Q3 2024 Movado Group Inc Earnings Call
And I see our please go ahead.
Thank you good morning, everyone with me on the call as Evan Greenberg, Chairman and Chief Executive Officer, and Sally's U verse was executive Vice President and Chief operating Officer, and Chief Financial Officer.
Before we get started I would like to remind you of the company's 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 from those suggested in such statements due to a number of rescue 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 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 affirm Greenberg, Chairman and Chief Executive officer of move out to agree.
Thank you Rachel good morning, and welcome to Novato group's third quarter Conference call. This morning, I will review the highlights of the quarter current operating environment and progress on our strategic initiatives and then Sallie the marsalis, our COO and CFO will review, our financial results in greater detail as well as our outlook.
Look.
In an ongoing challenging environment for discretionary products in our largest markets in Europe, and the United States. Our company continued to report strong profitability maintain a durable balance sheet and generate strong cash flow, while investing behind our brands people and product innovation to position the company to accelerate growth in the future.
For the third quarter, our sales declined 11, 2% to $187.7 million or 13, 5% on a constant dollar basis, our operating profit was $27 million versus $38 $3 million last year, our adjusted earnings per share were <unk> 78.
Against the dollar 31 in the third quarter last year, while the environment was challenging we achieved noteworthy accomplishments. We continued to maintain a strong balance sheet with $201 million in cash and no debt and we returned $47 $7 million in dividends and stock repurchases.
Our shareholders during the first nine months of this fiscal year.
As the year has progressed, we have seen the challenging retail environment advance into more categories and retailers as we proceed through the important holiday quarter, we're taking a cautious view, while supporting important marketing initiatives to ensure that our brands get stronger while we navigate.
The uncertain retail climate and steer clear of the excessive promotional environment.
The continued strength of our balance sheet allows us to build a strong foundation for the next period of growth from Nevada group, while we remain cautious for the holiday season, we are confident in our ability to navigate the current global challenges and emerge stronger as we have throughout our history. We believe that now is the time to drive change.
<unk> innovation in both products and marketing and support our most important markets, while continuing to grow emerging markets like India and newer brands like Calvin Klein.
The review turning to a review of the quarter for the third quarter. Our U S business declined by 12, 3% and our international business declined by 10, 4% as the retail environment remained challenging and retailers around the world focused on bringing down inventories as they entered the fourth quarter. Despite this backdrop.
We're excited about the key products that we're featuring it in each of our brands and the marketing initiatives that we have in place to help drive holiday sales as we've talked about on previous calls we are pleased with the rollout of our Novato brand refresh which began in September and we will have critical mass during the important holiday quarter iconic.
<unk> need to need to continue to evolve while staying true to their heritage and DNA, having been founded in 18, 81, and with a rich history, Nevada was one of those brands in September we rolled out new brand imaging inspired by in Novato logo from the 19 twenties in October and November our new <unk> brand.
Advertising campaign began to appear in magazines digital venues and out of home. We have already received very encouraging feedback from customers and we expect to see the positive impact of both these new creative efforts as well as increased investments during the important holiday quarter.
During the holiday season consumers will see our new TV commercials on cable networks and on Youtube TV and increasingly popular venue for consumers.
We are also introducing new product families and we're already seeing strong demand for our new novato bold evolution to point out which was introduced during the third quarter. In addition, our continued emphasis on automatic watches so nevado sales in this category increased by over 65% in the third quarter.
We had discussed during our second quarter conference call, we anticipated the fashion watch and jewelry category would remain challenging in Europe for the quarter. Our licensed brands declined by 12, 6% as middle class consumers were pressured by increasing and increasing inflation. Our team has worked diligently to update our fashion.
Watch and jewelry strategy to succeed in an evolving landscape and we expect this effort to begin to gain traction next year and.
In each of our brands, we are focused on introducing longer lasting iconic families supported by comprehensive marketing campaigns and compelling storytelling.
This holiday season, we are seeing a strong response from our retailers to our new product introductions in each of our brands and Tommy Hilfiger, we're introducing the new th 85 automatic watch that we believe will be an icon for the Tommy Hilfiger brand, we will be featuring this family in our Billboard campaigns and in store through a special fee.
<unk> display.
In Boston, we are introducing a new range of modern luxury watches.
And the candor modern sport Luxe watches and the Candor collection Candor features an integrated bracelet and will be available both in automatic and courts Candida is right on trend and we will continue to expand this collection and featured in our seasonal marketing programs. In addition, we have introduced troper an aggressively priced.
Chronograph collection in both bracelets and stripes.
And the jewelry arena, we are featuring our heavy link Olympia collection ads with British actress Suki Waterhouse.
And our coach brand, we have seen a strong response from consumers to our Eliot collection, which was introduced earlier. This earlier. This year. We're also introducing a new small square shaped collection caf, which is right on the current trend of smaller shaped watches.
We're also expanding the Iconix 12, 12 family and Lacoste into automatics, and introducing a new diver inspired collection for Lacoste spin, we will be featuring both our new 12, 12 automatic and Finn and our holiday marketing programs, a little more than 18 months into our launch of our Calvin Klein brand, we are building our <unk>.
Distribution and fine tuning the product assortment, we're seeing success in our iconic twisted bezel collection and our timing Bangle watch collections. In addition to our iconic jewelry families for the holiday season, we are launching the new elated Bangor family, which has received a strong response from retailers around the world.
On the marketing front, we are featuring Leila Moss in our advertising campaign.
For Olivia Burton, we're seeing a strong response from consumers to two new leading families are shaped Grosvenor watch and our new Hex collection, a boyfriend sized family. Both of these new collections to driving strong performance on our <unk> website. In addition, we are encouraged by the positive response, we have.
Got into our new honeycomb jewelry collection.
We saw brick and mortar Novato company stores business declined by approximately 6% for both the third quarter and the first nine months of fiscal 2024, we're already seeing improvements during the fourth quarter.
As it relates to our outlook, while we have seen some trend improvement in recent weeks and are beginning to see the impact of our new <unk> marketing initiatives. We felt that it was prudent to modify our outlook given the uncertain retail environment and the challenges that retailers are experiencing in the U S and even to a greater extent in Europe.
Our two largest markets.
We remain excited about the opportunities that lie ahead, and our teams are energized as they develop innovation on the product and marketing front for the balance of this year and most importantly, as we prepare for next year as a company we have a long history of overcoming significant changes both in the watch and jewelry categories.
And then the retail marketplace and are confident that we will continue to do so we have a healthy balance sheet with a strong cash position and no debt, which allows us to invest for the future while ensuring that we execute to support our brands and our businesses I would now like to turn the call over to Sallie. Thank.
Thank you <unk> and good morning, everyone for today's call I will review, our financial results for the third quarter and year to date period for fiscal 2024, 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 the special items included in our results for the third quarter and year to date period.
2024, and fiscal 2023, and our press release issued earlier today.
It also includes a reconciliation table of GAAP and non-GAAP measures.
Overall, our performance for the third quarter of fiscal 2024 continued to be negatively impacted by a challenging retail environment.
Despite being down year over year, we continued to make good progress on our strategic initiatives and maintained an extremely strong balance sheet.
Turning to a review and acquire.
Sales were $187 $7 million as compared to $211 $4 million last year, a decrease of 11, 2%.
In constant dollars the decrease in net sales was 13, 5%.
Net sales decreased across owned brands licensed brands and company stores.
Hi, geography U S. Net sales decreased 12, 3% as compared to the third quarter of last year.
International net sales decreased 10, 4%.
On a constant currency basis International net sales decreased 14, 4% with continued softening in our largest international market Europe.
Gross profit as a percent of sales was 54, 5% compared to 57, 3% in the third quarter of last year.
The year over year decrease in the gross margin rate was anticipated and primarily driven by unfavorable channel and product mix and a deleverage of certain fixed costs over lower sales.
Partially offset by lower shipping costs, and the favorable impact of foreign currency exchange rates.
We expect the tough comparison to last year to continue into the fourth quarter.
Operating expenses were $81 $3 million as compared to $82 1 million at the same period of last year.
Slight decrease was driven by a decrease in performance based compensation, partially offset by an increase in payroll related costs and marketing expense.
As a result of the reduction in sales and gross margin operating income decreased to $21 1 million as compared to $38 9 million in the third quarter of fiscal 2023.
We recorded approximately $1 5 million.
Other non operating income in the third quarter of fiscal 2024, which was primarily comprised of interest earned on our global cash position as compared to $300000. During the same period of last year.
We recorded income tax expense of $4 6 million in the third quarter of fiscal 2024, as compared to $8 $6 million in the third quarter of fiscal 2023.
Net income in the third quarter was $17 7 million or <unk> 78 per diluted share as compared to $29 8 million or $1 31 per diluted share in the year ago period.
Now turning to our year to date results.
Sales for the nine months period ended October 31, 2023, or $493 million as compared to $557 $6 million last year.
Total net sales decreased 11, 6% as compared to the nine months period of fiscal 2023.
In constant dollars a decrease in net sales was 12, 6%.
International net sales decreased 10, 3% or 11, 1% on a constant currency basis U.
U S net sales declined by 13, 4%.
Gross profit was $273 6 million or <unk> 55, 5% of sales as compared to $324 6 million or 58, 2% of sales last year.
Decrease in the gross margin rate for the first nine months was primarily due to unfavorable channel and product mix the deleverage of higher fixed costs on lower sales and the unfavorable impact of foreign currency exchange rates.
Actually offset by decreased shipping costs.
For the nine months ended October 31, 2023, operating income was $42 9 million.
Compared to $96 $4 million in fiscal 2023.
We recorded approximately $3 $8 million of other non operating income in the nine months period of fiscal 2024, which was primarily comprised of interest earned on our global cash position as compared to $300000. During the same period of last year.
Net income was $35 $9 million or $1 58 per diluted share as compared to $73 5 million or $3 19 per diluted share in the year ago period.
Now turning to our balance sheet.
Cash at the end of the quarter was $201 million as compared to $186 7 million at the same period last year during.
During the first nine months of fiscal 2024, we had positive cash flow from operations of $7 4 million.
Accounts receivable was $135 5 million flat to the same period of last year due to timing and mix of business.
Inventory at the end of the quarter was down $43 million or 20% below the same period of last year due to the timing of receipts and alignment with sales.
In the first nine months of fiscal 2024, we repurchased approximately 86000 shares under our share repurchase program.
$18 $6 million remains available under that program.
Capital.
<unk> for the nine months period were $6 6 million and depreciation and amortization expense was $7 3 million, which included $1 $7 million related to the amortization of acquired intangible assets, the Olivia Burton and movement.
Now I would like to discuss our outlook as <unk> mentioned, we are operating in a challenging retail environment, especially in our key markets, the United States and Europe.
Our net sales are currently expected to be in a range of $665 million to $675 million.
We continue to expect gross profit of approximately 55% of sales for the year.
As previously discussed we are prudently investing in our brand building initiatives, while we continue to tightly manage our discretionary spending and therefore expect operating income in a range of $51 million to $55 million.
Based on our global footprint and our estimated jurisdictional taxable income we continue to anticipate a 23% effective tax rate with an expected range of earnings of $1 85 to $2 per diluted share.
I would now like to open the call up for questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Formation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue Anthro participants using speaker equipment and may be necessary to pick up your handset before pressing your star T.
Our first question is from Michael Lake with the Benchmark Company. Please proceed.
Michael Please check and see if your phone is muted.
Sorry about that good morning.
Couple of questions first just wanted to start with a general question digital watches seem to have been pretty strong during.
The season, so far can you comment on the impact if you see any of that or if that's something that you are not competing with banks.
Great.
We really don't compete.
In that category, we will have a few any digi and analog digital watches and.
I don't know if youre talking specifically about digital watches or smart watches.
And but we're not really in that in that category.
But it does it does it eat away at the share of the traditional watch market is really the question.
I don't I don't I don't think so I mean, I think within the fashion category. We do we do have some digital watches and but we're not seeing any particular level of strength in that in that category versus any others.
We're actually seeing better strength in and products.
That actually have a more mechanical.
Yes.
Mechanical component to them like automatic watches.
You noted in the fourth quarter, the current trends you're seeing some trend improvement obviously, we have the outlook you gave us. So we know where we are but how important is the month of December in the quarter and was that kind of a wildcard that we don't know about.
Yes, I think that the month of December is very important for us, especially in our direct channels.
Which has.
An impact obviously on our overall performance for the quarter, but as well as our as our wholesale channel.
And again in our biggest markets in Europe, and the U S and how retailers.
Due for that do during that period.
Which then leads to us.
Lead to stronger replenishment in the month.
Of January.
Okay, and then when you look at todays current stocking levels at the retail level. How do you think that compares to where we were a year ago from a retailer stocking level.
Retailers are down.
It is one of their there they've really been focused as they.
Don't have as much visibility into the future on bringing their inventories and to control.
Last year I would say they went into the holiday season with much heavier inventories anticipating a stronger holiday season and then.
We're disappointed.
Okay.
And.
What are you seeing from a competitive promotional activity perspective, what are you seeing a lot of discounting out there what do you say yes.
Yes, I think I think.
There are some of our competitors and within different companies that are stressed from a financial perspective, and you're starting to see.
Sam.
With a higher level of promotion Ality and Thats why.
We're not changing our promotional cadence for this year.
Versus what it's been in.
And that certainly has an effect on <unk>.
On the competitive channel.
But I think eventually it's the right. It's the right thing to do.
Not not get into.
And two.
Promotional.
The highly promotional landscape.
Which.
And in the end is a detriment to brand our brand building efforts.
And then talking about the brand building efforts can you compare the level of marketing spend you expect to spend in.
Turning to 'twenty, four I should say fiscal 'twenty five.
Where you spent last year just kind of.
Even though we're doing I know we're doing the brand building campaign, but is this are we putting more money behind it also.
Yes, I think we are definitely putting we will invest in the U S.
Behind the <unk> brand, an additional $3 million versus last year.
And that's built into our numbers.
And we think it's an important.
Investment.
To make and we're happy to be able to do it in.
Turning to see some green shoots around those those efforts.
Great and then just last question any areas that you are pulling back on from a spend perspective, given the difficult environment, Yes, I think I think as we as we look at it.
Different markets.
Around the world, we certainly adjust our are our marketing investments.
And one of the things that we are focused on and as a company and as is too.
Make bigger bets, but fewer of them so to make sure that.
But we get to critical mass levels in certain certain areas in.
Im looking forward to.
We're already planning for next year, and I think that.
That as we do that.
Really going to be focused on building our biggest markets behind our biggest brands.
Great. Thanks, and then just on the stock buyback clearly you have $18 6 million left on that we would expect you to continue to be doing that and the other use of cash like a special dividends or anything like that.
I think our focus right now is maintaining our current dividend and.
And offsetting dilution.
With our stock repurchases.
Great. Thank you.
Thank you very much Mike.
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments, Okay. I would like to thank all of you for participating today and.
We look forward to regrouping with you on our next conference call after our year end and wish everybody.
A great holiday season. Thank you.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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