Q3 2025 Movado Group Inc Earnings Call
Sallie DeMarsilis, Unknown Attendee
Speaker Change: Good day, everybody, and welcome to the Mulatto Group Incorporated third quarter fiscal year
Speaker Change: At this time, I would like to turn the conference over to Allison Malkin of ICR. Please go ahead.
Allison Malkin: Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer, and Sallie DeMarsilis, 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.
Allison Malkin: 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 FEC, which includes today's press release.
Allison Malkin: 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.
Speaker Change: Now, I would like to turn the call over to Ephraim Grinberg, Chairman and Chief Executive Officer of Movada Group.
Thank you, Allison.
Speaker Change: Welcome to Movado Group's third quarter conference call. With me today is Sallie DeMarsilis, our COO and CFO. I will first review our overall results and our progress against our strategic initiatives and then Sallie will review our financial results in greater detail.
Speaker Change: Over the last year, we have made significant progress on a number of strategic initiatives, including the introduction of iconic new product families across our brand portfolio and revitalizing our marketing efforts and storytelling across our brands and regions.
Speaker Change: As we began the year, we made the decision to invest in driving revenue growth and brand awareness with increased marketing spend.
Speaker Change: While net sales are down 2.9% for the year-to-date period, we continue to believe that the investments we've made have strengthened our brands and provide a solid foundation for growth in the coming years.
Speaker Change: Nonetheless, given the challenging environment for both our category and retailers in the U.S. and Europe, and consistent with the message conveyed on our second quarter conference call, we have started to take the steps needed to drive improving financial performance.
Speaker Change: Our focus now is on a successful holiday season and building a strong business model for next year.
that will reduce costs.
Speaker Change: continue our brand building initiatives while rationalizing marketing investments, delivering on key growth opportunities, such as jewelry and growth markets like India and Southeast Asia, and returning North America and our Movado brand to higher levels of profitability.
Speaker Change: With $182 million of cash and no debt, we continue to have a strong balance sheet and believe that our dividend is a priority to continue to return value to our shareholders.
Speaker Change: Today, we also announced that our Board of Directors approved a new $50 million share repurchase plan.
Speaker Change: During the third quarter, retailers continued to tightly manage inventories in both the U.S. and Europe. The U.S. retail environment was also further affected by the later Thanksgiving holiday and compounded by the uncertainty surrounding the election.
Speaker Change: As Election Day approached, U.S. digital marketing costs escalated. Post the election, we have seen those costs begin to moderate.
Speaker Change: In Movado, we began to launch our campaign featuring our new set of iconic brand ambassadors in early September, and we received a lot of positive feedback from consumers.
Speaker Change: On our Movado.com website, we saw our quarterly sales increase by 16.9%, with both September and October sales growing by over 25%. We saw very strong performance in our Movado bold and heritage watch collections, driven by new introductions.
Speaker Change: Our shipments to retail and digital partners in the U.S. and Europe were pressured by tighter inventory management. In addition, a delay in the launch of our Amazon Premier platform also pressured sales.
Speaker Change: This launch has now occurred and we expect a strong holiday season on their platform.
Speaker Change: As it relates to holiday, while early in the season, our newness is resonating well and our new marketing campaign is broadening consumer interest, which we expect to improve our trend at our retail partners.
Speaker Change: We continue to be excited about the power of this campaign and its ability to build brand image and demand. On the international front, the Movado brand continues to perform well in India, where we saw a 20% increase and believe it can become a big market for us.
Speaker Change: Coach has performed extremely well over the first nine months of the year.
Speaker Change: driven by strong new product introductions that are resonating well with consumers, including our new Sammy collection, a unique oval collection inspired by the Coach brand's iconic turn lock and is generating demand from Gen Z consumers.
Speaker Change: For men, our Automatic Charter Collection is a top performer and is featured with basketball superstar Jason Tatum in our holiday campaign.
Speaker Change: In Tommy Hilfiger, our sales are being led by the iconic TH85 chronograph and the new Henry family at an introductory price point for automatic watches.
Speaker Change: We continue to perform well in Tommy Jewelry, especially for men with bracelets that complement our watches, as well as the Love Collection, offering two-tone hearts for her.
Speaker Change: We believe that we'll have an increased opportunity in Tommy Hilfiger as we increase the design quotient of our watches as we move forward.
Speaker Change: In Hugo Boss, we have returned to growth for the quarter and the nine months with strong sales of our iconic Time Traveler collection and the introduction of our new Boss Matic family, which has received a strong reception from consumers.
BOSMATiC features an automatic cord hybrid movement.
Speaker Change: In Lacoste, we had strong sales growth, powered by our jewelry collection, which features our best-selling Metropole bracelet. Metropole has been a hit since we first introduced it, and it continues to grow at a double-digit rate.
Speaker Change: We're also excited to have introduced our new LaCoste LC33 collection recently. LC33 is an anti-digi sports watch that we're very excited about, and we're already seeing a strong response from consumers in our key markets.
The LC33 collection is priced at $95.
Speaker Change: Finally, in the CK brand, we grew our overall business driven by strong sales in jewelry, which we believe is a significant opportunity. We're also amplifying our women's offering of CK watches around our new Pulse family and our already successful Twisted Bezel family.
Speaker Change: From a regional perspective, our U.S. business was down 7.1 percent, while our international markets grew by 0.4 percent, with a decline in Europe, offset by growth in Latin America, the Middle East, India, and Australia.
Speaker Change: Our Movado company stores continue to perform at a similar pace as they did during the first six months of the year.
Speaker Change: The next few weeks are the most important selling period for our stores, which got off to a good start during Black Friday weekend. Each day is now more important than last year with the shortened period between Thanksgiving and Christmas.
Speaker Change: As we plan for next year, we believe we will have increased opportunities with fine-tuning our assortments across our brand portfolios.
Speaker Change: As a team, we recognize this year has not delivered our desired results.
Speaker Change: Together, we are energized on returning the company to a higher level of profitability while improving revenue trends. As you can see from our press release, we took some actions to begin to reduce our operating costs during the third quarter, which will have a small benefit during the fourth quarter and a much greater benefit over the course of next year.
Speaker Change: As we build our plans for next year, we will be very disciplined in managing our variable expenses. We believe that we have additional opportunities to drive operational efficiencies and reduce costs while growing our brands.
Speaker Change: We have a proven track record in taking bold and decisive action to drive our performance. We have a great portfolio of brands in the jewelry and watch category and believe that we are well positioned to accomplish our goals for next year.
Speaker Change: We look forward to sharing our plans with you when we announce our year-end results. I would now like to turn the call over to Sallie.
Sallie DeMarsilis: Thank you Ephraim and good morning everyone. For today's call I will review our financial results for the third quarter and year-to-date period of fiscal 2025 and then I will provide an update on our outlook for the year.
Sallie DeMarsilis: 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 of fiscal 2025 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures.
Sallie DeMarsilis: Overall, our performance for the third quarter of fiscal 2025 continued to be negatively impacted by a challenging environment both in our category and by retailers in the United States and Europe.
Sallie DeMarsilis: Despite being down year over year, as Ephraim mentioned, we made good progress on our strategic initiative and maintained an extremely strong balance sheet.
Sallie DeMarsilis: Turning to a review of the quarter. Sales were $182.7 million as compared to $187.7 million last year, a decrease of 2.6%.
Sallie DeMarsilis: In constant dollars, a decrease in net sales was 3.5%. Net sales decreased across own brands and company stores, partially offset by an increase in licensed brands.
Sallie DeMarsilis: On a constant currency basis, international net sales decreased 1.1% with continued softening in our largest international market, Europe.
Sallie DeMarsilis: Gross profit as a percent of sales was 53.8 percent compared to 54.5 percent in the third quarter of last year. The year-over-year decrease in gross margin rate was primarily driven by unfavorable channel and product mix and the deleverage of higher fixed costs over lower sales.
Sallie DeMarsilis: Operating expenses were $89.1 million as compared to $81.6 million for the same period of last year.
Sallie DeMarsilis: The increase was driven by an increased investment in marketing and in payroll-related costs.
Sallie DeMarsilis: As a result of the reduction in sales and gross margins and the increase in operating expenses, operating income decreased to $9.3 million as compared to $20.7 million in the third quarter of fiscal 2024.
Sallie DeMarsilis: We recorded approximately $1.4 million of other non-operating income in the third quarter of fiscal 2025, which is primarily comprised of interest earned on our global cash position as compared to $1.5 million during the same period of last year.
Sallie DeMarsilis: We recorded income tax expense of $2 million in the third quarter of fiscal 2025 as compared to $4.5 million in the third quarter of fiscal 2024.
Sallie DeMarsilis: That income in the third quarter was 8.3 million dollars or 37 cents per diluted share as compared to 17.4 million dollars or 77 cents for diluted share in the year-ago period.
Now turning to our year-to-date results.
Sallie DeMarsilis: Sales for the nine-month period ended October 31, 2024, were $478.7 million, as compared to $493 million last year.
In constant dollars, the decrease in net sales was 3.2%.
Sallie DeMarsilis: International net sales decreased 1.7 percent or 2.3 percent on a constant currency basis.
US net sales declined by 4.5%.
Sallie DeMarsilis, Unknown Attendee
Sallie DeMarsilis: Gross profit was $260.3 million, or 54.4% of sales, as compared to $273.6 million, or 55.5% of sales last year. The decrease in gross margin rate for the first nine months was primarily due to unfavorable channel and product mix, and the deleverage of higher fixed costs on lower sales.
Sallie DeMarsilis: For the nine months ended October 31, 2024, operating income was $15.6 million as compared to $41.2 million in fiscal 2024.
Sallie DeMarsilis: We recorded approximately $5.2 million of other non-operating income in the nine-month period of fiscal 2025, which is primarily comprised of interest earned on our global cash position, as compared to $3.8 million during the same period of last year.
Sallie DeMarsilis: Net income was $14.9 million, or $0.66 for diluted share, as compared to $34.6 million, or $1.53 for diluted share in the year-ago period.
Sallie DeMarsilis: Now turning to our balance sheet. Cash at the end of the third quarter was $181.5 million as compared to $201 million at the same period of last year.
Sallie DeMarsilis: Accounts receivable was $139.2 million, up 2.7% from the same period of last year due to timing and mix of business.
Sallie DeMarsilis: Inventory at the end of the quarter was down $3 million from the same period of last year and aligned with our sales performance.
Sallie DeMarsilis: In the first nine months of fiscal 2025, capital expenditures were $6.4 million, and we repurchased approximately 120,000 shares under our share repurchase program.
Sallie DeMarsilis: This morning, we also announced that the Board of Directors approved a new three-year, $50 million share buyback program. The previous share buyback program had expired on November 23, 2024.
I would now like to discuss our outlook.
Sallie DeMarsilis: As Ephraim mentioned, we continue to operate in a challenging environment, especially for our category and in our key markets of the United States and Europe.
Sallie DeMarsilis: Our net sales are currently expected to be approximately $665 million, which reflects the low end of our previous guidance range.
Sallie DeMarsilis: We expect gross profit of approximately 54% of sales for the year. As previously discussed, we are taking action to reduce our operating expenses and are managing our discretionary spending.
Sallie DeMarsilis: We therefore expect operating income of approximately $23 million, also at the low end of our previous guidance.
Sallie DeMarsilis: We continue to anticipate a 25% effective tax rate with expected earnings of $0.90 for diluted share.
Sallie DeMarsilis: As we plan for fiscal 2026, we are focused on delivering a meaningful improvement in profitability as compared to our expected outlook for fiscal 2025. This expectation includes $6.5 million in annualized savings from the cost savings initiative taken this most recent quarter.
Speaker Change: I would now like to open the call up for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Unknown Speaker
Speaker Change: Our first question comes from the line of Michael Legg with the Vessmark Company. Please proceed with your question.
Speaker Change: Thanks, good morning. On the new stock buyback authorization, is there any change to your usage of it as far as being active in stock buyback versus just offsetting dilution?
Speaker Change: Right now, it's focused on offsetting dilution, and then as we hopefully will generate more cash, we're open to change that as well.
revers that if can
You've gotten quiet, Mike. It's gone very quiet.
Can you hear me now?
So, retail inventory levels, you mentioned were light.
Speaker Change: Can you talk about any leading indicators that you've seen in the past as when purchasing trends change and how lead time you have with that and any other leading indicators you look for positive consumer behavior? Thanks.
Sure. So, so.
Speaker Change: I think the inventory levels now are getting to a historically low level in both the U.S. and Europe, which are the two markets for us that are the most developed and the markets that are most developed.
Sallie DeMarsilis, Allison Malkin, Cody McAlester, Unknown Attendee
Speaker Change: I think that, you know, we've seen a bounce back and an openness to rebuild inventories as retailers realize that they're losing sales.
Speaker Change: I think one of the differences in the dynamic today is that people have built e-commerce businesses that carry less inventory than in-store businesses. But in really no cases is the dot-com business more than 20 to 25 percent of a retailer's overall business.
Okay, thank you.
Thank you.
And we have reached the end of
Speaker Change: of the question and answer session. I'll now turn the floor back to Afraim Grinberg for closing remarks.
Okay.
Afraim Grinberg: Thank you. Thank you very much for being with us on the call today. I am optimistic about the category overall, beginning to see improvements in the future. But we are really focused as a company of continuing to focus on what we can control and very focused on driving down our expenses.
next year as a company and returning.
Afraim Grinberg: to an acceptable level of profitability. With that, I'd like to wish everybody a great holiday season and wish you all the best. So thank you very much.
Speaker Change: And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.