net sales increased across our segments I've owned brands licensed brands and company stores as well as across certain geographies.
U S net sales increased six 6% and the aforementioned during the first quarter, we Anniversaried last year's stimulus in the U S and began to see the effects. This year as increased inflation on the consumer in addition, just blowing domestic growth.
All of which created a challenging comparison year over here.
International net sales increased 35, 3% as compared to the first quarter of last year, we saw strong trends, especially in Europe , the Middle East, India, and Latin America as certain of these markets began easing from the impact of the pandemic.
Gross profit as a percent of sales was 59, 2% compared to 55% in the first quarter of last year the.
The increase in gross margin was primarily driven by favorable channel and product mix, partially offset by higher shipping costs.
Operating expenses were $70 $6 million compared to $60 1 million for the same period of last year.
The increase was driven by higher marketing and selling expenses to support the increase in net sales as.
As a percentage of sales operating expenses for the quarter decreased to 43, 2% from 44, 6% in the first quarter of last year.
Primarily due to sales leverage.
Expansion in gross margin combined with continued expense discipline in the first quarter drove a $12 million increase in operating income to $26 $1 million as compared to $14 $1 million in the first quarter of fiscal 2022.
We recorded income tax expense of $6 2 million in the first quarter of fiscal 2023 as compared to $3 $5 million in the first quarter of fiscal 2022.
Net income in the first quarter was $19 $1 million or <unk> 82 per diluted share as compared to $10 1 million or <unk> 43 per diluted share in the year ago period.
Now turning to our balance sheet cash at the end of the first quarter was $225 $3 million as compared to $187 million in the prior year period.
Accounts receivable were $92 $7 million up $14 $2 million from the same period of last year due to the increase in sales.
Inventory at the end of the quarter was up $10 million compared to the same period of last year, primarily due to the timing of receipt and the addition of the Calvin Klein brand to our portfolio.
In the first quarter, we repurchased approximately $14 $4 million or 378000 shares under our share repurchase program.
Capital expenditures for the quarter or $1 4 million and depreciation and amortization expense was $2 $9 million, which included $800000 related to the amortization of acquired intangible assets of Olivia Burton and movement.
Now I would like to discuss our outlook, while we had a strong start to the fiscal year. We recognize that we are operating in an increasingly challenging environment impacted by currency inflation and geopolitical instability.
Therefore, including a strong first quarter, our outlook remains unchanged and we continue to expect fiscal 2023 net sales to be in a range of approximately $780 million to $800 million.
Gross profit of approximately 58% of sales and operating profit to be in a range of $125 million to $130 million.
No changes to the current tax laws, we anticipate a 25% effective tax rate.
And while we do not generally provide quarterly outlook, we expect our second quarter net sales to increase 2% to 4% over last year, which includes a negative 500 basis point effect of foreign currency.
I would now like to open the call up for questions.
Thank you we will now 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.
I'll start too if you'd like to remove your question from the Q1 moment. Please while we poll for questions.
Yeah.
Thank you.
Thank you. Our first question comes from Oliver Chen with Cowen <unk> Company. Please proceed with your question.
I affirm and Sallie good morning, Rob.
I honestly.
You saw.
Great to be here you saw a lot of nice strength in some regions could you speak to where it might have been weaker and also did you see a lot of volatility within customers there a second.
Second question as you benefit from channel and product mix upside, which is very encouraging.
Sally do you expect that to continue and what will be key drivers there as we model the rest of the year.
So we saw Europe .
In Latin America, India, particularly strong.
And a lot of that was also just lapping that they were later to reopen.
Last year than than than other markets. So for example, we all recall the U S was vaccinated.
To a great extent much earlier.
Then Europe and so we saw really a resurgence of strength there.
In our European markets, we believe that a lot of that will continue.
Our brands, especially on our licensed brand category.
Our very strong in Europe , Latin America, the Middle East and India for US is an expanding market as well.
And in North America, we saw solid performance.
And in line, probably with our expectations for for the whole year.
And we are also seeing a shift back into brick and mortar from from digital channels and that's probably also global.
As as the world returns to shopping in store.
And that's a nice segue into the gross margin so.
So we have had year over year very strong comparisons.
And you know what.
We expect for the rest of this year you know, we're guiding to 58% gross margin.
So we expect that to continue to be strong, but each of the quarters for the remainder of the year should be relatively flat in essence for last year.
With each of our businesses contributing to the strength of our gross margin, but no real callouts to anything significant in each of the quarters over the fiscal year.
Okay, and we're seeing a lot of cross currents with the health of the consumer what are your thoughts about what you think is happening and are there any examples that higher versus lower price point is inflation plus.
Meaning a wall and the demand of your product and or the cost of goods sold thank you.
So inflation.
<unk> is not really playing a significant <unk>.
Significant.
The headwinds for us in terms of the cost of our products and obviously cost more to operate today.
So we've made sure that that.
We're careful on expenses and really focused on growing our gross margins to be able to cover cover that.
There is a lower there's a higher level of pressure on the lower end consumer that has.
Hum.
There is no longer receiving as much stimulus as they were at this point last year.
And and then you also have the headwinds of what the fed is trying to accomplish and the United States, which is disruptive slowdown inflation. So the only way to do that ultimately is the slowdown in consumption.
So I think that that will that is factored into.
Our outlook for this year.
And from what what are your thoughts on the inventory levels at your department store and other wholesale partners and how sell out is looking versus sell in and also as a lot of the retailers just become more agile at large you know how are you positioning in terms of what inning you are in.
So I think our inventory is in a healthy place.
Not over inventory, we are not fortunately for us we're not in.
Long lead times in terms of shipping product, which you hear about a lot of companies, having a lot of inventory out on the C. R.
As always come by plane.
So.
We never had this backlog and then delivering a lot to retailers. So I think we're in a really healthy place and in terms of inventory, obviously retailers continue to focus.
On inventory levels around the world, but that's something that we've dealt with now for quite a long time.
Okay, and fanatically as the customer goes out again, which.
Parts of your assortment are you most excited about and as you continue to evolve and innovate our product and assortment.
What is the customer wanting.
So we're seeing a lot of interest in materials. So.
Materials like ceramic.
And also in.
In higher price points, the penetration of automatics, which are more expensive within our novato brand has has increased and so we will continue to focus on that actually goes right in line with the strategy that we rolled out in our Novato brand, which is really about elevating.
The brand over the last few years.
And it's proven to be very successful I think will also seeing higher price points in our licensed brands.
And.
Particularly in Hugo boss.
Which has really begun to make noise with.
With their marketing programs around the world and.
And then also we've now the launch of Calvin Klein.
We think that has a big potential for the company both in watches and jewelry.
Okay, Sallie the balance sheet and your cash position remained quite attractive could.
Could you refresh us on key priorities and how you're thinking about that and anything we should know about net working capital in terms of modeling free cash flow.
Sure I'll start and I'm sure Aaron will join in.
Our priorities have been and continues to be things like returning value to shareholders. So paying dividends. We are obviously active in the share repurchase program.
As far as working capital needs and everything else, we remain with a very solid balance sheet and not a lot of.
Things like capital.
Sure as you know we're not in that heavy capital.
That's industry leading.
We remain really happy and pleased with our balance sheet and the strength of it and we will continue to maintain a strong balance sheet that has always been.
Our priority, especially as.
With volatility and in different markets, but we.
We've continued to return money to our shareholders and that certainly is a key priority as well.
Okay, and China's been a relevant topic, just theres a lot of uncontrollable there with a zero tolerance policy is that impacting your business what are your thoughts there from.
So it has impacted our business.
On the international front, we obviously saw a decline there in the in the first quarter, we expect to see one in the second quarter. It is a growth market for us, but it is not material to our.
Our to our overall results as of yet and we believe it has a big future for us.
But there are challenges in terms of.
Sales.
As I said earlier people have returned to buying online at the beginning of the closures in Shanghai.
Really.
Even the.
<unk> dot com business materially slow slow down.
Warehouses in the market were closed.
Federer, but thats beginning to reopen again in <unk>.
I would expect to see China reopened for the third and fourth quarter.
Yeah.
Thank you lastly on the outlet side in your retail bricks and mortar presence what are your thoughts about the traffic that you're seeing there has it been volatile have you been pleased with return of football and what you're noticing in door and.
<unk> the stimulus being a negative thank you.
So we are seeing a return to traffic in our stores, we are seeing mall traffic.
Somewhat challenged but but we are seeing positive traffic in our stores so that.
Bodes well for our business.
I think gasoline prices always have a pressure on on destination shopping centers.
That our distance from urban centers, so that's been historical.
But we're we're pretty optimistic in terms of the long term strategy of.
Our outlet stores.
Thank you best regards.
Thanks, Oliver Thank you Oliver.
Yes.
Okay. There are no further questions at this time I'd like to turn the floor back over to Mr. Greenberg for any closing remarks, okay. Thank you very much for participating on our call today I wish everybody.
An excellent holiday weekend here in the United States. So again, thank you very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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