Q2 2023 Movado Group Inc Earnings Call
Good day, everyone and welcome to the Nevada Group, Inc. Second 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'd like to turn the conference over to Rachel Schacter of ICR. Please go ahead.
Thank you and good morning, everyone with me on the call. This afternoon, Graham Chairman and Chief Executive Officer, and Sallie personalized Executive Vice President Chief Operating Officer, and Chief Financial Officer before we get started I would like to wind.
The Companys 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 1995 actual future results may differ materially no suggested in such statements due to a number of risks and uncertainties all of which are described.
The company's filings with the SEC, which includes today's press release.
If any non-GAAP financial measure and use on this call a presentation of the most directly comparable GAAP financial measure.
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 Evan Greenberg, Chairman and Chief Executive Officer of Nevada.
Thank you Rachel and good morning, and welcome to Nevada Group's second quarter Conference call with me today is Sally the Marsalis, our CLO and Chief Financial Officer, I will start by giving you a brief overview of our results followed by an update on our strategic initiatives and brands and then Sallie will review our financial results.
Greater detail.
We would then be glad to answer any questions.
In an increasingly volatile global economic environment, we are very pleased with our overall results facing significant currency headwinds our sales for the quarter grew by five 1% and 10, 5% on a constant currency basis. Our gross margin was 58 and a half 58, 5% of sales and increased.
190 basis points from last year, we delivered adjusted operating income of $31 $4 million or 17, 2% of sales versus $25 $5 million or 14, 6% of sales last year.
Adjusted EPS was $1 seven versus 85 cents last year. Additionally.
Additionally, our balance sheet remains strong with cash of $203 million at quarter end and know that our teams around the world continue to execute against our plan, while navigating a challenging environment with a higher level of uncertainty.
For the quarter, our sales our U S sales declined by five 4%, while our international sales grew by 15, 3% and 25, 8% on a constant currency basis in the U S. We saw an increasingly difficult retail market impacted by rising inflation and the anniversarying.
A robust stimulus programs that benefited consumers and multiple income categories. We have also seen the slowing of the U S economy as the fed increased rates in its effort to bring inflation under control and our international markets, where prior year results were less impacted by stimulus programs and in the U S.
We saw continued strong growth in our licensed brand performance, including the launch of Calvin Klein.
As we look at our brands, we continue to effectively execute against Novato brand's elevation strategy against the motto brand elevation strategy.
<unk> sales for the quarter declined low single digits, driven by slower retail in the United States, partially offset by the growth in our international business, particularly in India. We remain excited.
Excited about the prospects of Nevada, as we continue to elevate both the product and the brand image.
In Nevada, we saw strength in our higher priced watches with the average retail price growing by 12% versus last year, I'm, Nevada, OSB collection, which continues to perform extremely well both on our website and our hope and our wholesale distribution will be further expanded for the fall with new color ways for men.
And women as well as the introduction of a women's automatic version.
In bold, we introduced a new sport versa family that has performed very well for the fall we are introducing new ceramic models and bold as well as the new bold fusion automatic we're.
We're excited to be launching our first Influencer program in September under the Novato always in motion theme, including Influencers and artists with the basket that kras from a gold medal Olympian skier towards ceramic who are at the top of their game. This campaign will run through the holiday season. In addition to our.
In advertising, we will also introduce a new boat TV commercial that we are very excited about digi.
Digital trends were more challenging during the quarter with a slowing of the U S consumer and a return to a more normalized balance between brick and mortar and online shopping.
As we look at our license brands, we saw growth across the portfolio, resulting in a 14 foot in 2014, 8% growth during the quarter.
Tommy Hilfiger watches and jewelry performed well for us driven by strength in Europe , and India are campaign watch for him Matthew sold nicely driven by our <unk> execution for women Libbey, featuring a minimalistic sparkle dial connected with the th consumer.
During the third quarter, we will drive performance with the launch of strong campaigns in Europe , Mexico, Brazil and India.
Hugo Boss continued to grow in both our boss and Hugo labels. The boss parent brand is amplified their product and marketing message and we are seeing the benefit.
We saw strong sell through in our sphere family for him and nobody asked for her the boss brand is resonating with consumers as we partner with buses stable of key influencers like hobby lobby and Tic Toc and the rising Italian tennis Star Matteo Bertolini.
And coach our sales were driven by the continued focus on our ceramic collection Grayson with the pink version being worn by Jennifer Lopez and the parent brand's AD campaign on social media the quarter for coach watches was challenged by Covid closures in China, but we're already beginning to see a nice bounce back in that.
Okay.
We have seen continued strength in lacoste with strong performances in our replay family for him while the iconic 12 12 remains our biggest family and the brand. We are excited introduced the third generation of the 12 12. This coming fall for the launch we are planning a strong marketing program in la.
As home market of France, beginning in September we expect to begin the launch of Lacoste jewelry during the fourth quarter.
We are excited by our launch of Calvin Klein in both jewelry and watches which began early this year and has exceeded our initial expectations.
Today, we have opened over 1500 retail doors as well as several key online retailers on a global basis.
Watches represent approximately 75% of the sales with men's watches at 30% of sales and women's at 70%.
Products that feature iconic CK brand and they make up about 20% of the business.
During the second half of the year, we will amplify our marketing message in key markets in Europe , with both digital programs and Billboards and a digital launch in China. We're really excited by the initial reception that <unk> has received across our distribution network.
In our outlet division, we saw single digit growth with with digital growth, partly offset by a decline in our brick and mortar business. During the quarter, we saw a challenging traffic trends driven by higher gas prices and inflationary pressures, we are already seeing traffic and business trends improve in our stores.
And early in the third quarter.
And Olivia Burton, we are focused and invigorating, our product assortment and updating our marketing message. We are excited by the progress that our team is making and we are focused on making great new iconic Olivia Burton products with several new introductions this fall, but with the bulk of our introductions coming throughout the next year.
And movement. Our team is focused on continuing to elevate the product and fine tuning our marketing message as we head into the fall as you know we have put in place a new leadership team and movement and we are already seeing progress in the evolution of the movement brand both on product and marketing, we're rounding out the team and are excited about.
The future opportunities for movement to grow a beautifully designed iconic products marketed in an evolving digital landscape.
Well there is increased uncertainty in the economic environment. We are very pleased with how our teams have adjusted and executed against our strategic plans.
As we look at the second half of the year, we believe that we will need to continue to execute in an uncertain environment, including facing the impact of unfavorable currency due to the strengthening of the U S. Dollar with our strong brand portfolio amplified design innovation and effective marketing support we will continue to deliver.
Just the available opportunities while investing in our brands for the long term I would now like to turn the call over to Sally who will cover our financial results in greater detail.
And good morning, everyone for today's call I will review, our financial results for the second quarter and year to date period in fiscal 2023, 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 second quarter and year to date period of fiscal 2023 in fiscal 2022 in our press release issued earlier today.
Which also includes a reconciliation table of GAAP and non-GAAP measures.
For all our performance for the second quarter of fiscal 2023 continued to be strong.
For $182 $8 million as compared to $173 $9 million last year, an increase of five 1%, which exceeded our expectations of 2% to 4% growth.
In constant dollars the increase in net sales was 10, 5%.
Net sales increased across our licensed brands and company stores, partially offset by a decrease in our owned brands.
U S net sales decreased five 4% as aforementioned.
The retail market in the U S was difficult as we anniversary last year's stimulus and continued to see the effects. This year of increased inflation on the consumer in addition to slowing domestic growth.
All of which creates a challenging comparison year over here.
International net sales increased 15, 3% as compared to the second quarter of last year on a constant currency basis International net sales grew by 25, 8%.
We saw strong trends, especially in Latin America, India and Europe .
Gross profit as a percent of sales expanded to 58, 5% compared to 56, 6% in the second quarter of last year.
The increase in gross margin was primarily driven by favorable channel and product mix, partially offset by the unfavorable impact of foreign currency exchange rates.
Operating expenses were $75 $6 million as compared to $73 million for the same period of last year.
The increase was driven by higher marketing expenses and general operating expenses that directly support the increase in sales.
It was partially offset by a decrease in performance based compensation.
As a percent of sales operating expenses for the quarter decreased to 41, 3% from 42% in the second quarter of last year.
Expansion in gross margin and control spending in the second quarter drove a $5 $9 million increase in operating income to $31 $4 million as compared to $25 $5 million in the second quarter of fiscal 2022.
We recorded income tax expense of $6 $6 million in the second quarter of fiscal 2023, as compared to a $5 $5 million.
As compared to $5 $5 million in the second quarter of fiscal 2022.
Net income in the second quarter was $24 $6 million or $1 seven per diluted share as compared to $20 $1 million or <unk> 85 per diluted share in the year ago period.
Now turning to our year to date results sales for the six month period ended July 31, 2022, with $346 $2 million as compared to $308 $7 million last year.
Total net sales increased 12, 2% as compared to the six month period of fiscal 2022 in.
In constant dollars the increase in net sales was 16, 5%.
International sales increased 24, 1% or 32, 6% on a constant currency basis U S. Net sales declined five 2%.
Gross profit was $203 $6 million or 58, 8% of sales as compared to $172 $7 million or 55, 9% of sales last year.
The increase in gross margin rate for the first six months was primarily due to favorable channel and product mix.
For the six months ended July 31, 2022, operating income was $57 $4 million as compared to $39 $6 million.
As for 2022.
As a percent of net sales operating income was 16, 6% in the first half of fiscal 2023 as compared to 12, 8% in the first half of fiscal 2022.
Net income was $43 $7 million or $1 89 per diluted share as compared to $30 $2 million or $1.27 per diluted share in the year ago period.
Now turning to our balance sheet.
Cash at the end of the second quarter was $203 $1 million as compared to $199 $7 million at the same period of last year.
Accounts receivable was $107 million up $11 million from the same period of last year, primarily due to the increase in sales.
Inventory at the end of the quarter was up $31 7 million or 17, 3% above the same period of last year, primarily due to the timing of receipts and the addition of the Calvin Klein brand to our portfolio.
In the first half of fiscal 2023, we repurchased approximately $21 $5 million or 587000 shares under our share repurchase program.
Capital expenditures for the six month period were $3 million and depreciation and amortization expense was $5 $6 million, which included $1 $4 million 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 a challenging environment. Our net sales are currently expected to be in a range of $780 million to $790 million, which is below the midpoint of the previous outlook range of 780 to 800.
Million dollars. This was primarily driven by the impact of currency headwinds due to the strengthening of the U S. Dollar.
We continue to expect gross profit of approximately 58% of sales.
Given the strong first half we currently expect operating income at the high end of our outlook range of $125 million to $130 million.
And we continue to anticipate a 25% effective tax rate.
I would now like to open the call up for questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. 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 he'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star.
One one moment, please while we poll for questions.
Our first question today is coming from Oliver Chen from Cowen. Your line is now live.
Hi, affirming Sallie good morning.
I'll hang up.
The U S experiencing that those negative trends.
Your guidance include a continuation of that happening and given that that it was negative or how are the inventories in that channel and the freshness of inventories.
I would also love you to elaborate on that outlet traffic it sounded like a caution point.
Sure so on both of those.
Yeah, our outlook does factor that theres going to be continued weakness in the U S and.
I think really due to two factors.
One is the inflation and two is the.
Continued lapping of stimulus.
On the consumer that really did occur throughout the year last year and probably ends that are at the end of December .
The traffic front.
We've always seen traffic challenged in outlets when gas prices are high we have seen an improvement over the last.
Month is as I said in my comment in both traffic patterns and business in our brick and mortar.
Locations.
Well that business is still performing extremely well.
And and we're very pleased with it but.
But I do think that when you do see higher gas prices those are generally destinations.
And.
And you are less people will drive to those destinations I think on the inventory front retailers have been very cautious.
On inventory levels and so.
Mentor is pretty clean at the point of sale, our inventories very fresh and you have to remember that our inventory is not seasonal it is not a it is long lasting.
As a rule.
And so I think we're in pretty good shape on that front.
Okay and on the U S side, it's been really a dynamic we've seen the worst in July .
June but then are better.
Back half of July .
What what are you thinking with pricing.
Pricing trends in light of the negative trends in the U S and do you expect the U S market to get worse or better or stay at the rate you are seeing it now.
I think you know what would I look is that where we're returning to more normalized trends in and so we had a big boom last year in the U S based on.
On all of the economic actions low interest rates stimulus that were taking place and so if you look at most of our numbers.
Against 2019, which is the last pre pandemic year, I would expect that there'll be better than that and they have been better than that so.
Within a more normalized environment and one that's not.
Being made.
Made highly liquid by by government actions.
The business is performing well and we will continue to perform really well. So I think it's important to look at the at trends against that kind of an environment.
Okay, and another cautious Fox or we're monitoring is Europe at large.
Recession risk and things getting worse there.
Well, you had a really robust global numbers, but.
What are you seeing in those markets and are you concerned that trends will slow or not.
<unk>.
Overall, we're pleased we're really pleased with our performance in Europe .
As you know my experience also.
Lets me to believe Europe doesn't get the highs and the lows that we do in this in this country and.
And although you are seeing already some economic challenges in countries like the U K.
And part part part of that also has to do with their separation from the from the EU.
We're seeing.
Robust growth for example in our digital.
Digital in some of our digital businesses in Europe , and then also in and travel retail which had virtually disappeared for about a.
18 months period and has now.
Beginning to return as a real business.
Okay, and then on everyone's minds of course, then is you mentioned that is the inflation topic.
Yet you had some pretty impressive average unit retail performance.
How would you characterize your portfolio in terms of inflation and what are what are you doing with pricing and it probably manifested.
Frankly across your portfolio.
So we did take early in the year some selective price increases.
To offset the inflation.
Both on the operating side and on the cost side I think we're seeing the results of that and are strong and our strong gross margins.
That we delivered in the quarter.
I think as the.
The environment becomes a.
The more challenging I think obviously price increases become more challenging as well, but costs will eventually moderate as well also and you're and you're starting to see that.
With with hiring and areas like that while there's still a lot of open positions.
Both at our company and in this country, we're seeing more candidates for example than we had been.
And.
Late last year.
Thank you and so it looks like the guide.
The tweak of guidance is largely on FX could you help us understand.
Embedded FX impact on the gross margin line for the back half and guidance and.
What we should know about.
The magnitude of FX on the top line.
And second question, Sally well mix and channel.
To be helpful to the gross margin in the back half as we model that.
Okay. So let me start on the top line with revenue.
That is the key factor and tightening the range.
Due to the continuing strengthening of the U S dollar and we do have such a global business that is.
You know, it's pretty critical for us to try to call that out too long.
As it relates to gross margin that does also.
Impact our gross margin. So the fact that our gross margin rate continues to be strong at 58, but stay at 58. There was also a piece of that related to the impact of currency on our gross margin rate.
As for Mick.
We will look at that we are looking at that continuing in this challenging environment with the blend of the U S business versus the international as well as the direct to consumer and outlet. So all of that gets blended together and has has continued to be a relatively steady gross margin rate with a very complex calculation to get there.
Yeah.
Okay and your balance sheet is seems really healthy.
What's on your prioritization list.
That's kind of special dividends.
And in the realm of what's you're thinking we'd love to hear a key priorities in terms of capitalization and return to shareholders.
Well I think we haven't we have a both a we believe a healthy dividend in place and intend to continue that obviously, we evaluated based on our overall cash position and generally in the second half of the year, we generated a lot more cash than in the first half of the year.
And then the other part is we also have a share repurchase plan.
And place that we've executed fairly well against.
In the first half of the year and I would expect that we will.
Continue to repurchase shares throughout the second half of the year.
Okay for them on the Calvin Klein business, so far what's been your biggest.
Biggest surprises and or two.
You bet.
Executed that part of the.
Innovative business that's it really.
Great brands.
Yeah look it's a.
Fabulous brand it has global brand recognition, it's one of the big brands, we're really pleased to partner with them, we've seen robust international.
<unk> of both watches and jewelry are between the middle East and Europe .
And and parts of Asia, China has gotten off to a slower start.
And not due to anything other than the fact that they obviously had substantial closures.
During the first half of the year due to Covid.
And then we've seen also robust reception to the product probably more.
More than we expected in Latin America.
And pretty strong sell through results. There. So I think everything is working according to plan. What you always do as you when you introduce new brand new learn from the product that you introduced the fine tune the product assortment is as you grow.
The business, but.
We're as excited.
If not more excited about it today than we were when we first signed the license.
Okay. Thank you and our last question marketing marketing as a percentage of sales.
How are you thinking about that what we've been seeing is a certain degree of digital disruption.
Fluctuation in customer acquisition costs, particularly with the Apple iOS changes as well as some of the Google algorithm changes So would love your take on that also as you'd think digitally and.
Yeah, some of the best practices that movement as well thank you.
Sure. So so most most of those changes came in place during the last year and and so you know as we go into the second half of the year.
We're in a market where those a lot of those iOS our.
Privacy changes were already in place for the second half of last year I think what we're also recognizing and some of the learnings for example that we got from movement.
Success of our Influencer campaign, so we're launching.
A major one with Nevada this second half.
Really is aimed at what we call the top of the funnel.
And continuing to build aspirational brand image.
Four four for the brand so we're excited about that.
As we progress you know one of the things that you do.
We need to do in today's day and age to produce.
A lot more content for each of your brands.
Our team has gotten really adept at doing that as you know we've also.
At a new Chief marketing officer join Us and I think will be integral to that effort as we move forward.
Thanks, a lot best regards.
Okay. Thank you and <unk>.
Yeah.
Thank you we reached end of our question and answer session I'd like to turn the floor back over to have room for any further or closing comments.
I'd like to thank all of you for joining us today and.
Wish you a very good and <unk>.
End of the summer and and the final holiday weekend or next weekend.
You again, and we look forward to joining you for our third quarter conference call.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.