Earnings Call Transcript - MOV Q4 2025

Operator, Operator

Good day, everybody, and welcome to Movado Group, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Allison Malkin, Partner ICR. Please go ahead.

Allison Malkin, Partner ICR

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. 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 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 financial information in our press release. Now, I would like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Efraim Grinberg, Chairman and CEO

Thank you, Allison. Good morning and welcome to Movado Group's fourth-quarter and year-end conference call. Before we begin with the full-year results, I want to address an important issue we disclosed in our Form 8-K last week. As we were finalizing our financial results for the fiscal year, we discovered irregularities in our Dubai sales office. We promptly suspended the office leader and initiated a thorough investigation, which involved hiring outside counsel and keeping our auditors, Pricewaterhouse Coopers, informed. The investigation led to the termination of the Dubai office leader, and we restated our financials for the three fiscal years ending January 31, 2024, along with the interim periods of fiscal years 2025 and 2024. Integrity and transparency are fundamental to Movado Group, so the unethical behavior in the Dubai sales office is particularly disappointing. However, we believe this experience will strengthen our company and improve our control environment. As we discuss the business status, please note that references to prior period results reflect the restated figures. Last year was tough for the retail industry and our category, but we prepared for this year by reducing our expense base in anticipation of a challenging consumer discretionary market. We take pride in our execution abilities and are confident we will perform better this year. For the year, sales were $653.4 million, down from $664.4 million last year, reflecting a 1.7% decline. Our adjusted operating income for the year was $27.1 million compared to $48.5 million last year, impacted by a planned $17.4 million increase in marketing investments supporting our brands. In the fourth quarter, sales increased by 3.3% to $181.5 million, with adjusted operating profit rising by $2.8 million to $13.5 million. Our adjusted earnings per share for the quarter and year were $0.51 and $1.12, respectively. We ended the year with $208.5 million in cash and no debt. Last Friday, we announced our Board declared a quarterly dividend of $0.35, reaffirming our commitment to returning value to shareholders through dividends and our share repurchase program. Since the beginning of the year, we have faced increased uncertainty in the economic environment and global trade friction. As time goes on, we aim to protect our gross margin in the US, mindful of the current 10% tariff on global imports and over 100% on Chinese components for our fashion watches. US sales in fashion watches and jewelry account for roughly 20% of total fashion watch sales. We are developing strategies to offset some cost increases from the higher US tariffs by collaborating with our vendors and customers and implementing selective price hikes. There is ongoing uncertainty regarding final tariff rates and their timing. In the last two quarters, we took challenging steps to right-size our organization to adapt to a fluctuating retail environment. In the fourth quarter, we incurred additional charges of $1.8 million for severance costs. We expect these changes to generate $10 million in annualized savings for fiscal 2026. Additionally, we project a $15 million to $20 million year-over-year reduction in marketing expenditures this coming year, although some of these savings may be offset by inflationary costs such as merit increases and performance-based compensation. Given the global uncertainties, we will not provide an outlook at this moment. We continue to make progress in our brand-building strategies across our portfolio, and I would like to highlight a few examples. In Movado, our brand refresh journey initiated 18 months ago is showing encouraging results, bolstered by a new marketing campaign featuring icons like Ludacris, Jessica Alba, and Tyrese Haliburton. We launched a new Movado display in select retail partners, yielding improved metrics where it was implemented. Our marketing efforts this spring have been refined to enhance visibility both in-store and on major digital platforms. Last fall, we reduced promotional events for the Movado brand to maintain its integrity, which we believe will yield long-term benefits despite short-term sales impacts. We are excited about introducing new products this spring, particularly in women's styles, such as the BOLD Mini Quest and a collection of mini bangles for Mother's Day. We will also unveil our first set of Movado watches featuring lab-grown diamonds, priced below $2,000. Our automatic watch penetration is rising on the men's side, and we see growth potential in women's watches across our licensed brands with smaller, feminine designs. The Coach brand's success among Gen Z consumers is notable, and we see strong performance for our Sammy bangle and Cass collection. In Tommy Hilfiger, our good, better, best strategy is yielding results, particularly with our Stewart, Baker, and Legend skeleton families, as well as smaller offerings like the Artea family. The LC33 collection from Lacoste has been well-received, and we plan to introduce new variants and a smaller version. Hugo Boss is performing exceptionally well in classic styles like the Grand Prix Chronograph, and our jewelry collections are proving popular. In Calvin Klein, we're enthusiastic about new collections emphasizing women, such as our best-selling Pulse line and the new Spiral jewelry collection. While the outlet business faced challenges last year, we are focused on improving aspects we can control. We've seen positive trends with enhanced Movado fixtures and recently expanded their presence across all our venues. Though last year was tough, history shows that our teams rise to challenges and deliver results. We've made necessary changes following events in our Dubai office, and we believe new opportunities await under new leadership. We remain dedicated to our core values of ethics and transparency in all our endeavors. Amid global economic and trade uncertainties, our focus is on executing effectively and seizing opportunities across our brand portfolio globally. Our long-term business perspective persists, alongside our agility in responding to market conditions. This past year taught us valuable lessons, highlighting the commitment and resilience of our team, which has been inspiring. Now, I will pass it over to Sallie for a detailed review of our financial results, and we will be happy to answer any questions afterward.

Sallie DeMarsilis, Executive Vice President and CFO

Thank you, Efraim, and good morning. For today's call, I will review our financial results for the fourth quarter and fiscal 2025. 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 2025 in our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures. Although our overall top line performance for fiscal 2025 was slightly down from fiscal 2024, we saw a year-over-year improvement in the fourth quarter. For the fourth quarter of fiscal 2025, sales were $181.5 million as compared to $175.8 million last year, an increase of 3.3%. In constant dollars, net sales increased 5%, reflecting growth in our licensed brands, partially offset by a decline in owned brands and in our company stores. By geography, US net sales decreased 2.9%. International net sales increased 8.8% as compared to the fourth quarter of last year. On a constant currency basis, international net sales increased by 12.2% with growth in each of our international regions. Gross profit as a percent of sales was 54.2% compared to 53.5% in the fourth quarter of last year. The increase in gross margin was primarily driven by favorable channel and product mix and increased leverage of lower fixed costs over higher sales. This was partially offset by the unfavorable impact of foreign currency exchange rates. Operating expenses were $84.8 million as compared to $83.3 million for the same period of last year. The increase was driven by higher marketing expenses, partially offset by a decrease in performance and equity-based compensation. As a result of the increase in sales and gross margin, partially offset by higher operating expenses, operating income increased by $2.7 million to $13.5 million compared to $10.8 million in the fourth quarter of fiscal 2024. We recorded approximately $1.4 million of other non-operating income in the fourth quarter of fiscal 2025, which was primarily comprised of interest earned on our global cash position as compared to $1.7 million during the same period of last year. We recorded income tax expense of $3.1 million in the fourth quarter of fiscal 2025 as compared to $2.3 million in the fourth quarter of fiscal 2024. Net income in the fourth quarter was $11.5 million or $0.51 per diluted share, as compared to $9.8 million or $0.43 per diluted share in the year-ago period. Now turning to our fiscal year results. Sales were $653.4 million, a decrease of 1.7% from fiscal 2024. In constant dollars, the decrease in net sales was 1.5%. US net sales declined by 4%. International sales decreased by 0.2%, but increased 0.6% on a constant currency basis. Gross profit was $353.1 million, or 54% of sales, as compared to $364.2 million, or 54.8% of sales last year. The decrease in gross margin rate was due to unfavorable channel and product mix and decreased leverage of higher fixed costs over lower sales. Operating income was $27.1 million compared to operating income of $48.5 million in fiscal 2024. We recorded approximately $6.6 million of other non-operating income in fiscal 2025, which was primarily comprised of interest earned on our global cash position as compared to $5.5 million during the same period of last year. Net income was $25.4 million or $1.12 per diluted share as compared to net income of $41.3 million or $1.83 per diluted share in the year-ago period. Now turning to our balance sheet. Cash at the end of the fiscal year was $208.5 million and we had no outstanding debt. Accounts receivable were $93.4 million compared to $86 million in the same period of last year. This increase was driven by timing and the mix of our business. Inventory at the end of the year was $156.7 million compared to $153.9 million in the same period of last year. We are pleased with the composition of our inventory at year-end. Capital expenditures were $8 million, and depreciation and amortization expense was $9.3 million. As it relates to share repurchases, during fiscal 2025, we repurchased approximately 120,000 shares. As of January 31, 2025, we have $50 million remaining under our December 5, 2024, authorized share repurchase program. Subject to prevailing market conditions and the business environment, we plan to utilize our share repurchase plan to offset dilution in fiscal 2026. As a global company with 43% of our fiscal 2025 net sales in the United States, we acknowledge the potential impact of recently announced tariffs. As Efraim mentioned, we are closely monitoring development and evaluating various strategies to try to mitigate impending cost increases. Although we remain focused on maintaining the quality and value consumers expect, we will be implementing selective price increases while actively engaging with our supply chain partners and customers to respond effectively. Given the current economic uncertainty and the unpredictable impact of tariffs on our business, the company has elected not to provide fiscal 2026 outlook at this time. I would now like to open the call up for questions.

Operator, Operator

Our first question is from Hamed Khorsand with BWS Financial. Please proceed.

Hamed Khorsand, Analyst

Good morning. Could you…

Efraim Grinberg, Chairman and CEO

Good morning.

Hamed Khorsand, Analyst

Hi. Could you talk about your marketing strategy this year given that you plan to spend less?

Efraim Grinberg, Chairman and CEO

So we will focus a greater proportion of our marketing effort this year in digital venues, which allows us to make more timely adjustments based on our sales and where our sales are tracking. At the same time, we're also going to focus more of our messaging across our brands on conversion with our retail partners around the world. So we look to increase the productivity of our marketing efforts this coming spring and into the fall.

Hamed Khorsand, Analyst

Okay, and then, I think I heard you say that you're expecting sales to increase somewhere in your commentary. May have misunderstood it, but.

Efraim Grinberg, Chairman and CEO

No, I think with all the uncertainty in the world right now, it's hard to predict where sales are going to come in completely. And I think with tariffs and trade and everything going on, we don't know yet the effect that if the tariffs are sustained, what that effect will have on consumers on a global basis, even if other markets aren't tariffed because they export to the US and their economies are dependent on some of those exports as well. So, I think it's very hard to predict what the retail environment will be in the coming few months given the uncertainty. I think it will stabilize and we'll get some more clarity at a certain point. My hope would be that we’ll have more clarity by the time we talk on the first quarter call in May. But right now, there's a 90-day pause and we don't know what's exactly going to be beyond that 90-day pause. And even within that 90-day pause, there's a 10% tariff on all non-Chinese products, and obviously, the Chinese products are higher. So, I think there's just too much uncertainty to know if this will be a year of growth. But we know that we will really focus on our execution capability, which we've proven in adverse times to be very strong at and control for us the controllable, which generally are our expenses, which a high portion of our expenses tend to be variable in nature.

Hamed Khorsand, Analyst

Yeah, I was going to just add, I mean, this is not the first time Movado has seen economic uncertainty. So I'm just trying to understand, are there product lines that you would focus on or price points that you would focus on?

Efraim Grinberg, Chairman and CEO

So I think what we're trying to do right now is really understand the tariff structure and see where we have to implement some price increases but do it in a way that is sustainable for the long term and manageable with both our retail partners and consumers. So, I think that what I always know is that in times of uncertainty, it's better not to make predictions than just to run your business in a really proper and focused way. And we will continue to do that. And obviously, I think I talked about in Tommy Hilfiger, but it applies to all of our brands as well, is really a good, better, best strategy. And so we will still always have some value-oriented price points across each of our brands for when the consumer becomes more challenged economically, when and if.

Hamed Khorsand, Analyst

Got it. And then as far as the cost savings initiatives go, you were talking about some offsetting effects. Is there more cost savings that you could have to justify generating free cash flow this year?

Efraim Grinberg, Chairman and CEO

Our intention is to generate free cash flow this year, and we're very focused also on our inventory levels, although having some inventory at the time right now is good. And so, I think that as I said, we have a number of variable expenses. Our marketing expenses are generally somewhat variable, and what the digital aspect allows us to do is commit closer to the time of execution versus more traditional media. But my hope is that I don't have to reduce that but that our sales can sustain the level that we've planned at for the year.

Hamed Khorsand, Analyst

Great, thank you.

Efraim Grinberg, Chairman and CEO

Thank you very much, Hamed.

Operator, Operator

With no further questions, I would like to turn the call back over to Efraim for closing remarks.

Efraim Grinberg, Chairman and CEO

I would like to thank you all for participating today and we look forward to talking to you hopefully with some more clarity during our first quarter conference call. Thank you very much.

Operator, Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.