L
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended July 31, 20212020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-16497
MOVADO GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
New York | 13-2595932 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |
650 From Road, Ste. 375 Paramus, New Jersey | 07652-3556 | |
(Address of Principal Executive Offices) | (Zip Code) |
(201) (201) 267-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | MOV | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days. Yes☒ No ☐☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’’ “accelerated filer,’’ “smaller reporting company,’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of August 21, 202023, 2021 were 16,572,68116,506,169 and 6,608,548,6,536,960 respectively.
MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
July 31, 20202021
Page | ||||||
Part I | ||||||
Item 1. | Consolidated Balance Sheets at July 31, | 3 | ||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||||
Item 3. |
| |||||
Item 4. |
| |||||
Part II | ||||||
Item 1. |
| |||||
Item 1A. |
| |||||
Item 2. |
| |||||
Item 6. |
| |||||
|
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| July 31, |
|
| January 31, |
|
| July 31, |
| July 31, |
| January 31, |
| July 31, |
| ||||||||
| 2020 |
|
| 2020 |
|
| 2019 |
| 2021 |
| 2021 |
| 2020 |
| ||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents | $ | 170,195 |
|
| $ | 185,872 |
|
| $ | 134,890 |
| $ | 199,721 |
|
| $ | 223,811 |
|
| $ | 170,195 |
|
Trade receivables, net |
| 60,128 |
|
|
| 78,388 |
|
|
| 93,699 |
|
| 89,710 |
|
|
| 76,931 |
|
|
| 60,128 |
|
Inventories |
| 173,374 |
|
|
| 171,406 |
|
|
| 200,953 |
|
| 183,289 |
|
|
| 152,580 |
|
|
| 173,374 |
|
Other current assets |
| 29,856 |
|
|
| 28,888 |
|
|
| 32,113 |
|
| 23,144 |
|
|
| 23,479 |
|
|
| 29,098 |
|
Income taxes receivable |
| 8,602 |
|
|
| 24,850 |
|
|
| 758 |
| |||||||||||
Total current assets |
| 433,553 |
|
|
| 464,554 |
|
|
| 461,655 |
|
| 504,466 |
|
|
| 501,651 |
|
|
| 433,553 |
|
Property, plant and equipment, net |
| 25,888 |
|
|
| 29,238 |
|
|
| 28,248 |
|
| 19,656 |
|
|
| 22,349 |
|
|
| 25,888 |
|
Operating lease right-of-use assets |
| 82,169 |
|
|
| 89,523 |
|
|
| 91,119 |
|
| 71,253 |
|
|
| 76,070 |
|
|
| 82,169 |
|
Deferred and non-current income taxes |
| 59,747 |
|
|
| 25,403 |
|
|
| 24,621 |
|
| 41,579 |
|
|
| 42,507 |
|
|
| 59,747 |
|
Goodwill |
| — |
|
|
| 136,366 |
|
|
| 131,936 |
| |||||||||||
Other intangibles, net |
| 18,071 |
|
|
| 42,359 |
|
|
| 43,995 |
|
| 15,550 |
|
|
| 17,081 |
|
|
| 18,071 |
|
Other non-current assets |
| 60,261 |
|
|
| 59,865 |
|
|
| 59,057 |
|
| 58,394 |
|
|
| 59,599 |
|
|
| 60,261 |
|
Total assets | $ | 679,689 |
|
| $ | 847,308 |
|
| $ | 840,631 |
| $ | 710,898 |
|
| $ | 719,257 |
|
| $ | 679,689 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable | $ | 29,929 |
|
| $ | 35,488 |
|
| $ | 50,281 |
| $ | 45,670 |
|
| $ | 28,187 |
|
| $ | 29,929 |
|
Accrued liabilities |
| 45,509 |
|
|
| 44,210 |
|
|
| 43,874 |
|
| 50,329 |
|
|
| 51,124 |
|
|
| 45,509 |
|
Accrued payroll and benefits |
| 12,431 |
|
|
| 6,302 |
|
|
| 7,333 |
|
| 13,864 |
|
|
| 18,047 |
|
|
| 12,431 |
|
Current operating lease liabilities |
| 14,766 |
|
|
| 15,083 |
|
|
| 14,609 |
|
| 14,863 |
|
|
| 15,861 |
|
|
| 14,766 |
|
Income taxes payable |
| 6,774 |
|
|
| 8,217 |
|
|
| 10,800 |
|
| 10,379 |
|
|
| 14,452 |
|
|
| 6,774 |
|
Total current liabilities |
| 109,409 |
|
|
| 109,300 |
|
|
| 126,897 |
|
| 135,105 |
|
|
| 127,671 |
|
|
| 109,409 |
|
Loans payable to bank |
| 48,341 |
|
|
| 51,910 |
|
|
| 50,300 |
|
| — |
|
|
| 21,230 |
|
|
| 48,341 |
|
Deferred and non-current income taxes payable |
| 20,743 |
|
|
| 25,419 |
|
|
| 26,593 |
|
| 20,185 |
|
|
| 21,895 |
|
|
| 20,743 |
|
Non-current operating lease liabilities |
| 75,376 |
|
|
| 81,877 |
|
|
| 82,972 |
|
| 64,520 |
|
|
| 68,412 |
|
|
| 75,376 |
|
Other non-current liabilities |
| 48,124 |
|
|
| 48,393 |
|
|
| 50,025 |
|
| 51,686 |
|
|
| 50,115 |
|
|
| 48,124 |
|
Total liabilities |
| 301,993 |
|
|
| 316,899 |
|
|
| 336,787 |
|
| 271,496 |
|
|
| 289,323 |
|
|
| 301,993 |
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Commitments and contingencies (Note 11) |
|
|
|
|
|
| ||||||||||||||||
Redeemable noncontrolling interest |
| 3,037 |
|
|
| 3,165 |
|
|
| 3,540 |
|
| 2,443 |
|
|
| 2,600 |
|
|
| 3,037 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued |
| — |
|
|
| — |
|
|
| — |
| |||||||||||
Common Stock, $0.01 par value, 100,000,000 shares authorized; 28,063,179, 27,859,328 and 27,853,680 shares issued and outstanding, respectively |
| 281 |
|
|
| 279 |
|
|
| 279 |
| |||||||||||
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,608,548, 6,603,645 and 6,587,956 shares issued and outstanding, respectively |
| 65 |
|
|
| 65 |
|
|
| 65 |
| |||||||||||
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; 0 shares |
| 0 |
|
|
| 0 |
|
|
| 0 |
| |||||||||||
Common Stock, $0.01 par value, 100,000,000 shares authorized; |
| 284 |
|
|
| 281 |
|
|
| 281 |
| |||||||||||
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; |
| 65 |
|
|
| 65 |
|
|
| 65 |
| |||||||||||
Capital in excess of par value |
| 211,628 |
|
|
| 208,473 |
|
|
| 205,117 |
|
| 217,505 |
|
|
| 214,043 |
|
|
| 211,628 |
|
Retained earnings |
| 298,871 |
|
|
| 455,479 |
|
|
| 443,414 |
|
| 361,162 |
|
|
| 341,641 |
|
|
| 298,871 |
|
Accumulated other comprehensive income |
| 86,109 |
|
|
| 85,050 |
|
|
| 74,206 |
|
| 90,486 |
|
|
| 92,540 |
|
|
| 86,109 |
|
Treasury Stock, 11,490,610, 11,443,308 and 11,442,021 shares, respectively, at cost |
| (223,283 | ) |
|
| (222,809 | ) |
|
| (222,777 | ) | |||||||||||
Treasury Stock, 11,881,311, 11,492,591 and 11,490,610 shares, |
| (234,935 | ) |
|
| (223,306 | ) |
|
| (223,283 | ) | |||||||||||
Total Movado Group, Inc. shareholders' equity |
| 373,671 |
|
|
| 526,537 |
|
|
| 500,304 |
|
| 434,567 |
|
|
| 425,264 |
|
|
| 373,671 |
|
Noncontrolling interest |
| 988 |
|
|
| 707 |
|
|
| — |
|
| 2,392 |
|
|
| 2,070 |
|
|
| 988 |
|
Total equity |
| 374,659 |
|
|
| 527,244 |
|
|
| 500,304 |
|
| 436,959 |
|
|
| 427,334 |
|
|
| 374,659 |
|
Total liabilities, redeemable noncontrolling interest and equity | $ | 679,689 |
|
| $ | 847,308 |
|
| $ | 840,631 |
| $ | 710,898 |
|
| $ | 719,257 |
|
| $ | 679,689 |
|
See Notes to Consolidated Financial Statements
3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net sales | $ | 88,538 |
|
| $ | 157,816 |
|
| $ | 158,204 |
|
| $ | 304,365 |
|
Cost of sales |
| 43,182 |
|
|
| 72,477 |
|
|
| 80,955 |
|
|
| 140,153 |
|
Gross profit |
| 45,356 |
|
|
| 85,339 |
|
|
| 77,249 |
|
|
| 164,212 |
|
Selling, general and administrative |
| 54,272 |
|
|
| 76,563 |
|
|
| 112,409 |
|
|
| 150,462 |
|
Impairment of goodwill and intangible assets (Note 7) |
| — |
|
|
| — |
|
|
| 155,919 |
|
|
| — |
|
Total operating expenses |
| 54,272 |
|
|
| 76,563 |
|
|
| 268,328 |
|
|
| 150,462 |
|
Operating (loss)/income |
| (8,916 | ) |
|
| 8,776 |
|
|
| (191,079 | ) |
|
| 13,750 |
|
Non-operating income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of a non-operating asset |
| 1,317 |
|
|
| — |
|
|
| 1,317 |
|
|
| — |
|
Change in contingent consideration (Note 11) |
| — |
|
|
| 13,627 |
|
|
| — |
|
|
| 13,627 |
|
Interest expense |
| (590 | ) |
|
| (225 | ) |
|
| (861 | ) |
|
| (449 | ) |
Interest income |
| 8 |
|
|
| 24 |
|
|
| 23 |
|
|
| 45 |
|
(Loss)/income before income taxes |
| (8,181 | ) |
|
| 22,202 |
|
|
| (190,600 | ) |
|
| 26,973 |
|
(Benefit)/provision for income taxes (Note 13) |
| (1,559 | ) |
|
| 4,741 |
|
|
| (33,889 | ) |
|
| 5,588 |
|
Net (loss)/income |
| (6,622 | ) |
|
| 17,461 |
|
|
| (156,711 | ) |
|
| 21,385 |
|
Less: Net loss attributable to noncontrolling interests |
| (7 | ) |
|
| (44 | ) |
|
| (103 | ) |
|
| (45 | ) |
Net (loss)/income attributable to Movado Group, Inc. | $ | (6,615 | ) |
| $ | 17,505 |
|
| $ | (156,608 | ) |
| $ | 21,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss)/income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted basic average shares outstanding |
| 23,240 |
|
|
| 23,138 |
|
|
| 23,191 |
|
|
| 23,127 |
|
Net (loss)/income per share attributable to Movado Group, Inc. | $ | (0.28 | ) |
| $ | 0.76 |
|
| $ | (6.75 | ) |
| $ | 0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss)/income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted diluted average shares outstanding |
| 23,240 |
|
|
| 23,292 |
|
|
| 23,191 |
|
|
| 23,370 |
|
Net (loss)/income per share attributable to Movado Group, Inc. | $ | (0.28 | ) |
| $ | 0.75 |
|
| $ | (6.75 | ) |
| $ | 0.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales | $ | 173,874 |
|
| $ | 88,538 |
|
| $ | 308,672 |
|
| $ | 158,204 |
|
Cost of sales |
| 75,421 |
|
|
| 43,182 |
|
|
| 136,017 |
|
|
| 80,955 |
|
Gross profit |
| 98,453 |
|
|
| 45,356 |
|
|
| 172,655 |
|
|
| 77,249 |
|
Selling, general and administrative |
| 73,820 |
|
|
| 54,272 |
|
|
| 134,766 |
|
|
| 112,409 |
|
Impairment of goodwill and intangible assets (Note 6) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 155,919 |
|
Total operating expenses |
| 73,820 |
|
|
| 54,272 |
|
|
| 134,766 |
|
|
| 268,328 |
|
Operating income/(loss) |
| 24,633 |
|
|
| (8,916 | ) |
|
| 37,889 |
|
|
| (191,079 | ) |
Non-operating income/(expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Other income |
| 257 |
|
|
| 8 |
|
|
| 357 |
|
|
| 23 |
|
Gain on sale of a non-operating asset |
| 0 |
|
|
| 1,317 |
|
|
| 0 |
|
|
| 1,317 |
|
Interest expense |
| (174 | ) |
|
| (590 | ) |
|
| (449 | ) |
|
| (861 | ) |
Income/(loss) before income taxes |
| 24,716 |
|
|
| (8,181 | ) |
|
| 37,797 |
|
|
| (190,600 | ) |
Provision/(benefit) for income taxes (Note 12) |
| 5,315 |
|
|
| (1,559 | ) |
|
| 8,645 |
|
|
| (33,889 | ) |
Net income/(loss) |
| 19,401 |
|
|
| (6,622 | ) |
|
| 29,152 |
|
|
| (156,711 | ) |
Less: Net income/(loss) attributable to noncontrolling interests |
| (9 | ) |
|
| (7 | ) |
|
| 333 |
|
|
| (103 | ) |
Net income/(loss) attributable to Movado Group, Inc. | $ | 19,410 |
|
| $ | (6,615 | ) |
| $ | 28,819 |
|
| $ | (156,608 | ) |
|
|
|
|
|
|
|
|
|
|
| |||||
Basic income/(loss) per share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted basic average shares outstanding |
| 23,332 |
|
|
| 23,240 |
|
|
| 23,326 |
|
|
| 23,191 |
|
Net income/(loss) per share attributable to Movado Group, Inc. | $ | 0.83 |
|
| $ | (0.28 | ) |
| $ | 1.24 |
|
| $ | (6.75 | ) |
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted income/(loss) per share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted diluted average shares outstanding |
| 23,739 |
|
|
| 23,240 |
|
|
| 23,736 |
|
|
| 23,191 |
|
Net income/(loss) per share attributable to Movado Group, Inc. | $ | 0.82 |
|
| $ | (0.28 | ) |
| $ | 1.21 |
|
| $ | (6.75 | ) |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| ||||||||||||||
Net (loss)/income |
| $ | (6,622 | ) |
| $ | 17,461 |
|
| $ | (156,711 | ) |
| $ | 21,385 |
| ||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
Net income/(loss) |
| $ | 19,401 |
|
| $ | (6,622 | ) |
| $ | 29,152 |
|
| $ | (156,711 | ) | ||||||||||||||||
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized gain/(loss) on investments, net of tax provision/(benefit) of $2, $2, $(11) and $3, respectively |
|
| 6 |
|
|
| 7 |
|
|
| (32 | ) |
|
| 8 |
| ||||||||||||||||
Amortization of prior service cost, net of tax provision of $4, $3, $8 and $7, respectively |
|
| 15 |
|
|
| 13 |
|
|
| 28 |
|
|
| 26 |
| ||||||||||||||||
Net unrealized (loss)/gain on investments, net of tax (benefit)/provision of $(6), $2, $8 and $(11), respectively |
|
| (16 | ) |
|
| 6 |
|
|
| 25 |
|
|
| (32 | ) | ||||||||||||||||
Amortization of prior service cost, net of tax provision of $4, $4, $8 and $8, respectively |
|
| 15 |
|
|
| 15 |
|
|
| 29 |
|
|
| 28 |
| ||||||||||||||||
Foreign currency translation adjustments |
|
| 9,014 |
|
|
| (2,151 | ) |
|
| 1,063 |
|
|
| (6,335 | ) |
|
| 1,081 |
|
|
| 9,014 |
|
|
| (2,108 | ) |
|
| 1,063 |
|
Total other comprehensive income/(loss), net of taxes |
|
| 9,035 |
|
|
| (2,131 | ) |
|
| 1,059 |
|
|
| (6,301 | ) |
|
| 1,080 |
|
|
| 9,035 |
|
|
| (2,054 | ) |
|
| 1,059 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Comprehensive income/(loss) attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss |
|
| (7 | ) |
|
| (44 | ) |
|
| (103 | ) |
|
| (45 | ) | ||||||||||||||||
Comprehensive (loss)/income attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net (loss)/income |
|
| (9 | ) |
|
| (7 | ) |
|
| 333 |
|
|
| (103 | ) | ||||||||||||||||
Foreign currency translation adjustments |
|
| 320 |
|
|
| (52 | ) |
|
| 256 |
|
|
| (136 | ) |
|
| (159 | ) |
|
| 320 |
|
|
| (168 | ) |
|
| 256 |
|
Total comprehensive income/(loss) attributable to noncontrolling interests |
| $ | 313 |
|
| $ | (96 | ) |
| $ | 153 |
|
| $ | (181 | ) | ||||||||||||||||
Total comprehensive (loss)/income attributable to noncontrolling interests |
| $ | (168 | ) |
| $ | 313 |
|
| $ | 165 |
|
| $ | 153 |
| ||||||||||||||||
Total comprehensive income/(loss) attributable to Movado Group, Inc. |
| $ | 2,100 |
|
| $ | 15,426 |
|
| $ | (155,805 | ) |
| $ | 15,265 |
|
| $ | 20,649 |
|
| $ | 2,100 |
|
| $ | 26,933 |
|
| $ | (155,805 | ) |
See Notes to Consolidated Financial Statements
5
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended July 31, |
| Six Months Ended July 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
| 2020 |
| |||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Net (loss)/income attributable to Movado Group, Inc. | $ | (156,608 | ) |
| $ | 21,430 |
| |||||||
Net income/(loss) attributable to Movado Group, Inc. | $ | 28,819 |
|
| $ | (156,608 | ) | |||||||
Adjustments to reconcile net (loss)/income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Impairment of goodwill and intangible assets |
| 155,919 |
|
|
| — |
|
| 0 |
|
|
| 155,919 |
|
Non-cash corporate initiatives |
| 6,608 |
|
|
| — |
|
| 0 |
|
|
| 6,608 |
|
Change in contingent consideration |
| - |
|
|
| (13,627 | ) | |||||||
Gain on sale of a non-operating asset |
| (1,317 | ) |
|
| — |
|
| 0 |
|
|
| (1,317 | ) |
Depreciation and amortization |
| 7,200 |
|
|
| 7,937 |
|
| 6,283 |
|
|
| 7,200 |
|
Transactional losses/(gains) |
| 237 |
|
|
| 443 |
| |||||||
Transactional (gains)/losses |
| (497 | ) |
|
| 237 |
| |||||||
Provision for inventories and accounts receivable |
| 1,148 |
|
|
| 1,285 |
|
| 2,128 |
|
|
| 1,148 |
|
Deferred income taxes |
| (36,721 | ) |
|
| (2,415 | ) |
| 825 |
|
|
| (36,721 | ) |
Stock-based compensation |
| 2,727 |
|
|
| 3,082 |
|
| 2,784 |
|
|
| 2,727 |
|
Other |
| 93 |
|
|
| (106 | ) |
| 456 |
|
|
| 93 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||
Trade receivables |
| 16,847 |
|
|
| (11,198 | ) |
| (13,245 | ) |
|
| 16,847 |
|
Inventories |
| (1,505 | ) |
|
| (37,479 | ) |
| (33,771 | ) |
|
| (1,505 | ) |
Other current assets |
| (2,415 | ) |
|
| (3,689 | ) |
| 1,138 |
|
|
| (2,415 | ) |
Accounts payable |
| (5,662 | ) |
|
| 12,811 |
|
| 17,992 |
|
|
| (5,662 | ) |
Accrued liabilities |
| 664 |
|
|
| 447 |
|
| 1,515 |
|
|
| 664 |
|
Accrued payroll and benefits |
| 5,846 |
|
|
| (11,370 | ) |
| (4,100 | ) |
|
| 5,846 |
|
Income taxes receivable |
| 17,986 |
|
|
| 0 |
| |||||||
Income taxes payable |
| (4,145 | ) |
|
| 77 |
|
| (6,317 | ) |
|
| (4,145 | ) |
Other non-current assets |
| (845 | ) |
|
| (666 | ) |
| 620 |
|
|
| (845 | ) |
Other non-current liabilities |
| 553 |
|
|
| 444 |
|
| 62 |
|
|
| 553 |
|
Net cash used in operating activities |
| (11,376 | ) |
|
| (32,594 | ) | |||||||
Net cash provided by/(used in) operating activities |
| 22,678 |
|
|
| (11,376 | ) | |||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
| (1,891 | ) |
|
| (6,948 | ) |
| (1,786 | ) |
|
| (1,891 | ) |
Proceeds from sale of a non-operating asset |
| 1,317 |
|
|
| — |
|
| 0 |
|
|
| 1,317 |
|
Trademarks and other intangibles |
| (51 | ) |
|
| (99 | ) |
| (133 | ) |
|
| (51 | ) |
Net cash used in investing activities |
| (625 | ) |
|
| (7,047 | ) |
| (1,919 | ) |
|
| (625 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Repayment of bank borrowings |
| (36,772 | ) |
|
| — |
|
| (21,140 | ) |
|
| (36,772 | ) |
Proceeds from bank borrowings |
| 30,879 |
|
|
| — |
|
| 0 |
|
|
| 30,879 |
|
Dividends paid |
| (11,618 | ) |
|
| 0 |
| |||||||
Stock repurchase |
| (9,975 | ) |
|
| 0 |
| |||||||
Stock awards and options exercised and other changes |
| (474 | ) |
|
| (1,234 | ) |
| (1,030 | ) |
|
| (474 | ) |
Stock repurchase |
| — |
|
|
| (4,199 | ) | |||||||
Dividends paid |
| — |
|
|
| (9,196 | ) | |||||||
Debt issuance cost |
| (300 | ) |
|
| — |
|
| 0 |
|
|
| (300 | ) |
Net cash used in financing activities |
| (6,667 | ) |
|
| (14,629 | ) |
| (43,763 | ) |
|
| (6,667 | ) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
| 3,022 |
|
|
| (751 | ) |
| (1,096 | ) |
|
| 3,022 |
|
Net decrease in cash, cash equivalents and restricted cash |
| (15,646 | ) |
|
| (55,021 | ) |
| (24,100 | ) |
|
| (15,646 | ) |
Cash, cash equivalents, and restricted cash at beginning of year |
| 186,438 |
|
|
| 190,459 |
|
| 224,423 |
|
|
| 186,438 |
|
Cash, cash equivalents, and restricted cash at end of period | $ | 170,792 |
|
| $ | 135,438 |
| $ | 200,323 |
|
| $ | 170,792 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Reconciliation of cash, cash equivalents, and restricted cash: |
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 170,195 |
|
| $ | 134,890 |
| $ | 199,721 |
|
| $ | 170,195 |
|
Restricted cash included in other non-current assets |
| 597 |
|
|
| 548 |
|
| 602 |
|
|
| 597 |
|
Cash, cash equivalents, and restricted cash | $ | 170,792 |
|
| $ | 135,438 |
| $ | 200,323 |
|
| $ | 170,792 |
|
See Notes to Consolidated Financial Statements
6
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying interim unaudited Consolidated Financial Statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 20202021 (the “2020“2021 Annual Report on Form 10-K”). The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 20202021 is derived from the audited annual financial statements, which are included in the Company’s 20202021 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
NOTE 2 – IMPACT OF THE COVID-19 PANDEMIC
In December 2019, COVID-19 emerged and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and other social distancing requirements. As a result of the outbreak, in mid-March 2020, the Company and the majority of the Company’s wholesale customers temporarily closed all of their retail stores due to health concerns associated with COVID-19. Although the Company reopened all of its retail stores during the second quarter of fiscal 2021 and most of the Company’s brick and mortar wholesale customers have reopened the majority of their retail locations as well, the discretionary consumer goods segment remains highly challenged at brick and mortar retail locations worldwide.in many regions.
The Company entered this period of uncertainty with a healthy liquidity position, and it took actions to enhance its financial liquidity and flexibility, including minimizing all non-essential operating expenses (including marketing, travel and consulting services), reevaluating all capital expenditures, furloughing approximately 80%80% of the Company’s North American workforce during March through June 2020 and temporarily reducing the work-rate of international employees while applying for available government payroll subsidies in accordance with local government guidelines and programs, suspending the Company’s share repurchase program and regular quarterly dividends, reducing salaries and suspending Board of Director fees from April through June 2020, amending license agreements to reduce its royalty obligations in fiscal 2021 and negotiating rent deferrals or other arrangementsabatements in respect of its rent obligations for its Company Stores and certain other leases. As a precautionary measure, the Company borrowed an additional $30.9$30.9 million under its revolving credit facility in March 2020 and amended its revolving credit facility to modify some of its financial covenants (see Note 98 – Debt and Lines of Credit). During the second quarter of fiscal 2021 the Company repaid $36.8$64.5 million under its revolving credit facility and repaid an additional $21.1 million during the first six months of fiscal 2022. At July 31, 2021, 0 remained outstanding under the Company’s revolving credit facility.
As part of the Company’s efforts to continue to reduce operating expenses and adjust cash flows in light of the ongoing economic challenges resulting from the COVID-19 pandemic, the Company committed to a restructuring plan (the “Restructuring Plan”) on June 29, 2020 (see Note 65 – Restructuring Provision for further discussion).
The Company evaluates its long-lived assets, operating lease right of use assets, goodwill and intangible assets for indicators of impairment at least annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Given the substantial reduction in the Company’s sales and the reduced cash flow projections as a result of closures of the Company’s retail stores and those of its wholesale customers due to the COVID-19 pandemic, as well as the significant decline in the Company’s market capitalization, the Company determined that a triggering event occurred during the first quarter of fiscal 2021 and that an impairment assessment was warranted for goodwill and intangible assets. This analysis resulted in impairment charges related to goodwill of $133.7$133.7 million and intangible assets of $22.2$22.2 million in the first quarter of fiscal 2021. See Note 76 – Goodwill and Intangible Assets – for a further discussion of these impairments.
7
Although the full magnitude of the effects on the Company’s business is difficult to predict at this time, the COVID-19 pandemic has had, and for the foreseeable future is expected to continue to have, a material impact on the Company’s business, financial condition, results of operations and cash flows. Even if government restrictions continuefor the foreseeable future. In addition to gradually ease and the trend towardresurgence of COVID-19 cases in many regions which has resulted in the reopeningreimposition or tightening of retail stores continues without any major setbacks due to containment and mitigation measures or otherwise,in many countries, the ongoing economic impacts and health concerns associated with the pandemic will likely continue to affect consumer behavior, spending levels, shopping preferences and tourism. Nevertheless, the pandemic’s adverse impact on the Company has significantly diminished in recent quarters and the Company believes that based on the Company’s current expectations, cash flows from operations and its credit lines and cash on-hand, the Company has adequate funds to support its operating, capital and debt service requirements and expects to maintain compliance with its debt covenants for the next twelve months subsequent to the issuance of these financial statements.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”, which makes improvements to financial instruments guidance, including the current expected credit losses guidance. The adoption of the new guidance was not material to the Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This guidance provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. The Company is currently evaluating the optional expedients and exceptions in the guidance and while transition from LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial instruments or extensions held by or due, the Company does not expect such nor the adoption of this standard on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in “Income Taxes (Topic 740)”. It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company early adopted this standard effective February 1, 2020. The provision of ASU 2019-12 which has the most significant impact on the Company is the removal of a limitation on the tax benefit recognized on pre-tax losses during interim periods which exceed the expected loss for the fiscal year. The Company’s income tax benefit for the six months ended July 31, 2020 includes an income tax benefit of$6.2 million as a result of early adoption in the first quarter of fiscal 2021.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements in ASC 820, Fair Value Measurement. The Company adopted ASU 2018-13 during the first quarter of fiscal 2021. The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. This standard introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This may result in the earlier recognition of allowance for losses. The Company adopted ASU 2016-13 on February 1, 2020. The adoption of this standard did not have a material impact on the Company’sits Consolidated Financial Statements. Results for reporting periods as of February 1, 2020 are presented under the new standard, while prior results continue to be reported under the previous standard.
NOTE 4 – EARNINGS PER SHARE AND CASH DIVIDENDS
The Company presents net income/(loss) attributable to Movado Group, Inc. after adjusting for noncontrolling interests, as applicable, per share on a basic and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.
The number of shares used in calculating basic and diluted earnings (loss) per share is as follows (in thousands):
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| Three Months Ended July 31, |
|
| Six Months Ended July 31, |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| 23,240 |
|
|
| 23,138 |
|
|
| 23,191 |
|
|
| 23,127 |
|
| 23,332 |
| 23,240 |
| 23,326 |
| 23,191 |
| ||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stock awards and options to purchase shares of common stock |
| — |
|
|
| 154 |
|
|
| — |
|
|
| 243 |
|
| 407 |
|
| 0 |
|
| 410 |
|
| 0 |
| |||
Diluted |
| 23,240 |
|
|
| 23,292 |
|
|
| 23,191 |
|
|
| 23,370 |
|
| 23,739 |
|
| 23,240 |
|
| 23,736 |
|
| 23,191 |
|
8
For the three months ended July 31, 2021 and 2020, and 2019, approximately 960,000365,000 and 410,000,960,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the six months ended July 31, 2021 and 2020, approximately 319,000and 2019, approximately 921,000 and 222,000,, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the three and six months ended July 31, 2020, the Company also had approximately 41,000 and 84,000 stock options outstanding, respectively, that could potentially dilute earnings per share in future periods that were excluded from the computation of diluted EPS because their effect would have been anti-dilutive given the net loss during the period. periods.
On May 27, 2021, the Company declared a quarterly cash dividend of $0.20 per share payable on June 23, 2021, to shareholders of record on June 9, 2021. The total dividend of $4.7 million was paid on June 23, 2021. On March 25, 2021, the Company declared a quarterly cash dividend of $0.20 per share payable on April 21, 2021, to shareholders of record on April 7, 2021. The total dividend of $4.6 million was paid on April 21, 2021. In addition, the Company paid a cash dividend on February 5, 2021 in the amount of $2.3 million to shareholders of record on January 21, 2021 of $0.10 per share. During the first and second quarters of fiscal 2021 the Company did not0t declare quarterly cash dividends.The Company declared quarterly cash dividends of $0.20 in both the first and second quarters of fiscal year 2020, representing $9.2 million in total dividends. Of this amount, $4.6 million was paid on June 25, 2019 and $4.6 million was paid on April 24, 2019.
NOTE 5 – ACQUISITIONS
Australia
On November 22, 2019, the Company entered into an agreement and formed a joint venture with GDL Accessories PTY Ltd. (“GDL”), an Australian based company which distributed the Company’s products in Australia and New Zealand. The agreement established a joint venture, MGDL Distribution Pty Ltd (“MGDL”), and set out the terms in which both parties will govern their relationship as shareholders of MGDL, and the terms on which the joint venture will be managed.
The joint venture was formed to more cost effectively market and distribute Movado products to customers in Australia and in New Zealand.
The Company contributed 0.9 million Australian dollars (equivalent to approximately $0.6 million US dollars) to the joint venture and is a 51% interest holder. The Company controls all of the significant participating rights of the joint venture. As the Company controls all of the significant participating rights of the joint venture and is the majority interest holder in MGDL, the assets, liabilities and results of operations of the joint venture are consolidated and included in the Company’s Consolidated Financial Statements since the date of acquisition within the Watch and Accessory Brands segment. GDL’s interest is reflected in Net income attributable to noncontrolling interest in the Consolidated Statements of Operations and Noncontrolling interest in the Consolidated Balance Sheets. As of July 31, 2020, all amounts in the Consolidated Financial Statements related to MGDL were immaterial.
City Time
On December 3, 2018, the Company acquired 51% of City Time Distribucion, S.L.U (“City Time”), the Company’s distributor in Spain, and simultaneously signed a joint venture agreement. The purchase price was 4.2 million Euros (equivalent to approximately $4.8 million US dollars), net of cash acquired, and was funded with cash on hand. The results of City Time have been included in the Company’s Consolidated Financial Statements since the date of acquisition within the Watch and Accessory Brands segment. Of the total purchase consideration, there were no material amounts allocated to assets acquired and liabilities assumed.
Pursuant to the joint venture agreement, the noncontrolling interest holder has the right to sell its interest in City Time to the Company on two specific dates in the future. The noncontrolling interest is not redeemable until such dates. The Company will adjust the carrying value of the redeemable interest to the redemption amount assuming it was redeemable at the balance sheet date. At July 31, 2020, the Company concluded that no remeasurement adjustment was needed. If the noncontrolling interest holder does not exercise its right to sell its interest in City Time to the Company, the Company nevertheless has the option to purchase the noncontrolling interest holder’s interest on each of the same two dates and at the same price as would have applied if the noncontrolling interest holder had exercised its sale option.
MVMT
On October 1, 2018, the Company acquired MVMT Watches, Inc., owner of the MVMT brand, for an initial payment of $100.0 million and 2 future contingent payments that combined could total up to an additional $100.0 million before tax benefits. The exact amount of the future payments will be determined by MVMT's future financial performance with no minimum required future payment. After giving effect to the closing adjustments, the purchase price was $108.4 million, net of cash acquired of $3.8 million. The Company recorded goodwill (as of October 1, 2018) of $77.5 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired. As the structure of the acquisition allowed for a step up in basis for tax purposes, the full amount of goodwill is deductible for federal income tax purposes over 15 years.
The acquisition agreement included a contingent consideration arrangement based on the MVMT brand achieving certain revenue and EBITDA (as defined in the acquisition agreement) targets. In connection therewith, the Company recorded a non-current liability of $16.5 million as of the date of acquisition to reflect the estimated fair value of the contingent purchase price. $14.5 million was allocated to purchase price and $2.0 million to deferred compensation expense based on future employee service requirements.
The estimated fair value of the contingent consideration was determined using a Monte Carlo simulation that includes key assumptions regarding MVMT’s projected financial performance during the earn-out period (through 2023), volatilities, estimated discount rates, risk-free interest rate, and correlation. Based on changes in projected financial performance, the contingent purchase price liability had been remeasured at July 31, 2019 to $1.9 million and to 0 at January 31, 2020. Of the $16.9 million (including interest accretion) decrease in the liability, $15.4 million was included in non-operating income (portion of contingent consideration allocated to purchase price) in the Consolidated Statements of Operations for the year ended January 31, 2020, and $0.5 million and $1.0 million were reflected as a reduction of deferred compensation (portion of contingent consideration allocated to deferred compensation based on future service requirements) within other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets.
In connection with the remeasurement of the contingent consideration during the fiscal year ended January 31, 2020, the Company assessed the undiscounted cash flows associated with the long-lived assets pertaining to MVMT. Current estimates at that time indicated that carrying amounts were expected to be recovered. The undiscounted cash flows related to the MVMT long-lived assets as of January 31, 2020 exceeded the carrying value by approximately 33%. See Note 7 – Goodwill and Intangible Assets for impairment of MVMT’s long-lived assets as of July 31, 2020.
NOTE 65 – RESTRUCTURING PROVISION
On June 29, 2020, the Company committed to a Restructuring Plan as part of the Company’s corporate initiatives to reducingreduce operating expenses and adjustingadjust cash flows in light of the ongoing economic challenges resulting from the COVID-19 pandemic and its impact on the Company’s business. The Restructuring Plan has been substantiallywas completed during the second quarter of the Company’s current fiscal year,2021, although cash severance will be paid over time and such payments are expected to continue intoin the nextcurrent fiscal year.Of the total $12.6 million provision incurred,recorded in fiscal 2021, $8.1 million has been paid out through the second quarter of fiscal 2022 ($6.7 million of which was paid out during fiscal 2021), approximately $8.0$1.1 million is expected to result in cash expenditurespayments during the remainder of the current fiscal year with the remaining $6.6$1.3 million resulting in non-cash use.use ($2.1 million had been used in fiscal 2021). The Company expects annual savings in the range of $14$14 million to $16$16 million as it relates toin respect of severance employee related and properties (containedemployee-related initiatives and property-related initiatives (the latter being contained within Other in the table below).
A summary rollforward of the provision related to the Company’s corporate initiatives, including the provision associated with the Restructuring Plan, is as follows for the threesix months ended July 31, 20202021 (in thousands):
| Balance April 30, 2020 |
|
| Provision |
|
| Non-Cash Use |
|
| Cash Payments |
|
| Balance July 31, 2020 |
| |||||
Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related | $ | — |
|
| $ | 6,966 |
|
| $ | — |
|
| $ | (1,160 | ) |
| $ | 5,806 |
|
Other |
| — |
|
|
| 402 |
|
|
| (198 | ) |
|
| (115 | ) |
|
| 89 |
|
Corporate Initiative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related |
| 936 |
|
|
| — |
|
|
| — |
|
|
| (395 | ) |
|
| 541 |
|
Inventory |
| 3,507 |
|
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| 3,460 |
|
Accounts receivable |
| 1,075 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,075 |
|
Other |
| 1,722 |
|
|
| — |
|
|
| (1,518 | ) |
|
| (167 | ) |
|
| 37 |
|
Total | $ | 7,240 |
|
| $ | 7,368 |
|
| $ | (1,763 | ) |
| $ | (1,837 | ) |
| $ | 11,008 |
|
| Balance January 31, 2021 |
|
| Provision |
|
| Non-Cash Use |
|
| Cash Payments |
|
| Balance July 31, 2021 |
| |||||
Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Severance and Employee Related (1) | $ | 2,378 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (1,350 | ) |
| $ | 1,028 |
|
Other (2) |
| 51 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6 | ) |
|
| 45 |
|
Other Corporate Initiatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Severance and Employee Related |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Inventory (3) |
| 407 |
|
|
| 0 |
|
|
| (45 | ) |
|
| 0 |
|
|
| 362 |
|
Accounts receivable (4) |
| 926 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 926 |
|
Other (2) |
| 19 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 19 |
|
Total | $ | 3,781 |
|
| $ | 0 |
|
| $ | (45 | ) |
| $ | (1,356 | ) |
| $ | 2,380 |
|
A summary rollforward of the provision related to the Company’s corporate initiatives, including the provision associated with the Restructuring Plan, is as follows for the six months ended July 31, 2020 (in thousands):
| Balance January 31, 2020 |
|
| Provision |
|
| Non-Cash Use |
|
| Cash Payments |
|
| Balance July 31, 2020 |
| Balance January 31, 2020 |
| Provision |
| Non-Cash Use |
| Cash Payments |
| Balance July 31, 2020 |
| ||||||||||||||
Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Severance and Employee Related (1) | $ | — |
|
| $ | 6,966 |
|
| $ | — |
|
| $ | (1,160 | ) |
| $ | 5,806 |
| |||||||||||||||||||
Severance and Employee Related | $ | 0 |
|
| $ | 6,966 |
|
| $ | 0 |
|
| $ | (1,160 | ) |
| $ | 5,806 |
| |||||||||||||||||||
Other (2) |
| — |
|
|
| 402 |
|
|
| (198 | ) |
|
| (115 | ) |
|
| 89 |
|
| 0 |
|
|
| 402 |
|
|
| (198 | ) |
|
| (115 | ) |
|
| 89 |
|
Corporate Initiative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Severance and Employee Related (1) |
| — |
|
|
| 936 |
|
|
| — |
|
|
| (395 | ) |
|
| 541 |
| |||||||||||||||||||
Other Corporate Initiatives: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Severance and Employee Related |
| 0 |
|
|
| 936 |
|
|
| 0 |
|
|
| (395 | ) |
|
| 541 |
| |||||||||||||||||||
Inventory (3) |
| — |
|
|
| 3,507 |
|
|
| (47 | ) |
|
| — |
|
|
| 3,460 |
|
| 0 |
|
|
| 3,507 |
|
|
| (47 | ) |
|
| 0 |
|
|
| 3,460 |
|
Accounts receivable (4) |
| — |
|
|
| 1,075 |
|
|
| — |
|
|
| — |
|
|
| 1,075 |
|
| 0 |
|
|
| 1,075 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,075 |
|
Other (2) |
| — |
|
|
| 1,722 |
|
|
| (1,518 | ) |
|
| (167 | ) |
|
| 37 |
| |||||||||||||||||||
Other |
| 0 |
|
|
| 1,722 |
|
|
| (1,518 | ) |
|
| (167 | ) |
|
| 37 |
| |||||||||||||||||||
Total | $ | — |
|
| $ | 14,608 |
|
| $ | (1,763 | ) |
| $ | (1,837 | ) |
| $ | 11,008 |
| $ | 0 |
|
| $ | 14,608 |
|
| $ | (1,763 | ) |
| $ | (1,837 | ) |
| $ | 11,008 |
|
The following amounts are included in the Consolidated Balance Sheet at July 31, 2020:2021:
9
(1) $0.6 |
(2) Balance included in Accrued liabilities. (3) Reserve included in Inventories. (4) Reserve included in Trade receivables, net. At July 31, 2020, included |
|
|
|
|
|
|
Included in Other is approximately a $1.5$1.5 million write-off related to unrefunded deposits for a canceled global customer event.
The corporate initiative costs by operating segment are as follows:
| For the Three Months Ended July 31, 2020 Provision |
|
| For the Six Months Ended July 31, 2020 Provision |
| ||
Watch and Accessory Brands: |
|
|
|
|
| ||
United States | $ | 6,631 |
|
| $ | 11,335 |
|
International |
| 737 |
|
|
| 3,273 |
|
Total Watch and Accessory Brands |
| 7,368 |
|
|
| 14,608 |
|
Total Company Stores |
| 0 |
|
|
| 0 |
|
Total Consolidated | $ | 7,368 |
|
| $ | 14,608 |
|
|
|
|
|
| |||
Cost of sales | $ | 0 |
|
| $ | 3,508 |
|
Selling, general and administrative |
| 7,368 |
|
|
| 11,100 |
|
Total | $ | 7,368 |
|
| $ | 14,608 |
|
There was 0 provision for restructuring during the first and second quarters of fiscal 2022.
|
| For the Three Months Ended April 30, 2020 Provision |
|
| For the Three Months Ended July 31, 2020 Provision |
|
| For the Six Months Ended July 31, 2020 Total |
| |||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 4,704 |
|
| $ | 6,631 |
|
| $ | 11,335 |
|
International |
|
| 2,536 |
|
|
| 737 |
|
|
| 3,273 |
|
Total Watch and Accessory Brands |
|
| 7,240 |
|
|
| 7,368 |
|
|
| 14,608 |
|
Total Company Stores |
|
| — |
|
|
| — |
|
|
| — |
|
Total Consolidated |
| $ | 7,240 |
|
| $ | 7,368 |
|
| $ | 14,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
| $ | 3,508 |
|
| $ | — |
|
| $ | 3,508 |
|
Selling, general and administrative |
|
| 3,732 |
|
|
| 7,368 |
|
|
| 11,100 |
|
Total |
| $ | 7,240 |
|
| $ | 7,368 |
|
| $ | 14,608 |
|
NOTE 76 – GOODWILL AND INTANGIBLE ASSETS
The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year or if an event occurs that would more likely than not reduce the fair value below its carrying amount.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter of fiscal 2021, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as well as the Watch and Accessory Brands reporting unit.
TheThe Company performed recoverability tests for the long-lived assets of MVMT, Olivia Burton and the Company Stores as of April 30, 2020. The Company concluded that the carrying amounts of the long-lived assets of Olivia Burton and the Company Stores were recoverable, while the long-lived assets of MVMT may not be recoverable. Utilizing a royalty rate to determine discounted projected future cash flows in the valuation of MVMT’s trade name and a discounted cash flow method for the valuation of MVMT’s customer relationships, the Company concluded that the fair values of MVMT’s tradenames and customer relationships did not exceed their carrying values. As a result, the Company recorded impairment charges in the Watch and Accessory Brands segment totaling $22.2$22.2 million in the first quarter of fiscal 2021, decreasing MVMT’s trade name to $2.4$2.4 million and MVMT’s customer relationships to 0.0.
After adjusting the carrying value of MVMT’s intangible assets, the Company completed an interim quantitative impairment test of goodwill as of April 30, 2020 in which the Company compared the fair value of the Watch and Accessory Brands reporting unit to its respective carrying value. An impairment test of goodwill was not performed for the Company Stores reporting unit as there was 0 goodwill at this reporting unit. The fair value estimate for the Watches and Accessory reporting unit was based on the income and market approaches. The discounted cash flow method under the income approach involves estimating the cash flows in a discrete forecast period and a terminal value based on the Gordon Growth Model and discounting at a rate of return that reflects the relative risk of the cash flows. The market approach involves applying valuation multiples to the operating performance of the Watch and Accessory Brands reporting unit derived from comparable publicly traded companies based on the relative historical and projected operations of the reporting unit.
The key estimates and assumptions used in the discounted cash flows model included the Company’s weighted average cost of capital and projected cash flows, notablydiscount rate, revenue growth rates, EBIT margins and margin assumptions.long-term growth rate. The Company’s assumptions were based on the actual historical performance of the reporting units and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of
10
recovery, and implied risk premiums based on market prices of the Company’s common stock as of the assessment date. The significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the Watch and Accessory Brands unit’s carrying value over the estimate of the fair value was recorded in the Watch and Accessory Brands segment as the goodwill impairment charge in the first quarter of 2021, totaling $133.7 million. $133.7 million which resulted in 0 goodwill remaining.
There were no triggering events during the first six months of fiscal 2022.
The changes in the carrying amount of other intangible assets during the six months ended July 31, 20202021 are as follows (in thousands):
|
| Trade names |
|
| Customer relationships |
|
| Other (1) |
|
| Total |
|
| Trade names |
|
| Customer |
|
| Other (1) |
|
| Total |
| ||||||||
Weighted Average Amortization Period (in years) |
| 10 |
|
| 7 |
|
| 9 |
|
|
|
|
|
| 10 |
|
| 6 |
|
| 10 |
|
|
|
| |||||||
Balance at January 31, 2020 |
| $ | 31,075 |
|
| $ | 10,154 |
|
| $ | 1,130 |
|
| $ | 42,359 |
| ||||||||||||||||
Impairment |
|
| (18,595 | ) |
|
| (3,570 | ) |
|
| — |
|
|
| (22,165 | ) | ||||||||||||||||
Balance at January 31, 2021 |
| $ | 10,860 |
| $ | 5,168 |
| $ | 1,053 |
| $ | 17,081 |
| |||||||||||||||||||
Additions |
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| 51 |
|
| 0 |
|
|
| 0 |
| 133 |
| 133 |
| |||||
Amortization |
|
| (1,098 | ) |
|
| (841 | ) |
|
| (169 | ) |
|
| (2,108 | ) |
| (824 | ) |
| (854 | ) |
| (128 | ) |
| (1,806 | ) | ||||
Foreign exchange impact |
|
| (123 | ) |
|
| 25 |
|
|
| 32 |
|
|
| (66 | ) |
|
| 132 |
|
| 18 |
|
| (8 | ) |
|
| 142 |
| ||
Balance at July 31, 2020 |
| $ | 11,259 |
|
| $ | 5,768 |
|
| $ | 1,044 |
|
| $ | 18,071 |
| ||||||||||||||||
Balance at July 31, 2021 |
| $ | 10,168 |
| $ | 4,332 |
| $ | 1,050 |
| $ | 15,550 |
|
(1) Other includes fees paid related to trademarks.
|
|
Amortization expense for intangible assets was $0.9 million and $0.8 million and $1.5 million for the three months ended July 31, 2021 and 2020, respectively, and 2019, respectively,$1.8 million and $2.1 million and $3.1 million for the six months ended July 31, 2021 and 2020, and 2019, respectively.
NOTE 87 – INVENTORIES
Inventories consisted of the following (in thousands):
|
| July 31, |
|
| January 31, |
|
| July 31, |
| |||
Finished goods |
| $ | 136,688 |
|
| $ | 107,246 |
|
| $ | 123,413 |
|
Component parts |
|
| 42,727 |
|
|
| 40,735 |
|
|
| 45,219 |
|
Work-in-process |
|
| 3,874 |
|
|
| 4,599 |
|
|
| 4,742 |
|
|
| $ | 183,289 |
|
| $ | 152,580 |
|
| $ | 173,374 |
|
|
| July 31, 2020 |
|
| January 31, 2020 |
|
| July 31, 2019 |
| |||
Finished goods |
| $ | 123,413 |
|
| $ | 125,603 |
|
| $ | 152,262 |
|
Component parts |
|
| 45,219 |
|
|
| 41,708 |
|
|
| 45,918 |
|
Work-in-process |
|
| 4,742 |
|
|
| 4,095 |
|
|
| 2,773 |
|
|
| $ | 173,374 |
|
| $ | 171,406 |
|
| $ | 200,953 |
|
NOTE 98 – DEBT AND LINES OF CREDIT
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit Agreement amends and restates the Company’s prior credit agreement dated as of January 30, 2015 (the “Prior Credit Agreement”) and extends the maturity of the $100.0$100.0 million senior secured revolving credit facility (the “Facility”) provided thereunder to October 12, 2023.2023. The Facility includes a $15.0$15.0 million letter of credit subfacility, a $25.0$25.0 million swingline subfacility and a $75.0$75.0 million sublimit for borrowings by the Swiss Borrowers, with provisions for uncommitted increases to the Facility of up to $50.0$50.0 million in the aggregate subject to customary terms and conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of April 30, 2020. Among other things, the Second Amendment providesprovided for the following temporary relief with respect to the financial maintenance covenants in the Credit Agreement fromstarting April 30, 2020 through the date on which the Company delivers a compliance certificate in respect of the period ended July 31, 2021 (or earlier if the Company demonstrates satisfaction of certain earnings and leverage milestones) (the “Suspension Period”): (i) the maximum consolidated leverage ratio is increased from 2.50 to 1.0 to 2.75 to 1.0 for the four quarter period ended April 30, 2020 and suspended thereafter until the end of the Suspension Period when it resumes at 2.50 to 1.0 and (ii) the minimum EBITDA covenant levels are reduced. In addition, the Second Amendment provides that (i) through April 30, 2021, the Company is required to maintain minimum liquidity (comprised of unrestricted cash and cash equivalents and unutilized commitments under the Credit Agreement) of $100.0 million, (ii) during the Suspension Period,while also temporarily tightening certain covenants including covenants related to dividends, share repurchases, debt incurrence, investments and capital expenditures, have been tightened and (iii) during the Suspension Period,temporarily increasing the interest rate for borrowings underand commitment fee. These temporary changes to the Credit Agreement is increased to LIBOR plus 2.75% per annum and the commitment fee in respectended as a result of the unutilized commitments is increased to 0.45% per annum.Company’s achievement of certain financial milestones as of and for the periods ending January 31, 2021. In addition, the Second Amendment permanently increased the LIBOR floor for loans under the Credit Agreement from 0%0% to 1.00%1.00% and permanently reduced the minimum EBITDA financial covenant level to $35.0$35.0 million starting with the four-quarter period ending July 31, 2021.
11
As of July 31, 2020,2021, and July 31, 2019,2020, there was 35.00 and $48.3 million and 50.0(of which all but $10 million was denominated in Swiss Francs,Francs), respectively, (with a dollar equivalent of $38.3 million and $50.3 million, respectively), in addition to $10.0 million as of July 31, 2020, in loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3$0.3 million at both July 31, 20202021 and July 31, 2019.2020. At July 31, 2020,2021, the letters of credit have expiration dates through June 1, 2021.May 31, 2022. As of July 31, 2020,2021, and July 31, 2019,2020, availability under the Facility was $51.499.7 million and $49.4$51.4 million, respectively.
The Company had weighted average borrowings under the facility of $71.5 million and $50.2 million during the three months ended July 31, 2020 and 2019, respectively, with a weighted average interest rate of 2.60% and 1.00% during the three months ended July 31, 2020 and 2019, respectively. The Company had weighted average borrowings under the facility of $68.6$6.5 million and $50.0$71.5 million during the three months ended July 31, 2021 and 2020, respectively, with a weighted average interest rate of 1.92%2.00% and 1.00%2.60% during the three months ended July 31, 2021 and 2020, respectively. The Company had weighted average borrowings under the facility of $9.8 million and $68.6 million during the six months ended July 31, 2021 and 2020, respectively, with a weighted average interest rate of 2.79% and 2019,1.92% during the six months ended July 31, 2021 and 2020, respectively.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of July 31, 2020,2021, and 2019,2020, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.1$7.2 million and $6.5$7.1 million, respectively. As of July 31, 2020,2021, and 2019,2020, there were 0 borrowings against these lines. As of July 31, 2021 and 2020, and 2019, 2 European banks had guaranteed obligations to third parties on behalf of 2 of the Company’s foreign subsidiaries in the dollar equivalent of $1.3$1.3 million and $1.2 million, respectively,for both periods, in various foreign currencies, of which $0.6$0.6 million, and $0.5 million, respectively,in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $0.8$0.3 million and $0.3$0.8 million for the six-month period ended July 31, 20202021 and July 31, 2019,2020, respectively.
NOTE 109 – DERIVATIVE FINANCIAL INSTRUMENTS
As of July 31, 2020,2021, the Company’s entire net forward contracts hedging portfolio consisted of 46.116.7 million Chinese Yuan equivalent, 4.016.0 million Swiss Francs equivalent, 9.718.0 million USU.S. dollars equivalent, 22.219.7 million Euros equivalent and 1.3 million British Pounds equivalent with various expiry dates ranging through September 10, 2020.January 20, 2022. These forward contracts are not designated as qualified hedges in accordance with ASC 815, Derivatives and Hedging, and, therefore, changes in the fair value of these derivatives are recognized in earnings in the period they arise. Net gains or losses related to these forward contracts are included in cost of sales and selling and general and administrative expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.
See Note 1110 – Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.
For the quarter ended July 31, 2020,2021, the Company did 0t0t have any cash flow hedges.
NOTE 1110 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3 – Unobservable inputs based on the Company’s assumptions.
|
|
|
|
|
|
The guidance requires the use of observable market data if such data is available without undue cost and effort.
12
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of July 31, 20202021 and 20192020 and January 31, 20202021 (in thousands):
|
|
|
| Fair Value at July 31, 2020 |
|
|
|
| Fair Value at July 31, 2021 |
| ||||||||||||||||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Balance Sheet Location |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities |
| Other current assets |
| $ | 141 |
|
| $ | — |
|
| $ | — |
|
| $ | 141 |
|
| Other current assets |
| $ | 218 |
| $ | 0 |
| $ | 0 |
| $ | 218 |
| |||
Short-term investment |
| Other current assets |
|
| 155 |
|
|
| — |
|
|
| — |
|
|
| 155 |
|
| Other current assets |
| 167 |
| 0 |
| 0 |
| 167 |
| |||||||
SERP assets - employer |
| Other non-current assets |
|
| 935 |
|
|
| — |
|
|
| — |
|
|
| 935 |
|
| Other non-current assets |
| 882 |
| 0 |
| 0 |
| 882 |
| |||||||
SERP assets - employee |
| Other non-current assets |
|
| 45,043 |
|
|
| — |
|
|
| — |
|
|
| 45,043 |
|
| Other non-current assets |
| 47,886 |
| 0 |
| 0 |
| 47,886 |
| |||||||
Defined benefit plan assets |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 25,907 |
|
|
| 25,907 |
|
| Other non-current liabilities |
| 0 |
| 0 |
| 28,057 |
| 28,057 |
| |||||||
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| 228 |
|
|
| — |
|
|
| 228 |
|
| Other current assets |
|
| 0 |
|
| 140 |
|
| 0 |
|
| 140 |
| |||
Total |
|
|
| $ | 46,274 |
|
| $ | 228 |
|
| $ | 25,907 |
|
| $ | 72,409 |
|
|
|
| $ | 49,153 |
| $ | 140 |
| $ | 28,057 |
| $ | 77,350 |
| |||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 45,043 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,043 |
|
| Other non-current liabilities |
| $ | 47,886 |
| $ | 0 |
| $ | 0 |
| $ | 47,886 |
| |||
Total |
|
|
| $ | 45,043 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,043 |
|
|
|
| $ | 47,886 |
| $ | 0 |
| $ | 0 |
| $ | 47,886 |
|
|
|
|
| Fair Value at January 31, 2021 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities |
| Other current assets |
| $ | 184 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 184 |
|
Short-term investment |
| Other current assets |
|
| 162 |
|
|
| 0 |
|
|
| 0 |
|
|
| 162 |
|
SERP assets - employer |
| Other non-current assets |
|
| 605 |
|
|
| 0 |
|
|
| 0 |
|
|
| 605 |
|
SERP assets - employee |
| Other non-current assets |
|
| 46,673 |
|
|
| 0 |
|
|
| 0 |
|
|
| 46,673 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 25,837 |
|
|
| 25,837 |
|
Total |
|
|
| $ | 47,624 |
|
| $ | 0 |
|
| $ | 25,837 |
|
| $ | 73,461 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 46,673 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 46,673 |
|
Hedge derivatives |
| Accrued liabilities |
|
| 0 |
|
|
| 13 |
|
|
| 0 |
|
|
| 13 |
|
Total |
|
|
| $ | 46,673 |
|
| $ | 13 |
|
| $ | 0 |
|
| $ | 46,686 |
|
|
|
|
| Fair Value at July 31, 2020 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities |
| Other current assets |
| $ | 141 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 141 |
|
Short-term investment |
| Other current assets |
|
| 155 |
|
|
| 0 |
|
|
| 0 |
|
|
| 155 |
|
SERP assets - employer |
| Other non-current assets |
|
| 935 |
|
|
| 0 |
|
|
| 0 |
|
|
| 935 |
|
SERP assets - employee |
| Other non-current assets |
|
| 45,043 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45,043 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 25,907 |
|
|
| 25,907 |
|
Hedge derivatives |
| Other current assets |
|
| 0 |
|
|
| 228 |
|
|
| 0 |
|
|
| 228 |
|
Total |
|
|
| $ | 46,274 |
|
| $ | 228 |
|
| $ | 25,907 |
|
| $ | 72,409 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 45,043 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,043 |
|
Total |
|
|
| $ | 45,043 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,043 |
|
|
|
|
| Fair Value at January 31, 2020 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
| Other current assets |
| $ | 184 |
|
| $ | — |
|
| $ | — |
|
| $ | 184 |
|
Short-term investment |
| Other current assets |
|
| 156 |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
SERP assets - employer |
| Other non-current assets |
|
| 988 |
|
|
| — |
|
|
| — |
|
|
| 988 |
|
SERP assets - employee |
| Other non-current assets |
|
| 45,256 |
|
|
| — |
|
|
| — |
|
|
| 45,256 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 24,227 |
|
|
| 24,227 |
|
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| 347 |
|
|
| — |
|
|
| 347 |
|
Total |
|
|
| $ | 46,584 |
|
| $ | 347 |
|
| $ | 24,227 |
|
| $ | 71,158 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 45,264 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,264 |
|
Total |
|
|
| $ | 45,264 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,264 |
|
|
|
|
| Fair Value at July 31, 2019 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
| Other current assets |
| $ | 187 |
|
| $ | — |
|
| $ | — |
|
| $ | 187 |
|
Short-term investment |
| Other current assets |
|
| 156 |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
SERP assets - employer |
| Other non-current assets |
|
| 1,130 |
|
|
| — |
|
|
| — |
|
|
| 1,130 |
|
SERP assets - employee |
| Other non-current assets |
|
| 42,298 |
|
|
| — |
|
|
| — |
|
|
| 42,298 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 32,244 |
|
|
| 32,244 |
|
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
Total |
|
|
| $ | 43,771 |
|
| $ | 140 |
|
| $ | 32,244 |
|
| $ | 76,155 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 42,298 |
|
| $ | — |
|
| $ | — |
|
| $ | 42,298 |
|
Hedge derivatives |
| Accrued liabilities |
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| 71 |
|
Contingent consideration |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 1,900 |
|
|
| 1,900 |
|
Total |
|
|
| $ | 42,298 |
|
| $ | 71 |
|
| $ | 1,900 |
|
| $ | 44,269 |
|
The fair values of the Company’s available-for-sale securities are based on quoted market prices. The fair value of the short-term investment, which is a guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss Franc and Euro exchange rate risks. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates and quoted interest rates. The carrying amount of debt approximated fair value as of July 31, 2020, January 31, 2020,2021, and July 31, 2019,2020, due to the availability and floating rate for similar instruments.
13
The Company sponsors a defined benefit pension plan in Switzerland. The plan covers certain international employees and is based on years of service and compensation on a career-average pay basis. The assets within the plan are classified as a Level 3 asset within the fair value hierarchy and consist of an investment in pooled assets and include separate employee accounts that are invested in equity securities, debt securities and real estate. The values of the separate accounts invested are based on values provided by the administrator of the funds that cannot be readily derived from or corroborated by observable market data. The value of the assets is part of the funded status of the defined benefit plan and included in other non-current liabilities in the consolidated balance sheets at July 31, 2020,2021, January 31, 20202021 and July 31, 2019.2020.
The contingent purchase price liability related to the acquisition of MVMT Watches, Inc., owner of the MVMT brand, is considered a Level 3 liability. Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company remeasured the contingent consideration to 0 at January 31, 2020. At July 31, 2019 the Company remeasured the contingent consideration to $1.9 million and, as a result, $13.6 million is included in non-operating income (portion of contingent consideration allocated to purchase price) in the Consolidated Statements of Operations for the three and six months ended July 31, 2019, and $0.5 million and $0.9 million are reflected as a reduction of deferred compensation (portion of contingent consideration allocated to deferred compensation based on future service requirements) within other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets. As the remeasurement is not a direct benefit realized from operating the MVMT business, the Company recorded the change in contingent consideration within non-operating income in the Consolidated Statements of Operations and as such, did not include it in operating income for the Watch and Accessory Brands segment. Refer to Note 19 for Segment and Geographic Information.
The following tables present the change in the Level 3 contingent purchase price liability during the three and six months ended July 31, 2019:
|
| Three Months Ended July 31, |
| |
(In thousands) |
| 2019 |
| |
Balance at April 30, 2019 |
| $ | 16,884 |
|
Payments |
|
| — |
|
Adjustments included in income before income taxes |
|
| (13,627 | ) |
Adjustments to deferred compensation |
|
| (1,357 | ) |
Ending Balance |
| $ | 1,900 |
|
|
| Six Months Ended July 31, |
| |
(In thousands) |
| 2019 |
| |
Balance at January 31, 2019 |
| $ | 16,718 |
|
Payments |
|
| — |
|
Adjustments included in income before income taxes |
|
| (13,461 | ) |
Adjustments to deferred compensation |
|
| (1,357 | ) |
Ending Balance |
| $ | 1,900 |
|
There were 0 transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.
See Note 6 – Goodwill and Intangible Assets for a discussion on the Company’s impairment charges taken in fiscal year 2021 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis due to a change in circumstances that triggered an interim impairment test, and the valuation techniques used to measure the fair value. The most significant unobservable inputs (Level 3) used to estimate the fair values of the Company’s Watch and Accessory Brands unit’s goodwill and MVMT’s intangible assets are discount rates, which was 17.5% for both.
NOTE 1211 – COMMITMENTS AND CONTINGENCIES
The Company has minimum commitments related to the Company’s license agreements and endorsement agreements with brand ambassadors. The Company sources, distributes, advertises and sells watches pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under the license agreements are generally based on a stipulated percentage of revenues, although most of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms, and some have renewal options, provided that minimum sales levels are achieved. Additionally, the license agreements require the Company to pay minimum annual advertising amounts.
The Company had previously recorded an obligation of $28.2 million due to the 2017 Tax Act, which was signed into law on December 22, 2017 and imposed a one-time mandatory deemed repatriation tax on cumulative undistributed foreign earnings which have not been previously taxed. The obligation, which was recorded in prior years, is payable in installments over eight years, with the first payment having been made in the second quarter of fiscal 2019.
The Company believes that income tax reserves are adequate; however, amounts asserted by taxing authorities could be greater or less than amounts accrued and reflected in the consolidated balance sheet. Accordingly, the Company could record adjustments to the amounts for federal, state, and foreign liabilities in the future as the Company revises estimates or settles or otherwise resolves the underlying matters. In the ordinary course of business, the Company may take new positions that could increase or decrease unrecognized tax benefits in future periods.
InDecember 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply $5.1$5.1 million in underpaid duties over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. OnSince February 24, 2017, the Company providedhas been providing U.S. Customs with supplemental analyses and information supportingin response to U.S. Customs’ information requests. Most recently, the Company received summonses from U.S. Customs in December 2020 requesting additional information regarding component part costs and the Company’s historical allocation formulas and thereafter provided additional informationprocedures for U.S. Customs’ review.allocating the value of imported watches among the component parts. The Company responded to these summonses in January 2021. Although the Company disagrees with U.S. Customs’ position and believes that the information it has provided supports the reasonableness of its historical allocation formulas, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S. Customs to reach a mutually satisfactory resolution.
14
The purchase consideration for the MVMT business included 2 future contingent payments that combined could total up to $100$100 million. Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company remeasured the contingent consideration to 0 at January 31, 2020 (see Note 5 – Acquisitions2020.
From time to time the Company may make minority investments in growth companies in the consumer products sector, including certain of the Company's suppliers and Note 11 – Fair Value Measurements).customers, as well as in venture capital funds that invest in such companies. During the second quarter of fiscal 2022, the Company committed to invest up to $1,000,000 in a venture capital fund that makes investments in securities of portfolio companies whose primary business focus is accelerating innovation in retail and consumer goods. The Company expects to be called upon to satisfy its first capital call in respect of this commitment by the end of fiscal 2022.
The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a statement that such an estimate cannot be made. As of July 31, 2020,2021, the Company is party to legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition, future results of operations beyond the amounts accrued, or cash flows.
NOTE 1312 – INCOME TAXES
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which providesprovided economic relief to assist American families and companies during the COVID-19 global pandemic. The CARES Act includes, among other things, provisions related to net operating loss carryback periods, refundable payroll tax credits and the delay of certain payroll taxes, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act allowsallowed U.S. net operating losses generated in fiscal 2019, 2020, and 2021 to be carried back up to five years to prior taxable years with a U.S. statutory tax rate of 35.0% and to offset 100%100% of regular taxable income in such years (the “CARES Act NOL Carryback Provision”). The Company anticipates that there will begenerated a U.S. net operating loss generated in fiscal 2021 which will bewas carried back to prior taxable years.
The Company recorded an income tax provision of $5.3 million and an income tax benefit of $1.6 million and income tax provision of $4.7$1.6 million for the three months ended July 31, 2021 and 2020, and 2019, respectively.
The effective tax rate was 19.121.5% and 21.4%19.1% for the three months ended July 31, 20202021 and 2019,2020, respectively. The significant components of the effective tax rate changed primarily due to prior year impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible, partially offset by a change in the statutorytax rate for the Company's subsidiary in the United Kingdom U.S. tax provided onin the sale of a non-operating asset in an international location, excess tax deficiencies related to stock-based compensationprior year and no tax benefit being recognized on losses incurred by certain foreign operations. These changes were partially offset by changes in jurisdictional earnings and the CARES Act NOL Carryback Provision.earnings.
The Company recorded an income tax provision of $8.6 million and an income tax benefit of $33.9 million and income tax provision of $5.6 million for the six months ended July 31, 2021 and 2020, and 2019, respectively.
The effective tax rate was 17.8%22.9% and 20.7%17.8% for the six months ended July 31, 2021 and 2020, and 2019, respectively. The significant components of the effective tax rate changed primarily due to prior year impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible and the recording of valuation allowances on certain foreign deferred tax assets both of which occurred during the first quarter of fiscal 2021. These changes were partially offset by changes in foreign profits in lower tax jurisdictions and the CARES Act NOL Carryback Provision.
The effective tax ratefor the three months ended July 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to a change in the statutory tax rate in the United Kingdom, U.S. tax provided on the sale of a non-operating asset in an international location and excess tax deficiencies related to stock-based compensation, partially offset by foreign profits being taxed in lower taxing jurisdictions and the CARES Act NOL Carryback Provision.The effective tax rate for the six months ended July 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible,current year, partially offset by the CARES Act NOL Carryback Provision.Provision in the prior year.
The effective tax rate for the three months endedAt July 31, 2019 differs from the U.S. statutory tax rate of 21.0% primarily due to 0 tax benefit being recognized on losses incurred by certain foreign operations, partially offset by foreign profits being taxed in lower taxing jurisdictions. The effective tax rate for the six months ended July 31, 2019 differs from the U.S. statutory tax rate of 21.0% primarily due to foreign profits being taxed in lower taxing jurisdictions, partially offset by 0 tax benefit being recognized on losses incurred by certain foreign operations.
In December 2019, the FASB issues ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in “Income Taxes (Topic 740)”. It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company early adopted this standard effective February 1, 2020. The provision of ASU 2019-12 which has the most significant impact on the Company is the removal of a limitation on the tax benefit recognized on pre-tax losses during interim periods which exceed the expected loss for the fiscal year. The Company’s income tax benefit for the six months ended July 31, 2020 includes an income tax benefit of$6.2 million as a result of early adoption in the first quarter of fiscal 2021.
As of July 31, 2020,2021, the Company had 0 deferred tax liability for the undistributed foreign earnings of approximately $186.6$247.1 million because the Company intends to continue permanently reinvestingreinvest such earnings in its foreign operations. It is not practicable to estimate the tax liability related to a future distribution of these permanently reinvested foreign earnings.
15
NOTE 1413 – EQUITY
The components of equity for the six months ended July 31, 20202021 and 20192020 are as follows (in thousands):
|
|
|
|
| Movado Group, Inc. Shareholders' Equity |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
| Preferred |
|
| Common |
|
| Class A |
|
| Capital in |
|
| Retained |
|
| Accumulated |
|
| Treasury |
|
| Noncontrolling |
|
| Total |
|
| Redeemable |
| ||||||||||
Balance, January 31, 2021 |
| $ | — |
|
| $ | 281 |
|
| $ | 65 |
|
| $ | 214,043 |
|
| $ | 341,641 |
|
| $ | 92,540 |
|
| $ | (223,306 | ) |
| $ | 2,070 |
|
| $ | 427,334 |
|
| $ | 2,600 |
|
Net income/(loss) attributable to Movado |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28,819 |
|
|
|
|
|
|
|
|
| 424 |
|
|
| 29,243 |
|
|
| (91 | ) | ||||||
Dividends ($0.40 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,298 | ) |
|
|
|
|
|
|
|
|
|
|
| (9,298 | ) |
|
|
| ||||||||
Stock options exercised |
|
|
|
|
| 3 |
|
|
|
|
|
| 621 |
|
|
|
|
|
|
|
|
| (1,654 | ) |
|
|
|
|
| (1,030 | ) |
|
|
| ||||||
Stock repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,975 | ) |
|
|
|
|
| (9,975 | ) |
|
|
| ||||||||
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
| 57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 57 |
|
|
|
| ||||||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
| 2,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,784 |
|
|
|
| ||||||||
Net unrealized gain on investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25 |
|
|
|
|
|
|
|
|
| 25 |
|
|
|
| ||||||||
Amortization of prior service cost, net of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29 |
|
|
|
|
|
|
|
|
| 29 |
|
|
|
| ||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,108 | ) |
|
|
|
|
| (102 | ) |
|
| (2,210 | ) |
|
| (66 | ) | ||||||
Balance, July 31, 2021 |
| $ | — |
|
| $ | 284 |
|
| $ | 65 |
|
| $ | 217,505 |
|
| $ | 361,162 |
|
| $ | 90,486 |
|
| $ | (234,935 | ) |
| $ | 2,392 |
|
| $ | 436,959 |
|
| $ | 2,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Preferred |
|
| Common |
|
| Class A |
|
| Capital in |
|
| Retained |
|
| Accumulated |
|
| Treasury |
|
| Noncontrolling Interest |
|
| Total |
|
| Redeemable |
| ||||||||||
Balance, January 31, 2020 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 208,473 |
|
| $ | 455,479 |
|
| $ | 85,050 |
|
| $ | (222,809 | ) |
| $ | 707 |
|
| $ | 527,244 |
|
| $ | 3,165 |
|
Net (loss)/income attributable to Movado |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (156,608 | ) |
|
|
|
|
|
|
|
| 222 |
|
|
| (156,386 | ) |
|
| (325 | ) | ||||||
Stock options exercised |
|
|
|
|
| 2 |
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
|
| (474 | ) |
|
|
|
|
| (474 | ) |
|
|
| ||||||
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48 |
|
|
|
| ||||||||
Stock-based compensation expense (4) |
|
|
|
|
|
|
|
|
|
|
| 3,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,109 |
|
|
|
| ||||||||
Net unrealized loss on investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (32 | ) |
|
|
|
|
|
|
|
| (32 | ) |
|
|
| ||||||||
Amortization of prior service cost, net of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
|
|
|
|
|
|
| 28 |
|
|
|
| ||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,063 |
|
|
|
|
|
| 59 |
|
|
| 1,122 |
|
|
| 197 |
| ||||||
Balance, July 31, 2020 |
| $ | — |
|
| $ | 281 |
|
| $ | 65 |
|
| $ | 211,628 |
|
| $ | 298,871 |
|
| $ | 86,109 |
|
| $ | (223,283 | ) |
| $ | 988 |
|
| $ | 374,659 |
|
| $ | 3,037 |
|
|
|
|
|
|
| Movado Group, Inc. Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Noncontrolling Interest |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| ||||||||||
Balance, January 31, 2020 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 208,473 |
|
| $ | 455,479 |
|
| $ | 85,050 |
|
| $ | (222,809 | ) |
| $ | 707 |
|
| $ | 527,244 |
|
| $ | 3,165 |
|
Net income/(loss) attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (156,608 | ) |
|
|
|
|
|
|
|
|
|
| 222 |
|
|
| (156,386 | ) |
|
| (325 | ) |
Stock options exercised |
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
| (474 | ) |
|
|
|
|
|
| (474 | ) |
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48 |
|
|
|
|
|
Stock-based compensation expense (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,109 |
|
|
|
|
|
Net unrealized loss on investments, net of tax benefit of $11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (32 | ) |
|
|
|
|
|
|
|
|
|
| (32 | ) |
|
|
|
|
Amortization of prior service cost, net of tax provision of $8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,063 |
|
|
|
|
|
|
| 59 |
|
|
| 1,122 |
|
|
| 197 |
|
Balance, July 31, 2020 |
| $ | — |
|
| $ | 281 |
|
| $ | 65 |
|
| $ | 211,628 |
|
| $ | 298,871 |
|
| $ | 86,109 |
|
| $ | (223,283 | ) |
| $ | 988 |
|
| $ | 374,659 |
|
| $ | 3,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Noncontrolling Interest |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| ||||||||||
Balance, January 31, 2019 |
| $ | — |
|
| $ | 277 |
|
| $ | 65 |
|
| $ | 201,814 |
|
| $ | 431,180 |
|
| $ | 80,507 |
|
| $ | (217,188 | ) |
| $ | — |
|
| $ | 496,655 |
|
| $ | 3,721 |
|
Net income/(loss) attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,430 |
|
|
| (45 | ) |
Dividends ($0.40 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,196 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,196 | ) |
|
|
|
|
Stock repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,199 | ) |
|
|
|
|
|
| (4,199 | ) |
|
|
|
|
Stock options exercised |
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 154 |
|
|
|
|
|
|
|
|
|
|
| (1,390 | ) |
|
|
|
|
|
| (1,234 | ) |
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,082 |
|
|
|
|
|
Net unrealized gain on investments, net of tax provision of $3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| 8 |
|
|
|
|
|
Amortization of prior service cost, net of tax provision of $7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 26 |
|
|
|
|
|
|
|
|
|
|
| 26 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,335 | ) |
|
|
|
|
|
|
|
|
|
| (6,335 | ) |
|
| (136 | ) |
Balance, July 31, 2019 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 205,117 |
|
| $ | 443,414 |
|
| $ | 74,206 |
|
| $ | (222,777 | ) |
| $ | — |
|
| $ | 500,304 |
|
| $ | 3,540 |
|
16
|
|
|
|
|
|
|
|
NOTE 1514 – TREASURY STOCK
On August 29, 2017, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time. This authorization expired on August 29, 2020. On March 25, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to $50.0$25.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. Under thethis share repurchase program, the Company mayis permitted to purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. This authorization expires on August 29, 2020. See Note 9 – Debt and LinesSeptember 30, 2022.
During the six months ended July 31, 2021, the Company repurchased a total of Credit – for restrictions on share repurchase under the Company’s revolving credit facility.
334,000 shares of its common stock at a total cost of $10.0 million, or an average of $29.87 per share. During the six months ended July 31, 2020, the Company did 0t0t repurchase shares of its common stock under the repurchase program. Duringstock. the six months ended July 31, 2019, the Company repurchased a total of 131,402 shares of its common stock under the share repurchase program at a total cost of $4.2 million, or an average of $31.96 per share.
At July 31, 2020, $36.42021, $15.0 million remains available for purchase under the Company’s repurchase program.
There were 47,30254,720 and 42,12747,302 shares of common stock repurchased during the six months ended July 31, 20202021 and 2019,2020, respectively, as a result of the surrender of shares in connection with the vesting of certain stock awards. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company.
NOTE 1615 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The accumulated balances at July 31, 20202021 and 2019,2020, and January 31, 2020,2021, related to each component of accumulated other comprehensive income (loss) are as follows (in thousands):
|
| July 31, |
|
| January 31, |
|
| July 31, |
| |||
Foreign currency translation adjustments |
| $ | 91,058 |
|
| $ | 93,166 |
|
| $ | 86,408 |
|
Available-for-sale securities |
|
| 149 |
|
|
| 124 |
|
|
| 92 |
|
Unrecognized prior service cost related to defined benefit pension plan |
|
| (315 | ) |
|
| (344 | ) |
|
| (339 | ) |
Net actuarial loss related to defined benefit pension plan |
|
| (406 | ) |
|
| (406 | ) |
|
| (52 | ) |
Total accumulated other comprehensive income |
| $ | 90,486 |
|
| $ | 92,540 |
|
| $ | 86,109 |
|
|
| July 31, 2020 |
|
| January 31, 2020 |
|
| July 31, 2019 |
| |||
Foreign currency translation adjustments |
| $ | 86,408 |
|
| $ | 85,345 |
|
| $ | 74,473 |
|
Available-for-sale securities |
|
| 92 |
|
|
| 124 |
|
|
| 127 |
|
Unrecognized prior service cost related to defined benefit pension plan |
|
| (339 | ) |
|
| (367 | ) |
|
| (394 | ) |
Net actuarial loss related to defined benefit pension plan |
|
| (52 | ) |
|
| (52 | ) |
|
| — |
|
Total accumulated other comprehensive income |
| $ | 86,109 |
|
| $ | 85,050 |
|
| $ | 74,206 |
|
NOTE 1716 – REVENUE
Disaggregation of Revenue
The following table presents the Company’s net sales disaggregated by customer type. Sales and usage-based taxes are excluded from net sales (in thousands):
|
| For the Three Months Ended July 31, |
|
| For the Six Months Ended July 31, |
|
| For the Three Months Ended |
| For the Six Months Ended |
| |||||||||||||||||||||
Customer Type |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| 2021 |
| 2020 |
| ||||||||||
Wholesale |
| $ | 60,462 |
|
| $ | 119,136 |
|
| $ | 113,372 |
|
| $ | 234,297 |
|
| $ | 115,586 |
|
| $ | 60,462 |
|
| $ | 214,989 |
|
| $ | 113,372 |
|
Direct to consumer |
|
| 27,688 |
|
|
| 37,734 |
|
|
| 43,992 |
|
|
| 68,090 |
|
|
| 57,278 |
|
|
| 27,688 |
|
|
| 91,964 |
|
|
| 43,992 |
|
After-sales service |
|
| 388 |
|
|
| 946 |
|
|
| 840 |
|
|
| 1,978 |
|
|
| 1,010 |
|
|
| 388 |
|
|
| 1,719 |
|
|
| 840 |
|
Net Sales |
| $ | 88,538 |
|
| $ | 157,816 |
|
| $ | 158,204 |
|
| $ | 304,365 |
|
| $ | 173,874 |
|
| $ | 88,538 |
|
| $ | 308,672 |
|
| $ | 158,204 |
|
The Company’s revenue from contracts with customers is recognized at a point in time. The Company’s net sales disaggregated by geography are based on the location of the Company’s customer (see Note 1918 – Segment and Geographic Information).
17
Wholesale Revenue
The Company’s wholesale revenue consists primarily of revenues from independent distributors, and from department stores, and chain andstores, independent jewelry stores.stores and third-party e-commerce retailers. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied, and control is transferred to the customer. Transfer of control passes to wholesale customers upon shipment or upon receipt depending on the agreement with the customer and shipping terms. Wholesale revenue is measured as the amount of consideration the Company ultimately expects to receive in exchange for transferring goods. Wholesale revenue is included entirely within the Watch and Accessory Brands segment (see Note 1918 – Segment and Geographic Information), consistent with how management makes decisions regarding the allocation of resources and performance measurement.
Direct to Consumer Revenue
The Company’s direct to consumer revenue primarily consists of revenues from the Company’s outlet stores, the Company’s owned e-commerce websites, concession stores e-commerce, and consumer repairs. RevenueThe Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied, and control is recognized astransferred to the end consumer obtainscustomer. Control passes to outlet store customers at the time of sale and to substantially all e-commerce upon shipment. Prior to January 1, 2021, the requirements for recognizing revenue for all e-commerce were met upon delivery ofto the merchandise. Direct to Consumer revenue derived from concession stores, e-commerce and consumer repairs is included within the Watch and Accessory Brands segment; revenue derived from outlet stores is included within the Company Stores Segment (see Note 19 – Segment and Geographic Information).customer. Direct to Consumer revenue is included in either the Watch and Accessory Brands segment or Company Stores SegmentsSegment based on how the Company makes decisions about the allocation of resources and performance measurement. Revenue derived from outlet stores and related e-commerce is included within the Company Stores Segment. Other Direct to Consumer revenue (i.e., revenue derived from other Company-owned e-commerce websites, concession stores and consumer repairs is included within the Watch and Accessory Brands segment. (See Note 18 – Segment and Geographic Information).
After-Sales Service
All watches sold by the Company come with limited warranties covering the movement against defects in materials and workmanship. The Company does not sell warranties separately.
The Company’s after-sales service revenues consists of out of warranty service provided to customers and authorized third party repair centers, and sale of watch parts. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied and control is transferred to the customer. After-sales service revenue is measured as the amount of consideration the Company ultimately expects to receive in exchange for transferring goods. Revenue from after sales service, including consumer repairs, is included entirely within the Watch and Accessory Brands segment, consistent with how management makes decisions about the allocation of resources and performance measurement.
NOTE 1817 – STOCK-BASED COMPENSATION
Under the Company’s Employee Stock Option Plan, as amended and restated as of April 4, 2013 (the “Plan”), the Compensation Committee of the Board of Directors, which consists of three of the Company’s non-employee directors, has the authority to grant participants incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and stock awards, for up to 11,000,000 shares of common stock.
Stock Options:
Stock options granted to participants under the plan generally becamebecome exercisable in equal installments over after three years or cliff-vested after three years and remain exercisable until the tenth anniversary of the date of grant. All stock options granted under the Plan have an exercise price equal to or greater than the fair market value of the Company’s common stock on the grant date.
The table below presents the weighted average assumptions used with the Black-Scholes option-pricing model for the calculation of the fair value of stock options granted during the three months ended July 31, 2020.April 30, 2021. There were 0 stock options granted during the three months ended April 30, 2020July 31, 2021 or during the three and six months ended July 31, 2019.2020.
|
| Three Months Ended July 31, 2020 |
| Six Months Ended July 31, 2021 |
| |||
Expected volatility |
|
| 50.79 | % |
| 51.61 | % | |
Expected life in years |
|
| 6.0 |
|
| 6.0 |
| |
Risk-free interest rates |
|
| 0.34 | % |
| 0.89 | % | |
Dividend rate |
|
| 4.29 | % |
| 2.90 | % | |
Weighted average fair value per option at date of grant |
| $ | 3.87 |
| $ | 10.23 |
|
18
The fair value of the stock options, less expected forfeitures, is amortized on a straight-line basis over the vesting term. Total compensation expense for stock option grants recognized during the three months ended July 31, 2021 and 2020 was $0.4 million and 2019 was approximately $27,000 and $0.1 million, $27,000,respectively.Total compensation expense for stock option grants recognized during the six months ended July 31, 2021 and 2020 was $0.7 million and 2019 was $0.1$0.1 million,and $0.3 million,respectively. As of July 31, 2020,2021, there was $$0.63.3 million of unrecognized compensation cost related to unvested stock options. Total consideration received for stock option exercises during both the three months ended July 31, 2020 and 2019 was 0These costs are expected to be recognized over a weighted-average period of .2.4 years. Total consideration received for stock option exercises during the six months ended July 31, 2021 and 2020 was $0.6 million and 2019 was 0 and $0.2 million, respectively., respectively.
The following table summarizes the Company’s stock options activity during the first six months of fiscal 2021:2022:
|
| Outstanding Options |
|
| Weighted Average Exercise Price per Option |
|
| Option Price Per Share |
|
| Weighted Average Remaining Contractual Term (years) |
|
| Aggregate Intrinsic Value $(000) |
| |||||
Options outstanding at January 31, 2020 (399,905 options exercisable) |
|
| 561,110 |
|
| $ | 28.41 |
|
| $23.35-$42.12 |
|
| 5.2 |
|
| $ | - |
| ||
Granted |
|
| 200,000 |
|
| $ | 12.42 |
|
| $ | 12.42 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at July 31, 2020 |
|
| 761,110 |
|
| $ | 24.21 |
|
| $12.42-$42.12 |
|
| 6.1 |
|
| $ | - |
| ||
Exercisable at July 31, 2020 |
|
| 561,110 |
|
| $ | 28.41 |
|
|
|
|
|
| 4.7 |
|
| $ | - |
| |
Expected to vest at July 31, 2020 |
|
| 167,769 |
|
| $ | 12.42 |
|
|
|
|
|
|
| 9.9 |
|
| $ | - |
|
|
| Outstanding |
|
| Weighted |
|
| Option |
|
| Weighted |
|
| Aggregate |
| |||||
Options outstanding at January 31, |
|
| 1,111,110 |
|
| $ | 21.90 |
|
| $12.42-$42.12 |
|
|
| 6.9 |
|
| $ | 2,975 |
| |
Granted |
|
| 201,875 |
|
| $ | 27.62 |
|
| $ | 27.62 |
|
|
|
|
|
|
| ||
Exercised |
|
| (24,517 | ) |
| $ | 25.45 |
|
| $23.35-$30.36 |
|
|
|
|
|
|
| |||
Cancelled |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Options outstanding at July 31, 2021 |
|
| 1,288,468 |
|
| $ | 22.73 |
|
| $12.42-$42.12 |
|
|
| 7.0 |
|
| $ | 10,271 |
| |
Exercisable at July 31, 2021 |
|
| 548,593 |
|
| $ | 28.29 |
|
|
|
|
|
| 3.8 |
|
| $ | 1,785 |
| |
Expected to vest at July 31, 2021 |
|
| 663,115 |
|
| $ | 18.45 |
|
|
|
|
|
| 9.3 |
|
| $ | 7,702 |
|
There were 0The fair value of stock options exercised during the first six months of fiscal 2022 was $0.3 million and the intrinsic value was $0.1 million. There were 0 stock options exercised during the first six months of fiscal 2021.
Stock Awards:
Under the Plan, the Company can also grant stock awards to employees and directors. For the three months ended July 31, 20202021 and 2019,2020, compensation expense for stock awards was $1.5$0.9 million ($and $1.5 million (of which $0.4 million is included in the Restructuring Plan of the corporate initiatives) and $1.3 million, , respectively. Forthe six months ended July 31, 20202021 and 2019,2020, compensation expense for stock awards was $2.1 million and $3.0 million (of which $ ($0.4 million is included in the Restructuring Plan of the corporate initiatives)and $2.8 million,respectively.. As of July 31, 2020,2021, there was $4.44.5 million of unrecognized compensation cost related to unvested stock awardsawards. These costs are expected to be recognized over a weighted-average period of .2.0 years.
The following table summarizes the Company’s stock awards activity during the first six months of fiscal 2021:2022:
|
| Number of Stock Award Units |
|
| Weighted- Average Grant Date Fair Value |
|
| Weighted- Average Remaining Contractual Term (years) |
| Aggregate Intrinsic Value $(000's) |
| |||||||||||||||||
Units outstanding at January 31, 2020 |
|
| 490,239 |
|
| $ | 33.50 |
|
| 1.4 |
| $ | 8,442 |
| ||||||||||||||
|
| Number of |
| Weighted- |
| Weighted- |
| Aggregate |
| |||||||||||||||||||
Units outstanding at January 31, 2021 |
| 415,994 |
|
| $ | 29.17 |
|
|
|
| ||||||||||||||||||
Units granted |
|
| 89,289 |
|
| $ | 10.02 |
|
|
|
|
|
|
|
| 126,497 |
|
| $ | 27.62 |
|
|
|
| ||||
Units vested |
|
| (203,137 | ) |
| $ | 25.82 |
|
|
|
|
|
|
|
| (228,928 | ) |
| $ | 31.49 |
|
|
|
| ||||
Units forfeited |
|
| (28,164 | ) |
| $ | 30.57 |
|
|
|
|
|
|
|
|
| 0 |
|
| $ | 0 |
|
|
|
| |||
Units outstanding at July 31, 2020 |
|
| 348,227 |
|
| $ | 32.20 |
|
| 1.1 |
| $ | 3,357 |
| ||||||||||||||
Units outstanding at July 31, 2021 |
|
| 313,563 |
|
| $ | 26.85 |
|
| 2.1 |
| $ | 9,429 |
|
Outstanding stock awards can be classified as either time-based stock awards or performance-based stock awards. Time-based stock awards vest over time subject to continued employment. Performance-based stock awards vest over time subject both to continued employment and to the achievement of corporate financial performance goals. Upon the vesting of a stock award, shares are issued from the pool of authorized shares. For performance-based stock awards, the number of shares issued related to the performance units granted can vary from 0%0% to 150%150% of the target number of underlying stock award units, depending on the extent of the achievement of predetermined financial goals. The total fair value of stock award units that vested during the first six months of fiscal 20212022 was $5.2 7.2million. The number of shares issued related to the remaining stock awards are established at grant date.
19
NOTE 1918 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company conducts its business in 2 operating segments: Watch and Accessory Brands and Company Stores. The Company’s Watch and Accessory Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry and other accessories, of owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company Stores segment includes the Company’s physical retail outlet locations.business. The Chief Executive Officer of the Company is the chief operating decision maker (“CODM”) and regularly reviews operating results for each of the two2 operating segments to assess performance and makes operating decisions about the allocation of the Company’s resources.
The Company divides its business into 2 major geographic locations: United States operations and International, which includes the results of all non-U.S. Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in Europe, the Middle East, Asia and the Americas (excluding the United States) accounted for 39.633.4%, 11.38.2%, 7.14.8% and 2.74.4%, respectively, of the Company’s total net sales for the three months ended July 31, 2020.2021. For the three months ended July 31, 2019,2020, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 32.0%, 9.7%, 9.0% and 6.6%, respectively, of the Company’s total net sales. The Company’s International operations in Europe, the Middle East, Asia and the Americas (excluding the United States) accounted for 38.839.6%, 8.011.3%, 7.77.1% and 5.52.7%, respectively, of the Company’s total net sales. The Company’s International operations in Europe, the Middle East, the Americas (excluding the United States) and Asia accounted for 31.4%, 8.3%, 6.3% and 5.0%, respectively, of the Company’s total net sales for the six months ended July 31, 2020.2021. For the six months ended July 31, 2019,2020, the Company’s International operations in Europe, the Middle East, Asia and the Americas (excluding the United States), the Middle East and Asia accounted for 33.1%38.8%, 9.2%8.0%, 9.1%7.7% and 7.1%5.5%, respectively, of the Company’s total net sales.
Operating Segment Data as of and for the Three Months Ended July 31, 20202021 and 20192020 (in thousands):
|
| Net Sales |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
| ||
Owned brands category |
| $ | 60,902 |
|
| $ | 31,622 |
|
Licensed brands category |
|
| 84,077 |
|
|
| 46,414 |
|
After-sales service and all other |
|
| 1,200 |
|
|
| 153 |
|
Total Watch and Accessory Brands |
|
| 146,179 |
|
|
| 78,189 |
|
Company Stores |
|
| 27,695 |
|
|
| 10,349 |
|
Consolidated total |
| $ | 173,874 |
|
| $ | 88,538 |
|
|
| Net Sales |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 31,622 |
|
| $ | 56,690 |
|
Licensed brands category |
|
| 46,414 |
|
|
| 77,486 |
|
After-sales service and all other |
|
| 153 |
|
|
| 2,630 |
|
Total Watch and Accessory Brands |
|
| 78,189 |
|
|
| 136,806 |
|
Company Stores |
|
| 10,349 |
|
|
| 21,010 |
|
Consolidated total |
| $ | 88,538 |
|
| $ | 157,816 |
|
|
| Operating Income/(Loss) (3)(5) |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Watch and Accessory Brands |
| $ | 15,718 |
|
| $ | (9,945 | ) |
Company Stores |
|
| 8,915 |
|
|
| 1,029 |
|
Consolidated total |
| $ | 24,633 |
|
| $ | (8,916 | ) |
|
| Operating (Loss)/Income (3) |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Watch and Accessory Brands |
| $ | (9,945 | ) |
| $ | 5,698 |
|
Company Stores |
|
| 1,029 |
|
|
| 3,078 |
|
Consolidated total |
| $ | (8,916 | ) |
| $ | 8,776 |
|
Operating Segment Data as of and for the Six Months Ended July 31, 20202021 and 20192020 (in thousands):
|
| Net Sales |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
| ||
Owned brands category |
| $ | 109,273 |
|
| $ | 56,983 |
|
Licensed brands category |
|
| 151,703 |
|
|
| 82,098 |
|
After-sales service and all other |
|
| 1,482 |
|
|
| 2,394 |
|
Total Watch and Accessory Brands |
|
| 262,458 |
|
|
| 141,475 |
|
Company Stores |
|
| 46,214 |
|
|
| 16,729 |
|
Consolidated total |
| $ | 308,672 |
|
| $ | 158,204 |
|
|
| Operating Income/(Loss) (3)(4)(5) |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Watch and Accessory Brands |
| $ | 24,503 |
|
| $ | (189,566 | ) |
Company Stores |
|
| 13,386 |
|
|
| (1,513 | ) |
Consolidated total |
| $ | 37,889 |
|
| $ | (191,079 | ) |
20
|
| Total Assets |
| |||||||||
|
| July 31, |
|
| January 31, |
|
| July 31, |
| |||
Watch and Accessory Brands |
| $ | 651,495 |
|
| $ | 659,681 |
|
| $ | 618,419 |
|
Company Stores |
|
| 59,403 |
|
|
| 59,576 |
|
|
| 61,270 |
|
Consolidated total |
| $ | 710,898 |
|
| $ | 719,257 |
|
| $ | 679,689 |
|
|
| Net Sales |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 56,983 |
|
| $ | 108,609 |
|
Licensed brands category |
|
| 82,098 |
|
|
| 150,281 |
|
After-sales service and all other |
|
| 2,394 |
|
|
| 9,411 |
|
Total Watch and Accessory Brands |
|
| 141,475 |
|
|
| 268,301 |
|
Company Stores |
|
| 16,729 |
|
|
| 36,064 |
|
Consolidated total |
| $ | 158,204 |
|
| $ | 304,365 |
|
|
| Operating (Loss)/Income (3)(4)(5) |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Watch and Accessory Brands |
| $ | (189,566 | ) |
| $ | 8,793 |
|
Company Stores |
|
| (1,513 | ) |
|
| 4,957 |
|
Consolidated total |
| $ | (191,079 | ) |
| $ | 13,750 |
|
|
| Total Assets (1) |
| |||||||||
|
| July 31, 2020 |
|
| January 31, 2020 |
|
| July 31, 2019 |
| |||
Watch and Accessory Brands |
| $ | 618,419 |
|
| $ | 782,339 |
|
| $ | 772,653 |
|
Company Stores |
|
| 61,270 |
|
|
| 64,969 |
|
|
| 67,978 |
|
Consolidated total |
| $ | 679,689 |
|
| $ | 847,308 |
|
| $ | 840,631 |
|
|
|
Geographic Location Data as of and for the Three Months Ended July 31, 20202021 and 20192020 (in thousands):
|
| Net Sales |
|
| Operating (Loss)/Income (3)(5) |
|
| Net Sales |
| Operating Income/(Loss) (3)(5) |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||
United States (1) |
| $ | 34,766 |
|
| $ | 66,529 |
|
| $ | (14,319 | ) |
| $ | (3,251 | ) |
| $ | 85,487 |
| $ | 34,766 |
| $ | 8,820 |
|
| $ | (14,319 | ) | ||
International (2) |
|
| 53,772 |
|
|
| 91,287 |
|
|
| 5,403 |
|
|
| 12,027 |
|
|
| 88,387 |
|
| 53,772 |
|
| 15,813 |
|
| 5,403 |
| |||
Consolidated total |
| $ | 88,538 |
|
| $ | 157,816 |
|
| $ | (8,916 | ) |
| $ | 8,776 |
|
| $ | 173,874 |
| $ | 88,538 |
| $ | 24,633 |
| $ | (8,916 | ) |
United States and International net sales are net of intercompany sales of $29.190.7 million and $91.0$29.1 million for the three months ended July 31, 2021 and 2020, and 2019, respectively.
Geographic Location Data as of and for the Six Months Ended July 31, 20202021 and 20192020 (in thousands):
|
| Net Sales |
|
| Operating (Loss)/Income (3)(4)(5) |
|
| Net Sales |
| Operating Income/(Loss) (3)(4)(5) |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||||||
United States (1) |
| $ | 63,300 |
|
| $ | 126,023 |
|
| $ | (134,309 | ) |
| $ | (12,203 | ) |
| $ | 151,380 |
|
| $ | 63,300 |
|
| $ | 9,579 |
|
| $ | (134,309 | ) |
International (2) |
|
| 94,904 |
|
|
| 178,342 |
|
|
| (56,770 | ) |
|
| 25,953 |
|
|
| 157,292 |
|
|
| 94,904 |
|
|
| 28,310 |
|
|
| (56,770 | ) |
Consolidated total |
| $ | 158,204 |
|
| $ | 304,365 |
|
| $ | (191,079 | ) |
| $ | 13,750 |
|
| $ | 308,672 |
|
| $ | 158,204 |
|
| $ | 37,889 |
|
| $ | (191,079 | ) |
United States and International net sales are net of intercompany sales of $71.9160.4 million and $168.9$71.9 million for the six months ended July 31, 2021 and 2020, respectively.
21
22
|
|
|
|
|
|
|
|
|
|
|
| Total Assets (1) |
| |||||||||
|
| July 31, 2020 |
|
| January 31, 2020 |
|
| July 31, 2019 |
| |||
United States |
| $ | 313,411 |
|
| $ | 425,018 |
|
| $ | 397,502 |
|
International |
|
| 366,278 |
|
|
| 422,290 |
|
|
| 443,129 |
|
Consolidated total |
| $ | 679,689 |
|
| $ | 847,308 |
|
| $ | 840,631 |
|
|
|
|
| Property, Plant and Equipment, Net |
| |||||||||
|
| July 31, 2020 |
|
| January 31, 2020 |
|
| July 31, 2019 |
| |||
United States |
| $ | 16,825 |
|
| $ | 18,852 |
|
| $ | 18,793 |
|
International |
|
| 9,063 |
|
|
| 10,386 |
|
|
| 9,455 |
|
Consolidated total |
| $ | 25,888 |
|
| $ | 29,238 |
|
| $ | 28,248 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q, including, without limitation, statements under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as statements in future filings by the Company with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases and oral statements made by or with the approval of an authorized executive officer of the Company, which are not historical in nature, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, forecasts and projections about the Company, its future performance, the industry in which the Company operates and management’s assumptions. Words such as “expects”, “anticipates”, “targets”, “goals”, “projects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “should” and variations of such words and similar expressions are also intended to identify such forward-looking statements. The Company cautions readers that forward-looking statements include, without limitation, those relating to the Company’s future business prospects, projected operating or financial results, revenues, working capital, liquidity, capital needs, inventory levels, plans for future operations, expectations regarding capital expenditures, operating efficiency initiatives and other items, cost savings initiatives, and operating expenses, effective tax rates, margins, interest costs, and income as well as assumptions relating to the foregoing. Forward-looking statements are subject to certain risks and uncertainties, some of which cannot be predicted or quantified. Actual results and future events could differ materially from those indicated in the forward-looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company’s reports filed with the SEC, including, without limitation, the following: general economic and business conditions which may impact disposable income of consumers in the United States and the other significant markets (including Europe) where the Company’s products are sold; uncertainty regarding such economic and business conditions; trends in consumer debt levels and bad debt write-offs; general uncertainty related to possible terrorist attacks, natural disasters, pandemics, including the effect of the COVID-19 pandemic and other diseases on travel and traffic in the Company’s retail stores and the stores of its wholesale customers; supply disruptions and delivery delays from the Company’s Chinese and other suppliers as a result of the COVID-19 pandemic; adverse impact on the Company’s wholesale customers and customer traffic in the Company’s stores as a result of increased uncertainty and economic disruption caused by the COVID-19 pandemic; uncertainty relating to the stabilityavailability and efficacy of the European Union (includingvaccines and treatments for COVID-19; the impact of the United Kingdom’s process to exit from the European Union); the stability of the United Kingdom after its exit from the European Union, andUnion; defaults on or downgrades of sovereign debt and the impact of any of those events on consumer spending; changes in consumer preferences and popularity of particular designs, new product development and introduction; decrease in mall traffic and increase in e-commerce; the ability of the Company to successfully implement its business strategies, competitive products and pricing; the impact of “smart” watches and other wearable tech products on the traditional watch market; seasonality; availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier’s inability to fulfill the Company’s orders; the loss of or curtailed sales to significant customers; the Company’s dependence on key employees and officers; the ability to successfully integrate the operations of acquired businesses without disruption to other business activities; the possible impairment of acquired intangible assets including goodwill if the carrying value of any reporting unit were to exceed its fair value; volatility in reported earnings resulting from changes in the estimated fair value of contingent acquisition consideration; the continuation of the Company’s major warehouse and distribution centers; the continuation of licensing arrangements with third parties; losses possible from pending or future litigation;litigation and administrative proceedings; the ability to secure and protect trademarks, patents and other intellectual property rights; the ability to lease new stores on suitable terms in desired markets and to complete construction on a timely basis; the ability of the Company to successfully manage its expenses on a continuing basis; information systems failure or breaches of network security; complex and quickly-evolving regulations regarding privacy and data protection; the continued availability to the Company of financing and credit on favorable terms; business disruptions; and general risks associated with doing business outside the United States including, without limitation, import duties, tariffs (including retaliatory tariffs), quotas, political and economic stability, changes to existing laws or regulations, and success of hedging strategies with respect to currency exchange rate fluctuations.
These risks and uncertainties, along with the risk factors discussed under Item 1A. “Risk Factors” in the Company’s 20202021 Annual Report on Form 10-K, should be considered in evaluating any forward-looking statements contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements in this section. The Company undertakes no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.
23
Critical Accounting Policies and Estimates
The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and those significant policies are more fully described in Note 1 to the Company’s Consolidated Financial Statements.consolidated financial statements. The preparation of these financial statements and the application of certain critical accounting policies require management to make judgments based on estimates and assumptions that affect the information reported. On an on-going basis, management evaluates its estimates and judgments, including those related to sales discounts and markdowns, product returns, bad debt, inventories, income taxes, warranty obligations, useful lives of property, plant and equipment, impairments, stock-based compensation and contingencies and litigation. Management bases its estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience, contractual commitments and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and the results of operations and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s most critical accounting policies have been discussed in the Company’s 20202021 Annual Report on Form 10-K and are incorporated by reference herein.
In the first quarter of 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13. As a result of adoption, the Company replaced its methodology in determining the allowance for doubtful accounts which was based on an analysis of the aging of accounts receivable, assessments of collectability based on historical trends, the financial condition of the Company’s customers and an evaluation of economic conditions with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss rate for its trade accounts receivables. The adoption had no material impact on the Company’s Consolidated Financial Statements.
The Company performs its annual impairment assessment of goodwill and long-lived intangible assets at the beginning of the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2020. During the three months ended April 30, 2020, in light of the COVID-19 induced closing of the Company’s stores and the stores of the vast majority of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), decrease in customer spending and the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets, as well as the Watch and Accessory Brands reporting unit. The assessment concluded that the fair values of MVMT’s tradename and customer relationships and Watch and Accessory Brands reporting unit did not exceed their respective carrying values. This analysis resulted in impairment charges related to goodwill of $133.7 million and intangible assets of $22.2 million in the first quarter of fiscal 2021 and are included in operating loss in the Consolidated Statements of Operations for the six months ended July 31, 2020.
As of July 31, 2020,2021, there have been no material changes to any of the Company’s critical accounting policies other than the changes mentioned above.
Overviewpolicies.
Overview
The Company conducts its business in two operating segments: Watch and Accessory Brands and Company Stores. The Company’s Watch and Accessory Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry and other accessories, of owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company Stores segment includes the Company’s physical retail outlet locationsbusiness in the United States and Canada. The Company also operates in two major geographic locations: United States and International, the latter of which includes the results of all non-U.S. Company operations.
The Company divides its watch and accessory business into two principal categories: the owned brands category and the licensed brands category. The owned brands category consists of the Movado®, Concord®, Ebel®, Olivia Burton® and MVMT® brands. Products in the licensed brands category include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, Tommy Hilfiger®, HUGO BOSS®, Lacoste®, and SCUDERIA FERRARI® and Rebecca Minkoff® and Uri Minkoff®.
Gross margins vary among the brands included in the Company’s portfolio and also among watch models within each brand. Watches in the Company’s owned brands category generally earn higher gross margin percentages than watches in the licensed brands category. The difference in gross margin percentages within the licensed brands category is primarily due to the impact of royalty payments made on the licensed brands. Gross margins in the Company’s e-commerce business generally earn higher gross margin percentages than those of the traditional wholesale business. Gross margins in the Company’s outlet business are affected by the mix of product sold and may exceed those of the wholesale business since the Company earns margins on its outlet store sales from manufacture to point of sale to the consumer.
Recent Developments and Initiatives
COVID-19
In December 2019,The COVID-19 emergedpandemic and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and other social distancing requirements. Therelated public health measures materially impacted the Company’s operating results for the three months and six months ended July 31, 2020 were materially impacted by the COVID-19 pandemic and are not necessarily indicative of the results that the Company will experience in the full fiscal year 2021.
At the end of the first quarter of fiscal yearended January 31, 2021 the impact of the COVID-19 pandemicand continue to materially affect how we and our customers and suppliers operate our businesses. For example, temporary closures and other restrictions affecting brick and mortar retail stores resulted in the closure of the Company’s retail stores and the majority of the stores of the Company’s wholesale customers. During the second quarter of fiscal 2021, many worldwide regional and local governments lifted or modified restrictions and orders. By the end of the second quarter, all of the Company’s retail stores and a majority of the stores of the Company’s wholesale customers have reopened; however, these stores have been impacted by a decrease in retail traffic and reduced hours at many locations. As we progressed through the second quarter, sales trends improved as COVID-19 restrictions began easing in various stages across the world, enabling some return of foot trafficdeclines in the Company’s retailoutlet stores and those ofin its wholesale customers. However, duebusiness during fiscal 2021 relative to the closure of the stores during most of the second quarter, sales declined in these sales channels, butprior year period. These declines were partially offset by strong growth in e-commerce sales, by both on the Company’s owned websitesCompany and thosemany of third-party marketplace sites.its retail customers. In addition, during the 2021 fiscal year and continuing through the second quarter of fiscal 2022, the Company has implemented remote work policies and employed additional safety measures for people continuing critical on-site work. These policies and measures have caused strain for, and may have adversely impacted the productivity of, certain employees.
The Company expects declines inadverse impacts on net sales to continue in fiscal 2022 in its retail and wholesale channels as potential customers reactconsumers continue to follow social distancing requirements or recommendations and other safety measures, which may decrease demand for our products as consumers have fewer occasions to use and wear our products, as well as face layoffs and other negative economic impacts from the COVID-19 outbreak that negativelyadversely affect their disposable income and discretionary purchases. These trends could worsen if COVID-19 infections increase as new variants and strains emerge or if treatments and vaccines are not as effective as expected. The ongoing impact of the outbreak of COVID-19 on the Company’s liquidity, revenues, impairment considerations surrounding the Company’s indefinite and long-lived assets and results of operations cannot be reasonably predicted at this time due to the high level of uncertainty regarding
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future developments, the duration of containment measures, the speed at which vaccines are administered to the general public and the timeline for recovery. The global macroeconomic effects of the pandemic as well as the microeconomic effects on our customers, consumers and their purchasing decisions may persist for an indeterminable period even after the pandemic has subsided.
In response to this challenging environment, while the Company’s focus remainshas remained on the health and safety of its associates, customers and business partners, the Company has taken and continues to take the following actions:
Revenue-Generating Activities
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EliminatingMinimizing Non-Essential Operating Costs Across All Key Areas of Spend
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Strengthening the Company’s Balance Sheet and Enhancing Financial Flexibility
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Preserving Liquidity
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Addressing Organizational Costs
Applied for and received an aggregate of approximately $6.0 million in government payroll subsidy programs in various countries in fiscal 2021 to mitigate payroll expense; Furloughed approximately 80% of the Company’s North American workforce from early April generally through early August 2020, resulting in compensation expense savings of approximately $10.5 million; Reduced salaries during the furlough period of all active salaried employees by 15% to 25%, except for Chairman and Chief Executive Officer Efraim Grinberg, who volunteered to forego all salary during the furlough period. The Board of Directors also waived the cash portion of their compensation during that period. These actions resulted in compensation expense savings of approximately $1.5 million; Froze the Company’s match on executive deferred compensation plans and the Company’s 401(k) match from early April through the end of fiscal 2021, with such matches being resumed in the first quarter of fiscal 2022. The freeze resulted in compensation expense savings of approximately $1.3 million; and Implemented a permanent workforce reduction that resulted in approximately $9 million of savings in fiscal 2021 and is expected to result in savings in the range of $14 million to $16 million in fiscal year 2022. |
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The Company will continue to consider near-term demands and the long-term financial health of the business as steps are taken to mitigate the consequences of the COVID-19 pandemic and the uncertain business environment.
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Fiscal 2021 Impairments
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in global equity markets, the Company concluded that a triggering event had occurred during the first quarter of fiscal 2021, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as well as the Watch and Accessory Brands reporting unit.
The Company made revisions to its internal forecasts, resulting in a reduction in both current and future expected cash flows, due to the COVID-19 pandemic and the uncertain business environment. As a result, during the first quarter of fiscal 2021, the Company recorded impairment charges related to goodwill of $133.7 million and intangible assets related to MVMT’s tradename and customer relationships of $22.2 million.
During the first quarter of fiscal 2021, the Company recorded $3.5 million of increases in inventory reserves and $1.1 million increases in allowance for doubtful accounts, similarly driven by current and expected changes to operations as result of the COVID-19 pandemic.
Tariffs
Starting in July 2018, the Trump Administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential U.S. special tariffs of 10% to 25% of import value, in addition to the regular tariffs that have historically applied to such products. Certain of the Company’s packaging products became subject to a U.S. special 10% tariff in September 2018, which was increased to 25% effective May 10, 2019. In addition, all of the Company’s smart watches became subject to a U.S. special 15% tariff on September 1, 2019, and in a third-party ruling, U.S. Customs and Border Patrol (“CBP”) has taken the position that this U.S. special 15% tariff applies broadly to China-sourced cases and bands on watches assembled in China and other countries. Under this position, most of the cases and bands used in the production of the Company’s traditional watches imported into the U.S. became subject to the U.S. special 15% tariff effective September 1, 2019. A pending request to CBP for reconsideration and revocation of the ruling has been filed on behalf of the Company and certain other watch importers on the basis that the CBP ruling is inconsistent with CBP’s longstanding position that the country of origin of the movement confers the country of origin of a traditional watch. On January 15, 2020, the United States and China signed a “Phase One” trade agreement pursuant to which this 15% U.S. special tariff was reduced to 7.5%, effective February 14, 2020.
Results of Operations Overview
DuringThe following is a discussion of the results of operations for the three and six months ended July 31, 2021 compared to the three and six months ended July 31, 2020, the Company and many of its wholesale customers have been impacted by closures, reduced store hours or reduced traffic. The Company has seen and expects to continue to see material reductions in sales asalong with a resultdiscussion of the COVID-19 pandemic andchanges in financial condition during the uncertain business environment. In addition, these reductions in sales have not been entirely offset by proportional decreases in expenses, as the Company continues to incur costs such as operating lease costs, depreciation expense, and certain other costs such as compensation and administrative expenses, adversely affecting the relationship between thefirst six months of fiscal 2022. The Company’s expenses and sales. The Company continues to take steps as discussed above in response to this challenging environment to mitigate the adverse impact of the pandemic. The current circumstances are dynamic and the impacts of the COVID-19 pandemic on the Company’s business operations, including the duration and impact on overall consumer demand, cannot be reasonably predicted at this time. The Company anticipates the COVID-19 pandemic will have a material impact on its business, results of operations financial condition and cash flows for the first six months of fiscal 2022 should not be deemed indicative of the results that we will experience for the full year endingof fiscal 2022. See “Recent Developments and Initiatives” above. See also “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. As2021 filed with the COVID-19 pandemic is complexSecurities and rapidly evolving, the Company’s plans may change. Exchange Commission on March 25, 2021.
Results of operations for the three months ended July 31, 20202021 as compared to the three months ended July 31, 20192020
Net Sales: Comparative net sales by business segment were as follows (in thousands):
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| Three Months Ended July 31, |
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| Three Months Ended |
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| 2020 |
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| 2019 |
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| 2021 |
| 2020 |
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Watch and Accessory Brands: |
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United States |
| $ | 24,895 |
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| $ | 45,907 |
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| $ | 58,688 |
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| $ | 24,895 |
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International |
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| 53,294 |
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| 90,899 |
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| 87,491 |
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| 53,294 |
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Total Watch and Accessory Brands |
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| 78,189 |
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| 136,806 |
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| 146,179 |
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| 78,189 |
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Company Stores: |
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United States |
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| 9,871 |
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| 20,622 |
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| 26,799 |
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| 9,871 |
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International |
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| 478 |
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| 388 |
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| 896 |
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| 478 |
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Total Company Stores |
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| 10,349 |
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| 21,010 |
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| 27,695 |
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| 10,349 |
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Net Sales |
| $ | 88,538 |
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| $ | 157,816 |
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| $ | 173,874 |
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| $ | 88,538 |
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Comparative net sales by categories were as follows (in thousands):
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| Three Months Ended July 31, |
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| Three Months Ended |
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| 2020 |
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| 2019 |
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| 2021 |
| 2020 |
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Watch and Accessory Brands: |
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Owned brands category |
| $ | 31,622 |
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| $ | 56,690 |
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| $ | 60,902 |
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| $ | 31,622 |
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Licensed brands category |
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| 46,414 |
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| 77,486 |
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| 84,077 |
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| 46,414 |
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After-sales service and all other |
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| 153 |
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| 2,630 |
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| 1,200 |
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| 153 |
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Total Watch and Accessory Brands |
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| 78,189 |
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| 136,806 |
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| 146,179 |
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| 78,189 |
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Company Stores |
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| 10,349 |
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| 21,010 |
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| 27,695 |
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| 10,349 |
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Net Sales |
| $ | 88,538 |
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| $ | 157,816 |
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| $ | 173,874 |
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| $ | 88,538 |
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Net Sales
Net sales for the three months ended July 31, 20202021 were $88.5$173.9 million, $69.3$85.3 million or 43.9% below96.4% above the prior year period. This decreaseincrease is primarily as a result of the partial recovery from the ongoing COVID-19 pandemic. For the three months ended July 31, 2020,2021, fluctuations in foreign currency exchange rates positively impacted net sales by $0.1$5.2 million when compared to the prior year period.
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Watch and Accessory Brands Net Sales
Net sales for the three months ended July 31, 20202021 in the Watch and Accessory Brands segment were $78.2$146.2 million, belowabove the prior year period by $58.6$68.0 million, or 42.8%87.0%. The decreaseincrease in net sales was primarily attributabledue to growth in online retailers, both in the Company’s owned and wholesale customers’ e-commerce websites, and growth in the Company’s wholesale customers due to the partial recovery from the ongoing COVID-19 pandemicpandemic. Prior period net sales were negatively impacted by closures and the resultant closure ofrestrictions affecting the stores of the Company’s wholesale customers during a portion of the period.period due to the COVID-19 pandemic. Some of these restrictions have continued into fiscal 2022. There were decreasesincreases in net sales in both the United States and International locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands Net Sales
Net sales for the three months ended July 31, 20202021 in the United States locations of the Watch and Accessory Brands segment were $24.9$58.7 million, belowabove the prior year period by $21.0$33.8 million, or 45.8%135.7%, resulting from net sales decreasesincreases across all brands in both the owned and licensed brand categories primarily due to the partial recovery from the ongoing COVID-19 pandemic. The net sales recorded in the owned brands category decreasedincreased by $14.7$26.3 million, or 42.0%129.8%, and net sales recorded in the licensed brand category decreased $4.4increased $6.4 million, or 48.1%134.6%.
International Watch and Accessory Brands Net Sales
Net sales for the three months ended July 31, 20202021 in the International locations of the Watch and Accessory Brands segment were $53.3$87.5 million, belowabove the prior year by $37.6$34.2 million, or 41.4%64.2%, which included fluctuations in foreign currency exchange rates which favorably impacted net sales by $0.1$5.2 million when compared to the prior year period. The decreaseincrease in net sales was across allmost brands in both the owned and licensed brand categories primarily due to the partial recovery from the ongoing COVID-19 pandemic. The net sales decreaseincrease recorded in the owned brands category was $10.4$2.9 million, or 47.8%26.0% and is due to sales decreases primarilyincreases in Europe, the Americas (excluding the United States), Asia, and the Middle East.all regions. The net sales decreaseincrease in the licensed brands category was $26.7$31.3 million, or 39.0%75.1%, primarily due to net sales decreasesincreases in Europe, the Americas (excluding the United States), Asia and the Middle East.all regions.
Company Stores Net Sales
Net sales for the three months ended July 31, 20202021 in the Company Stores segment were $10.3$27.7 million, $10.7$17.3 million or 50.7% below167.6% above the prior year period. The net sales decrease in comparable storesincrease is primarily the result of all of the Company’s retail stores being open during the period as compared to the closure of the Company’s retail stores during part of the prior year period in response to the COVID-19 pandemic.pandemic and lessened restrictions on the Company’s retail stores during the period as compared to the same period in the prior year. As of July 31, 2020, all of the Company stores are open. This decrease was partially offset by the addition of new stores that did not exist in the prior-year period but contributed to sales in the current period after they reopened. As of July 31, 2020,2021 and 2019,2020, the Company operated 4749 and 4547 retail outlet locations, respectively.
Gross Profit
Gross profit for the three months ended July 31, 20202021 was $45.4$98.5 million or 51.2%56.6% of net sales as compared to $85.3$45.4 million or 54.1%51.2% of net sales in the prior year period. The decreaseincrease in gross profit of $39.9$53.1 million was primarily due to lowerhigher net sales and, tocombined with a lesser extent, a lowerhigher gross margin percentage. The decreaseincrease in the gross margin percentage of approximately 290540 basis points for the three months ended July 31, 20202021 resulted primarily from an unfavorablea favorable impact of sales mix of approximately 290500 basis points the decreased leveraging of certain fixed costs asand a result of lower sales of approximately 180 basis points, a negativepositive impact of fluctuations in foreign currency exchange rates of approximately 70 basis points and additional U.S. special tariffs of approximately 3080 basis points, partially offset by cost savingsapproximately 40 basis points resulting primarily from increased spending on certain fixed costs mainly due to the non-reoccurrence of 290 basis points.the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic.
Selling, General and Administrative (“SG&A”)
SG&A expenses for the three months ended July 31, 20202021 were $54.3$73.8 million, representing a decreasean increase from the prior year period of $22.3$19.5 million, or 29.1%, primarily from a decrease in payroll related expenses of $13.1 million as a result of the furloughing of employees and temporary salary reductions for a portion of the period (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; lower marketing expenses of $10.3 million; a decrease of $1.5 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a $1.3 million decrease in consulting and recruiting charges; a decrease of $1.2 million in bonus expense and sales commissions; a decrease of $0.7 million in amortization expense as a result of a reduction in intangible assets due to the impairment taken during the first quarter of fiscal 2021; and a reduction in credit card fees of $0.5 million due to less sales in the current36.0%. The prior year period as compared to the prior year period. The decrease in SG&A was partially offset by an increase inincluded corporate initiative charges primarily in response to the COVID-19 pandemic of $7.4 million consisting of $7.0 million in severance and payroll related and $0.4 million in other restructuring charges. Excluding these charges SG&A expenses would have increased $26.9 million primarily from higher marketing expenses of $11.8 million; an increase in payroll related expenses of $6.9 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic; an increase in performance-based compensation of $4.6 million; an increase of $1.4 million in consulting and recruiting charges and an increase in credit card fees and sales commissions of $1.2 million due to higher sales in the current year period as compared to the prior year period. For the three months ended July 31, 2020,2021, fluctuations in foreign currency rates related to the foreign subsidiaries negatively impacted SG&A expenses by $0.1$0.7 million when compared to the prior year period.
Watch and Accessory Brands Operating Income/(Loss)/Income
For the three months ended July 31, 2021, the Company recorded operating income of $15.7 million in the Watch and Accessory Brands segment which includes $13.0 million of unallocated corporate expenses as well as $16.9 million of certain intercompany profits related
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to the Company’s supply chain operations. For the three months ended July 31, 2020, and 2019, the Company recorded an operating loss of $9.9 million in the Watch and Accessory Brands segment operating loss of $9.9 million and operating income of $5.7 million, respectively, which includesincluded $6.1 million and $4.1 million of unallocated corporate expenses as well as $11.2 million and $14.8 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. The $15.6 million decreaseincrease in operating income was the result of a decreasean increase in gross profit of $34.3$41.1 million, partially offset by a decreasean increase in SG&A expenses of $18.7$15.5 million when compared to the prior year period. The decrease in gross profit was the result of lower sales and, to a lesser extent, lower gross margin percentage. The decrease in SG&A expenses of $18.7 million resulted primarily from a decrease in payroll related expenses of $10.9 million as a result of the furloughing of employees and temporary salary reductions for a portion of the period (with a majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; lower marketing expenses of $10.2 million; a decrease of $1.4 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a $1.3 million decrease in consulting and recruiting charges; a decrease of $0.9 million in bonus expense and sales commissions; a decrease of $0.7 million in amortization expense as a result of a reduction in intangible assets due to the impairment taken during the first quarter of fiscal 2021; and a reduction in credit card fees of $0.2 million due to less sales in the current year period as compared to the prior year period. The decrease in SG&A was partially offset by an increase inperiod included corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $7.4 million consisting of $7.0 million in severance and payroll related and $0.4 million in other restructuring charges. Without these charges SG&A expense would have increased $22.9 million. The increase in gross profit was the result of higher sales combined with a higher gross margin percentage. The underlying increase in SG&A expenses of $22.9 million resulted primarily from higher marketing expenses of $10.7 million; an increase in payroll related expenses of $5.2 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic; an increase in performance-based compensation of $4.5 million; an increase of $1.4 million in consulting and recruiting charges and an increase in credit card fees and sales commissions of $0.6 million due to higher sales in the current year period as compared to the prior year period. For the three months ended July 31, 2020,2021, fluctuations in foreign currency exchange rates negativelypositively impacted the Watch and Accessory Brands segment operating lossincome by $0.4$1.6 million when compared to the prior year period.
U.S. Watch and Accessory Brands Operating LossIncome/(Loss)
In the United States locations of the Watch and Accessory Brands segment, for the three months ended July 31, 2021, the Company recorded operating income of $0.6 million which includes unallocated corporate expenses of $13.0 million. For the three months ended July 31, 2020 and 2019, the Company recorded an operating loss of $15.2 million in the United States locations of the Watch and $6.3 million, respectively,Accessory Brands segment which includesincluded unallocated corporate expenses of $6.1 million and $4.1 million, respectively.million. The increaseimprovement in operating lossincome was the result of lowerhigher gross profit of $12.3$23.4 million, partially offset by lower SG&A expenses of $3.4 million. The decrease in gross profit of $12.3 million was due to lower sales and, to a lesser extent, a lower gross margin percentage. The decreasean increase in SG&A expenses of $3.4$7.6 million resulted primarily from a decrease in payroll related expenses of $6.9 million as a result of the furloughing of employees and temporary salary reductions for a portion of the period (with the majority of the actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; lower marketing costs of $1.0 million; a decrease of $0.8 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a decrease of $0.7 million in amortization expense as a result of a reduction in intangible assets due to the impairment taken during the first quarter of fiscal 2021; a decrease of $0.4 million in consulting and recruiting charges; a decrease of $0.2 million in bonus expense and sales commissions; and a reduction in credit card fees of $0.2 million due to less sales in the current year period aswhen compared to the prior year period. The decrease in SG&A was partially offset by an increase inexpenses for the prior year period included corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $6.6 million consisting of $6.2 million in severance and payroll related and $0.4 million in other restructuring charges. Without these charges SG&A expense would have increased $14.2 million. The increase in gross profit of $23.4 million was due to higher sales, combined with a higher gross margin percentage. The underlying increase in SG&A expenses of $14.2 million resulted primarily from higher marketing expenses of $5.5 million; an increase in performance-based compensation of $4.5 million; an increase in payroll related expenses of $2.9 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic; an increase of $0.7 million in consulting and recruiting charges and an increase in credit card fees of $0.3 million due to higher sales in the current year period as compared to the prior year period.
International Watch and Accessory Brands Operating Income
In the International locations of the Watch and Accessory Brands segment, for the three months ended July 31, 2020 and 2019,2021, the Company recorded operating income of $5.3$15.1 million and operating income of $12.0 million, respectively, which includes $11.2$16.9 million and $14.8 million, respectively, of certain intercompany profits related to the Company’s International supply chain operations. For the three months ended July 31, 2020 the Company recorded operating income of $5.3 million in the International locations of the Watch and Accessory Brands segment which included which included $11.2 million of certain intercompany profits related to the Company’s supply chain operations. The decreaseincrease in operating income was primarily related to lowera higher gross profit of $21.9$17.7 million, partially offset by lowerwith higher SG&A expenses of $15.2$7.9 million. The decrease in gross profit of $21.9 million was due to lower net sales and, to a lesser extent, a lower gross margin percentage. The decrease in SG&A expenses of $15.2 million resulted primarily from lower marketing costs of $9.2 million; a decrease in payroll related expense of $4.0 million as a result offor the furloughing of employees and temporary salary reductions for a portion of theprior year period (with the majority of actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a decrease in $0.9 million in consulting and recruiting charges; a decrease of $0.7 million in bonus expense and sales commissions; and a decrease of $0.6 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic. The decrease in SG&A was partially offset by an increase inincluded corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $0.8 million in severance.severance and payroll related. Without these charges SG&A expense would have increased $8.7 million. The increase in gross profit of $17.7 million was due to higher net sales combined with a higher gross margin percentage. The underlying increase in SG&A expenses of $8.7 million resulted primarily from higher marketing expenses of $5.2 million; an increase in payroll related expenses of $2.3 million primarily as a result of the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic; an increase of $0.7 million in consulting and recruiting charges and an increase of $0.3 million in sales commissions due to higher sales in the current year period as compared to the prior year period. Fluctuation in foreign currency exchange rates negativelypositively impacted operating income by $0.4$1.6 million when compared to the prior year period.
Company Stores Operating IncomeIncome/(Loss)
The Company recorded operating income of $1.0$8.9 million and $3.1$1.0 million in the Company Stores segment for the three months ended July 31, 20202021 and 2019,2020, respectively. The decreaseincrease in operating income of $2.1$7.9 million was primarily related to lowerhigher gross profit of $5.7$11.9 million primarilymainly due to lowerhigher sales and a higher gross margin percentage, partially offset by lowera $4.0 million increase in SG&A expenses of $3.6 million.expenses. The decreaseincrease in SG&A expenses was primarily due to a decreasehigher marketing expenses of $1.1 million; an increase in payroll related expenses of $2.2$1.7 million primarily due to company stores being open throughout the closing of the Company’s stores and the furloughing of employees dueperiod (as compared to the COVID-19 pandemicsignificant closures during a portion of the period; a decreaseprior year period) and an increase in credit card fees and sales commissions of $0.3$0.6 million due to lesshigher sales in the current year period as compared to the prior year period; and a decrease $0.3 million in sales commissions and bonus expense.period. As of July 31, 2020,2021, and 2019,2020, the Company operated 4749 and 4547 retail outlet locations, respectively.
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Other Non-Operating Income
The Company recorded other income of $0.3 million primarily due to the final settlement related to a sale of a building in an international location in the prior year period and the non-service components of the Company’s Swiss pension plan for the three months ended July 31, 2021.
The Company recorded a gain on sale of a non-operating asset of $1.3 million related to a sale of a building in an international location for the three months ended July 31, 2020.
Based on updated revenueInterest Expense
Interest expense was $0.2 million and EBITDA (as defined in the MVMT acquisition agreement) performance expectations during the earn-out period for MVMT, the Company recorded a non-cash gain on remeasurement of the contingent consideration of $13.6$0.6 million for the three months ended July 31, 2019.2021 and 2020, respectively. The decrease was primarily due to lower weighted average borrowings outstanding under the Company’s revolving credit facility and a lower weighted average interest rate partially offset by higher unused credit line fees during the three months ended July 31, 2021 as compared to the three months ended July 31, 2020.
Income Taxes
The Company recorded an income tax benefitprovision of $1.6$5.3 million and an income tax provisionbenefit of $4.7$1.6 million for the three months ended July 31, 2021 and 2020, and 2019, respectively.
The effective tax rate was 19.1% 21.5% and 21.4%19.1% for the three months ended July 31, 20202021 and 2019,2020, respectively. The significant components of the effective tax rate changed primarily due to prior year impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible, partially offset by a change in the statutory tax rate for the Company's subsidiary in the United Kingdom U.S. tax provided onin the sale of a non-operating asset in an international location, excess tax deficiencies related to stock-based compensation,prior year and no tax benefit being recognized on losses incurred by certain foreign operations. These changes were partially offset by changes in jurisdictional earnings and the CARES Act NOL Carryback Provision.
The effective tax rate for the three months ended July 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to a change in the statutory tax rate in the United Kingdom, U.S. tax provided on the sale of a non-operating asset in an international location, and excess tax deficiencies related to stock-based compensation, partially offset by foreign profits being taxed in lower taxing jurisdictions and the CARES Act NOL Carryback Provision.earnings.
The effective tax rate for the three months ended July 31, 2019 differs from the U.S. statutory tax rate of 21.0% primarily due to no tax benefit being recognized on losses incurred by certain foreign operations, partially offset by foreign profits being taxed in lower taxing jurisdictions.
Net Income/(Loss)/ Income Attributable to Movado Group, Inc.
The Company recorded net income attributable to Movado Group, Inc. of $19.4 million and net loss attributable to Movado Group, Inc. of $6.6 million, and net income attributable to Movado Group, Inc. of $17.5 million, for the three months ended July 31, 2021 and 2020, and 2019, respectively.
Results of operations for the six months ended July 31, 20202021 as compared to the six months ended July 31, 20192020
Net Sales: Comparative net sales by business segment were as follows (in thousands):
|
| Six Months Ended July 31, |
|
| Six Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| |||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
United States |
| $ | 47,202 |
|
| $ | 90,569 |
|
| $ | 106,555 |
|
| $ | 47,202 |
|
International |
|
| 94,273 |
|
|
| 177,732 |
|
|
| 155,903 |
|
|
| 94,273 |
|
Total Watch and Accessory Brands |
|
| 141,475 |
|
|
| 268,301 |
|
|
| 262,458 |
|
|
| 141,475 |
|
Company Stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
United States |
|
| 16,098 |
|
|
| 35,454 |
|
|
| 44,825 |
|
|
| 16,098 |
|
International |
|
| 631 |
|
|
| 610 |
|
|
| 1,389 |
|
|
| 631 |
|
Total Company Stores |
|
| 16,729 |
|
|
| 36,064 |
|
|
| 46,214 |
|
|
| 16,729 |
|
Net Sales |
| $ | 158,204 |
|
| $ | 304,365 |
|
| $ | 308,672 |
|
| $ | 158,204 |
|
29
Comparative net sales by categories were as follows (in thousands):
|
| Six Months Ended July 31, |
|
| Six Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
| 2020 |
| |||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Owned brands category |
| $ | 56,983 |
|
| $ | 108,609 |
|
| $ | 109,273 |
|
| $ | 56,983 |
|
Licensed brands category |
|
| 82,098 |
|
|
| 150,281 |
|
|
| 151,703 |
|
|
| 82,098 |
|
After-sales service and all other |
|
| 2,394 |
|
|
| 9,411 |
|
|
| 1,482 |
|
|
| 2,394 |
|
Total Watch and Accessory Brands |
|
| 141,475 |
|
|
| 268,301 |
|
|
| 262,458 |
|
|
| 141,475 |
|
Company Stores |
|
| 16,729 |
|
|
| 36,064 |
|
|
| 46,214 |
|
|
| 16,729 |
|
Net Sales |
| $ | 158,204 |
|
| $ | 304,365 |
|
| $ | 308,672 |
|
| $ | 158,204 |
|
Net Sales
Net sales for the six months ended July 31, 20202021 were $158.2$308.7 million, $146.1$150.5 million or 48.0% below95.1% above the prior year period. This decreaseincrease is primarily as a result of the partial recovery from the ongoing COVID-19 pandemic. For the six months ended July 31, 2020,2021, fluctuations in foreign currency exchange rates negativelypositively impacted net sales by $0.6$9.6 million when compared to the prior year period.
Watch and Accessory Brands Net Sales
Net sales for the six months ended July 31, 20202021 in the Watch and Accessory Brands segment were $141.5$262.5 million, belowabove the prior year period by $126.8$121.0 million, or 47.3%85.5%. The decreaseincrease in net sales was primarily attributabledue to growth in online retailers, both in the Company’s owned and wholesale customers’ e-commerce websites, and growth in the Company’s wholesale customers due to the partial recovery from the ongoing COVID-19 pandemicpandemic. Prior period net sales were negatively impacted by closures and the resultant closure ofrestrictions affecting the stores of the Company’s wholesale customers during a portion of the period.period due to the COVID-19 pandemic. Some of these restrictions have continued into fiscal 2022. There were decreasesincreases in net sales in both the United States and International locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands Net Sales
Net sales for the six months ended July 31, 20202021 in the United States locations of the Watch and Accessory Brands segment were $47.2$106.6 million, belowabove the prior year period by $43.4$59.4 million, or 47.9%125.7%, resulting from net sales decreasesincreases across all brands in both the owned and licensed brand categories primarily due to the partial recovery from the ongoing COVID-19 pandemic. The net sales recorded in the owned brands category decreasedincreased by $29.9$47.4 million, or 45.1%129.8%, and net sales recorded in the licensed brand category decreased $8.6increased $12.5 million, or 46.9%129.3%.
International Watch and Accessory Brands Net Sales
Net sales for the six months ended July 31, 20202021 in the International locations of the Watch and Accessory Brands segment were $94.3$155.9 million, belowabove the prior year by $83.4$61.6 million, or 47.0%65.4%, which included fluctuations in foreign currency exchange rates which unfavorablyfavorably impacted net sales by $0.6$9.6 million when compared to the prior year period. The decreaseincrease in net sales was across allmost brands in both the owned and licensed brand categories primarily due to the partial recovery from the ongoing COVID-19 pandemic. The net sales decreaseincrease recorded in the owned brands category was $21.7$4.9 million, or 51.4%24.0% and is due to sales decreases primarilyincreases in Europe, the Americas (excluding the United States), Asia, and the Middle East.all regions. The net sales decreaseincrease in the licensed brands category was $59.6$57.1 million, or 45.2%78.8%, primarily due to net sales decreasesincreases in Europe, the Americas (excluding the United States), Asia and the Middle East.all regions.
Company Stores Net Sales
Net sales for the six months ended July 31, 20202021 in the Company Stores segment were $16.7$46.2 million, $19.3$29.5 million or 53.6% below176.3% above the prior year period. The net sales decrease in comparable storesincrease is primarily the result of all of the Company’s retail stores being open during the period as compared to the closure of the Company’s retail stores during a portionpart of the prior year period in response to the COVID-19 pandemic. This decrease was partially offset bypandemic and lessened restrictions on the addition of newCompany’s retail stores that did not existduring the period as compared to the same period in the prior-year period but contributed to sales in the current period prior to and after the COVID-19 related closures that began in mid-March.year. As of July 31, 2020, all of the Company stores are open. As of July 31, 2020,2021 and 2019,2020, the Company operated 4749 and 4547 retail outlet locations, respectively.
Gross Profit
Gross profit for the six months ended July 31, 20202021 was $77.2$172.7 million or 48.8%55.9% of net sales as compared to $164.2$77.2 million or 54.0%48.8% of net sales in the prior year period. The decreaseincrease in gross profit of $87.0$95.4 million was primarily due to lowerhigher net sales and, tocombined with a lesser extent, a lowerhigher gross margin percentage. The decreaseincrease in the gross margin percentage of approximately 520710 basis points for the six months ended July 31, 20202021 resulted primarily from the decreased leveraginga favorable impact of certain fixed costs as a result of lower sales mix of approximately 240330 basis points, corporate initiativesthe non-recurrence of a prior year charge related to an increase in inventory reserves in response to the COVID-19 pandemic of approximately 220 basis points, an unfavorable impact
30
increased leveraging of certain fixed costs as a result of higher sales mix of approximately 17080 basis points and a negativepositive impact of fluctuations in foreign currency exchange rates of approximately 5080 basis points and additional U.S. special tariffs of approximately 40 basis points, partially offset by cost savings of 230 basis points.
Selling, General and Administrative (“SG&A”)
SG&A expenses for the six months ended July 31, 20202021 were $112.4$134.8 million, representing a decreasean increase from the prior year period of $38.1$22.4 million, or 25.3%, primarily from lower marketing expenses of $20.1 million; a decrease in payroll related expenses of $18.1 million as a result of the furloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a decrease of $2.7 million in trade show costs due to the cancellation of a global customer event due to COVID-19 health concerns and travel restrictions; a $2.2 million decrease in consulting and recruiting charges; a decrease of $2.1 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a decrease of $1.2 million in bonus expense and sales commissions; a decrease in amortization expense of $0.9 million as a result of a reduction in intangible assets due to the impairment taken during the current period; and a reduction in credit card fees of $0.6 million due to less sales in the current19.9%. The prior year period as compared to the prior year period. The decrease in SG&A was partially offset by an increase inincluded corporate initiative charges primarily in response to the COVID-19 pandemic of $11.1 million consisting of $7.9 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits, $1.1 million in additional accounts receivable reserves and $0.6 million in other restructuring charges. Excluding these charges SG&A expenses would have increased $33.5 million primarily from higher marketing expenses of $18.5 million; an increase in performance-based compensation of $6.5 million; an increase in payroll related expenses of $5.7 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic and an increase in credit card fees and sales commissions of $2.1 million due to higher sales in the current year period as compared to the prior year period. The increase in SG&A was partially offset by a decrease of $0.5 million in customer and sales promotions. For the six months ended July 31, 2020,2021, fluctuations in foreign currency rates related to the foreign subsidiaries positivelynegatively impacted SG&A expenses by $0.1$1.7 million when compared to the prior year period.
Impairment of Goodwill and Intangible Assets
As a result of the economic conditions caused by the response to COVID-19, the Company performed a quantitative assessment of its goodwill and long-lived intangible assets at July 31,April 30, 2020. The Company recorded a goodwill impairment of $133.7 million related to the Company’s Watch and Accessory Brands reporting unit as the carrying value of goodwill exceeded the fair value at July 31,April 30, 2020. The Company also recorded a $22.2 million impairment charge related to MVMT’s trade name and customer relationships as the carrying amount of these long-lived intangible assets exceeded the fair value.
Watch and Accessory Brands Operating Income/(Loss)/Income
For the six months ended July 31, 2021 the Company recorded operating income of $24.5 million in the Watch and Accessory Brands segment which includes $21.9 million of unallocated corporate expenses as well as $30.8 million of certain intercompany profits related to the Company’s supply chain operations. For the six months ended July 31, 2020, the Company recorded an operating loss of $189.6 million in the Watch and Accessory Brands segment, which included goodwill and intangible assetsasset impairment charges of $133.7 million and $22.2 million, respectively. Without these charges, for the six months ended July 31, 2020, operating loss would have been $33.6 million as compared to operating income of $8.8 million for the six months ended July 31, 2019, which includesincluded $12.1 million and $13.1 million of unallocated corporate expenses as well as $22.3 million and $27.8 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. In addition to the assetsasset impairments in the decreaseprior year period, the increase in operating income was the result of a decreasean increase in gross profit of $75.8$74.6 million, which included corporate initiativeinitiatives costs in the prior year period of $3.5 million comprising an increase in inventory reserves, partially offset by a decreasean increase in SG&A expenses of $33.4$16.5 million when compared to the prior year period. The decrease in gross profit was the result of lower sales, and to a lesser extent, lower gross margin percentage. The decrease in SG&A expenses of $33.4 million resulted primarily from lower marketing expenses of $20.0 million; a decrease in payroll related expenses of $15.0 million as a result of the furloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a decrease of $2.7 million in trade show costs due to the cancellation of a global customer trade show due to COVID-19 health concerns and travel restrictions; a $2.2 million decrease in consulting and recruiting charges; a decrease of $1.9 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a decrease in amortization expense of $0.9 million as a result of a reduction in intangible assets due to the impairment taken during the current period; a decrease of $0.6 million in bonus expense and sales commissions; and a reduction in credit card fees of $0.3 million due to less sales in the current year period as compared tofor the prior year period. The decrease in SG&A was partially offset by an increase inperiod included corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $11.1 million consisting of $7.9 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits, $1.1 million in additional accounts receivable reserves and $0.6 million in other restructuring charges. Without these charges SG&A expense would have increased $27.6 million. The increase in gross profit was the result of higher sales combined with a higher gross margin percentage. The underlying increase in SG&A expenses of $27.6 million resulted primarily from higher marketing expenses of $16.7 million; an increase in performance-based compensation of $6.1 million; an increase in payroll related expenses of $3.6 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic and an increase in credit card fees and sales commissions of $1.3 million due to higher sales in the current year period as compared to the prior year period. The increase in SG&A expense was partially offset by a decrease of $0.5 million in customer and sales promotions. For the six months ended July 31, 2020,2021, fluctuations in foreign currency exchange rates negativelypositively impacted the Watch and Accessory Brands segment operating lossincome by $0.3$2.6 million when compared to the prior year period.
U.S. Watch and Accessory Brands Operating Loss
In the United States locations of the Watch and Accessory Brands segment, for the six months ended July 31, 2021, the Company recorded an operating loss of $3.5 million, which includes unallocated corporate expenses of $21.9 million. For the six months ended July 31, 2020 the Company recorded an operating loss of $132.8 million in the United States locations of the Watch and Accessory Brands segment which included goodwill and intangible asset impairment charges of $77.5 million and $22.2 million, respectively. Without these charges, for the six months ended July 31, 2020, operating loss would have been $33.1 million, as compared to operating loss of $17.1 million for the six months ended July 31, 2019, which includesincluded unallocated corporate expenses of $12.1 million and $13.1 million, respectively.million. In addition to thethese assets impairments in the increaseprior year period, the decrease in operating loss was the result of lowerhigher gross profit of $30.0$41.9 million, which included corporate initiative costs in the prior year period of $3.5 million comprising an increase in inventory reserves, partially offset by lower SG&A expenses of $14.0 million. The decrease in gross profit of $30.0 million was due to lower sales and, to a lesser extent, a lower gross margin percentage. The decreasean increase in SG&A expenses of $14.0$12.3 million resulted primarily from lower marketing costs of $7.9 million; a decrease in payroll related expenses of $10.1 million as a result of the furloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a decrease of $1.0 million in consulting and recruiting charges; a decrease of $1.0 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a decrease in amortization expense of $0.9 million as a result of a reduction in intangible assets due to the impairment taken during the current period; a decrease of $0.4 million in bonus expense and sales commissions; and a reduction in credit card fees of $0.3 million due to less sales in the current year period aswhen compared to the prior year period. The decrease in SG&A was partially offset by an increase inexpenses for the prior year period included corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $7.8 million primarily consisting of $6.3 million in severance and payroll related, $1.1 million in additional accounts receivable reserves and $0.3 million in other restructuring charges. Without these charges SG&A expense would have increased $20.1 million. The increase in gross profit of $41.9 million was due to higher sales, combined with a higher gross margin percentage.
31
The underlying increase in SG&A expenses of $20.1 million resulted primarily from higher marketing expenses of $9.9 million; an increase in performance-based compensation of $6.1 million; an increase in payroll related expenses of $2.8 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic and an increase in credit card fees of $0.6 million due to higher sales in the current year period as compared to the prior year period.
International Watch and Accessory Brands Operating Income/(Loss)/Income
In the International locations of the Watch and Accessory Brands segment, for the six months ended July 31, 2021 the Company recorded operating income of $28.0 million, which includes $30.8 million of certain intercompany profits related to the Company’s International supply chain operations. For the six months ended July 31, 2020 the Company recorded an operating loss of $56.7 million in the International locations of the Watch and Accessory Brands segment which included goodwill impairment charges of $56.2 million. Without these charges,this charge, for the six months ended July 31, 2020, operating loss would have been $0.5 million, as compared to operating income of $25.9 million for the six months ended July 31, 2019, which amounts includeincluded $22.3 million and $27.8 million, respectively, of certain intercompany profits related to the Company’s International supply chain operations. In addition to the goodwill impairment charges,charge, the decreaseincrease in operating income was primarily related to lowerhigher gross profit of $45.8$32.7 million, partially offset by lowerhigher SG&A expenses of $19.4$4.2 million. The decrease in gross profit of $45.8 million was primarily related to lower net sales and, to a lesser extent, a lower gross margin percentage. The decrease in SG&A expenses of $19.4 million resulted primarily from lower marketing costs of $12.1 million; a decrease in payroll related expense of $4.9 million as a result offor the furloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a decrease of $2.7 million in trade show costs due to cancellation of a global customer event due to COVID-19 health concerns and travel restrictions; a decrease of $1.2 million in consulting and recruiting charges; a decrease of $0.9 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; and a decrease of $0.2 million in bonus expense and sales commissions. The decrease in SG&A was partially offset by an increase inprior year period included corporate initiativeinitiatives charges primarily in response to the COVID-19 pandemic of $3.3 million consisting of $1.6 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits and $0.2 million in other restructuring charges. Without these charges SG&A expense would have increased $7.5 million. The increase in gross profit of $32.7 million was due to higher net sales combined with a higher gross margin percentage. The underlying increase in SG&A expenses of $7.5 million resulted primarily from higher marketing expenses of $6.8 million; an increase in payroll related expenses of $0.8 million primarily due to the non-reoccurrence of the furloughing of employees and temporary salary reductions during a portion of the prior year period in response to the COVID-19 pandemic and an increase sales commissions and credit card fees of $0.7 million due to higher sales in the current year period as compared to the prior year period. The increase in SG&A expenses was partially offset by a decrease of $0.5 million in customer and sales promotions. Fluctuation in foreign currency exchange rates negativelypositively impacted operating lossincome by $0.3$2.6 million when compared to the prior year period.
Company Stores Operating Income/(Loss)/Income
The Company recorded operating lossincome of $1.5$13.4 million and operating income $5.0loss of $1.5 million in the Company Stores segment for the six months ended July 31, 20202021 and 2019,2020, respectively. The decreaseimprovement in operating income of $6.5$14.9 million was primarily related to lowerhigher gross profit of $11.1$20.8 million mainly due to lowerhigher sales and a higher gross margin percentage, partially offset by lowera $5.9 million increase in SG&A expenses of $4.6 million.expenses. The decreaseincrease in SG&A expenses was primarily due to a decreasean increase in payroll related expenses of $3.1$2.1 million primarily due to the closing of the Company’scompany stores and the furloughing of employees during portions ofbeing open throughout the period due(as compared to the COVID-19 pandemic; a decreasesignificant closures during the prior year period); higher marketing expenses of $0.6 million in bonus expense and sales commissions; and a decrease of $0.3 million$1.8 million; an increase in credit card fees and sales commissions of $0.8 million due to lesshigher sales in the current year period as compared to the prior year period.period and an increase in performance-based compensation of $0.4 million. As of July 31, 2020,2021, and 2019,2020, the Company operated 4749 and 4547 retail outlet locations, respectively.
Other Non-Operating Income
The Company recorded other income of $0.4 million primarily due to the final settlement related to a sale of a building in an international location in the prior year period and the non-service components of the Company’s Swiss pension plan for the six months ended July 31, 2021.
The Company recorded a gain on sale of a non-operating asset of $1.3 million related to a sale of a building in an international location for the six months ended July 31, 2020.
Based on updated revenueInterest Expense
Interest expense was $0.4 million and EBITDA (as defined in the MVMT acquisition agreement) performance expectations during the earn-out period for MVMT, the Company recorded a non-cash gain on remeasurement of the contingent consideration of $13.6$0.9 million for the six months ended July 31, 2019.2021 and 2020, respectively. The decrease was primarily due to lower weighted average borrowings outstanding under the Company’s revolving credit facility partially offset by a higher weighted average interest rate and higher unused credit line fees during the six months ended July 31, 2021 as compared to the six months ended July 31, 2020.
Income Taxes
The Company recorded an income tax benefitprovision of $33.9$8.6 million and an income tax provisionbenefit of $5.6$33.9 million for the six months ended July 31, 2021 and 2020, and 2019, respectively.
The effective tax rate was 17.8%22.9% and 20.7%17.8% for the six months ended July 31, 2021 and 2020, and 2019, respectively. The significant components of the effective tax rate changed primarily due to prior year impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible and the recording of valuation allowances on certain foreign deferred tax assets both of which occurred duringin the first quarter of fiscal 2021. These changes were partially offset by changes in foreign profits in lower tax jurisdictions and the CARES Act NOL Carryback Provision.
The effective tax rate for the six months ended July 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible,current year, partially offset by the CARES Act NOL Carryback Provision.Provision in the prior year.
The effective tax rate for the six months ended July 31, 2019 differs from the U.S. statutory tax rate of 21.0% primarily due to foreign profits being taxed in lower taxing jurisdictions, partially offset by no tax benefit being recognized on losses incurred by certain foreign operations.32
Net Income/(Loss)/ Income Attributable to Movado Group, Inc.
The Company recorded net income attributable to Movado Group, Inc. of $28.8 million and net loss attributable to Movado Group, Inc. of $156.6 million, and net income attributable to Movado Group, Inc. of $21.4 million, for the six months ended July 31, 2021 and 2020, and 2019, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash flows from operations, including the impact of the Company corporate initiatives, combined with existing cash on hand and amounts available under its credit lines provide adequate funds to support its operating, capital and debt service requirements for the next twelve months subsequent to the issuance of these financial statements. During the first six months of fiscal 2021 the Company’s cash generated from operations was negatively impacted due to widespread closures of the Company’s retail locations and the Company’s wholesale customers’ stores as a result of the COVID-19 pandemic. The Company entered this period of uncertainty with a healthy liquidity position, and it took actions to enhance the Company’s financial liquidity and flexibility, including minimizing all non-essential operating expenses (including marketing, travel and consulting services), reevaluating all capital expenditures, furloughing approximately 80% of the Company’s North American workforce during March through June 2020 and temporarily reducing the work-rate of international employees while applying for available government payroll subsidies in accordance with local government guidelines and programs, suspending the Company’s share repurchase program and regular quarterly dividend during fiscal 2021, reducing salaries and suspending Board of Director fees from April through June 2020, amending license agreements to reduce its royalty obligations in fiscal 2021, and negotiating rent deferrals or other arrangements in respect of its rent obligations for all of its Company Stores and certain other leases. As a precautionary measure, the Company borrowed an additional $30.9 million under its revolving credit facility in March 2020 and amended its revolving credit facility to modify some of its financial covenants. DuringHowever, during the secondfirst quarter of fiscal 2022, certain of these modifications were eliminated as a result of the Company’s achievement of certain milestones as of and for the periods ending January 31, 2021, as described below. During fiscal 2021, the Company repaid $36.8$64.5 million under its revolving credit facility and repaid an additional $21.1 million during the first six months of fiscal 2022. At July 31, 2021, zero remained outstanding under the Company’s revolving facility.
Although the Company believes it has adequate sources of liquidity over the long term, continued uncertainty surrounding the COVID-19 pandemic, an economic recession or a slow recovery could adversely affect the Company’s business and liquidity.
At July 31, 20202021 the Company had working capital of $324.1$369.4 million as compared to $334.8$324.1 million at July 31, 2019.2020. The decreaseincrease in working capital was primarily the result of a decreasean increase in accounts receivable resulting primarily from lowerhigher sales due to the COVID-19 pandemic and lower inventory levels as the Company continues to monitor its inventory levels to align with expected sales. These factors werean increase in cash of $29.5 million partially offset by additional cash of $35.3 million and a decreasean increase in accounts payable. The Company defines working capital as the difference between current assets and current liabilities.
The Company had $22.7 million of cash provided by operating activities for the six months ended July 31, 2021 as compared to $11.4 million of cash used in operating activities for the six months ended July 31, 2020 as compared to $32.6 million of cash used in operating activities for the six months ended July 31, 2019. Cash used by operating activities for the six months ended July 31, 2020 included net loss attributable to the Movado Group, Inc. of $156.6 million, positively adjusted by $135.9 million related to non-cash items. Cash used in operating activities included a decrease in accounts payable and accrued liabilities totaling $5.0 million primarily as a result of a reduction in expenditures during the period and timing of payments to vendors, a decrease in income taxes payable of $4.1 million due to timing of payments and pre-tax losses generated during the period, a decrease in other current assets of $2.4 million and a decrease in investment in inventories of $1.5 million as the Company continues to monitor its inventory levels to align with expected sales.2020. Cash provided by operating activities for the six months ended July 31, 20202021 included net income attributable to the Movado Group, Inc. of $28.8 million, positively adjusted by $12.0 million related to non-cash items. Cash provided by operating activities for the six months ended July 31, 2021 included an increase in accounts payable of $18.0 million primarily as a $16.8result of timing of payments and a decrease in income taxes receivable of $18.0 million decreasedue to a receipt of a U.S. federal income tax refund. Cash used in operating activities included an increase in investment in inventories of $33.8 million primarily to support sales growth, an increase in trade receivables of $13.2 million as a result of higher sales, a decrease in income taxes payable of $6.3 million primarily due to lower sales resulting from the COVID-19 pandemictiming of payments and an increasea decrease in accrued payroll of $5.8$4.1 million primarily dueas a result of payments of performance-based compensation in addition to an increase in severance accrualpayments as a result of the Company’s corporate initiatives.
Cash used in investing was $1.9 million for the six months ended July 31, 2021 as compared to $0.6 million for the six months ended July 31, 2020 as compared to $7.0 million for the six months ended July 31, 2019.2020. The cash used in the six months ended July 31, 20202021 was primarily related to capital expenditures of $1.9$1.8 million mainlyprimarily due to athe Company’s opening of two new stores in Canada, website platform for MVMTupgrades and the construction of shop-in-shops at some of the Company’s wholesale customers, partially offset bycustomers. The prior year period included proceeds from a sale of a non-operating asset in Switzerland of $1.3 million.
Cash used by financing activities was $43.8 million for the six months ended July 31, 2021 as compared to cash used by financing activities of $6.7 million for the six months ended July 31, 2020 as compared to cash used by financing activities of $14.6 million for the six months ended July 31, 2019.2020. The cash used in the six months ended July 31, 20202021 included repayment of bank borrowings of $5.9$21.1 million, and $0.3 million in debt issuance cost resulting from the Company amending its revolving credit facility. In response to the COVID-19 pandemic, the Company has suspended its quarterly dividends and share repurchases effective the first quarter of fiscal 2021. The Company paid $9.2$11.6 million in dividends and $4.2paid ($2.3 million of which had been declared in January 2021), $10.0 million in share repurchases duringstock repurchased in the firstopen market and $1.7 million of shares repurchased as a result of the surrender of shares in connection with the vesting of certain stock awards, partially offset by $0.7 million received in connection with stock options exercised. Cash used in financing activities for the six months ended July 31, 2020 included net repayment of fiscal 2020.bank borrowings of $5.9 million.
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated Credit Agreement (the
33
(the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit Agreement amends and restates the Company’s prior credit agreement dated as of January 30, 2015 (the “Prior Credit Agreement”) and extends the maturity of the $100.0 million senior secured revolving credit facility (the “Facility”) provided thereunder to October 12, 2023. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrowers, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of July 31,April 30, 2020. Among other things, the Second Amendment providesprovided for the following temporary relief with respect to the financial maintenance covenants in the Credit Agreement fromstarting April 30, 2020 through the date on which the Company delivers a compliance certificate in respect of the period ended July 31, 2021 (or earlier if the Company demonstrates satisfaction ofwhile also temporarily tightening certain earningscovenants and leverage milestones) (the “Suspension Period”): (i) the maximum consolidated leverage ratio is increased from 2.50 to 1.0 to 2.75 to 1.0 for the four quarter period ended April 30, 2020 and suspended thereafter until the end of the Suspension Period when it resumes at 2.50 to 1.0 and (ii) the minimum EBITDA covenant levels are reduced. In addition, the Second Amendment provides that (i) through April 30, 2021, the Company is required to maintain minimum liquidity (comprised of unrestricted cash and cash equivalents and unutilized commitments under the Credit Agreement) of $100.0 million, (ii) during the Suspension Period, certain covenants, including covenants related to dividends, share repurchases, debt incurrence, investments and capital expenditures, have been tightened and (iii) during the Suspension Period,temporarily increasing the interest rate for borrowings underand commitment fee. These temporary changes to the Credit Agreement is increased to LIBOR plus 2.75% per annum and the commitment fee in respectended as a result of the unutilized commitments is increased to 0.45% per annum.Company’s achievement of certain financial milestones as of and for the periods ending January 31, 2021. In addition, the Second Amendment permanently increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and permanently reduced the minimum EBITDA financial covenant level to $35.0 million starting with the four-quarter period ending July 31, 2021.
The foregoing summary of the Second Amendment is qualified by reference to the full text of the amendment, which is attached as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended April 30, 2020 and incorporated herein by reference.
As of July 31, 2020,2021, and July 31, 2019,2020, there was 35.0zero and $48.3 million and 50.0(of which all but $10 million was denominated in Swiss Francs,Francs), respectively, (with a dollar equivalent of $38.3 million and $50.3 million, respectively), in addition to $10.0 million as of July 31, 2020, in loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both July 31, 20202021 and July 31, 2019.2020. At July 31, 2020,2021, the letters of credit have expiration dates through June 1, 2021.May 31, 2022. As of July 31, 2020,2021, and July 31, 2019,2020, availability under the Facility was $51.4$99.7 million and $49.4$51.4 million, respectively. For additional information regarding the Facility, see Note 98 – Debt and Lines of Credit to the Consolidated Financial Statements.
The Company had weighted average borrowings under the facility of $71.5 million and $50.2 million, with a weighted average interest rate of 2.60% and 1.00% during the three months ended July 31, 2020 and 2019, respectively. The Company had weighted average borrowings under the facility of $68.6$6.5 million and $50.0$71.5 million, with a weighted average interest rate of 1.92%2.00% and 1.00%2.60% during the three months ended July 31, 2021 and 2020, respectively. The Company had weighted average borrowings under the facility of $9.8 million and $68.6 million, with a weighted average interest rate of 2.79% and 1.92%, during the six months ended July 31, 20202021 and 2019,2020, respectively.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of July 31, 2020,2021, and 2019,2020, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.1$7.2 million and $6.5$7.1 million, respectively. As of July 31, 2020,2021, and 2019,2020, there were no borrowings against these lines. As of July 31, 2020,2021 and 2019,2020, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.3 million and $1.2 million, respectively,for both periods, in various foreign currencies, of which $0.6 million, and $0.5 million, respectively,in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $0.8$0.3 million and $0.3$0.8 million for the six-month period ended July 31, 20202021 and July 31, 2019,2020, respectively.
From time to time the Company may make minority investments in growth companies in the consumer products sector, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in such companies. During the second quarter of fiscal 2022, the Company committed to invest up to $1,000,000 in a venture capital fund that makes investments in securities of portfolio companies whose primary business focus is accelerating innovation in retail and consumer goods. The Company expects to be called upon to satisfy its first capital call in respect of this commitment by the end of fiscal 2022.
On January 11, 2021, with the consent of its bank group, the Company’s Board of Directors declared a cash dividend of $0.10 per share, which was paid on February 5, 2021 in the amount of $2.3 million, to shareholders of record on January 21, 2021. The Company paid additional cash dividends of $0.20 per share or $4.6 million during the three months ended April 30, 2021 and $0.20 per share or $4.7 million during the three months ended July 31, 2021. The Company did not pay cash dividends during the six months ended July 31, 2020. TheAlthough the Company paidcurrently expects to continue to declare cash dividends of $0.40 per share or $9.2 million duringin the six months ended July 31, 2019. Thefuture, the decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board of Directors, in its sole discretion. The Company is committed to resuming dividend payments when the environment and its business stabilize and dividends are permitted by the terms of its revolving credit facility (see Note 9 – Debt and Lines of Credit).
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On August 29, 2017, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time. This authorization expired on August 29, 2020. On March 25, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to $50.0$25.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. Under this share repurchase program, the Company mayis permitted to purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise through August 29, 2020. See Note 9 – Debt and Lines of Credit – for restrictions on share repurchase under the Company’s revolving credit facility.September 30, 2022. During the six months ended July 31, 2020,2021, the Company did not repurchase anyrepurchased a total of 334,000 shares of its common stock.stock under the share repurchase program at a total cost of $10.0 million, or an average of $29.87 per share. At July 31, 2020, $36.42021, $15.0 million remains available for purchase under the Company’s repurchase program.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated special-purpose entities.
Accounting Changes and Recent Accounting Pronouncements
See Note 3- Recent Accounting Pronouncements to the accompanying unaudited Consolidated Financial Statements for a description of certain accounting changes and recent accounting pronouncements which may impact the Company’s Consolidated Financial Statements in future reporting periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Rate Risk
The Company’s primary market risk exposure relates to foreign currency exchange risk (see Note 10 9 – Derivative Financial Instruments to the Consolidated Financial Statements). A significant portion of the Company’s purchases are denominated in Swiss Francs and, to a lesser extent, the Japanese Yen. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro, Swiss Franc and the British Pound. The Company reduces its exposure to the Swiss Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rate risk through a hedging program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural offsets. The earnings impact is mostly offset by the effects of currency movements on the underlying hedged transactions. To the extent that the Company does not engage in a hedging program, any change in the Swiss Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rates to local currency would have an equal effect on the Company’s earnings.
From time to time the Company uses forward exchange contracts, which do not meet the requirements of qualified hedges, to offset its exposure to certain foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these derivatives are recognized in earnings in the period they arise, thereby offsetting the current earnings effect resulting from the revaluation of the related foreign currency receivables and liabilities.
As of July 31, 2020,2021, the Company’s entire net forward contracts hedging portfolio consisted of 16.7 million Chinese Yuan equivalent, 16.0 million Swiss Francs equivalent, 18.0 million U.S. dollars equivalent, 19.7 million Euros equivalent and 1.3 million British Pounds equivalent with various expiry dates ranging through January 20, 2022, compared to a portfolio of 46.1 million Chinese Yuan equivalent, 4.0 million Swiss Francs equivalent, 9.7 million USU.S. dollars equivalent, 22.2 million Euros equivalent and 1.3 million British Pounds equivalent with various expiry dates ranging through September 10, 2020, compared to a portfolio of 53.0 million Chinese Yuan equivalent, 33.0 million Swiss Francs equivalent, 29.0 million US dollars equivalent, 23.1 million Euros equivalent and 1.1 million British Pounds equivalent with various expiry dates ranging through January 15, 2020, as of July 31, 2019. 2020. If the Company were to settle its Swiss Franc forward contracts at July 31, 2020,2021, the net result would be a gain of $0.1 million, net of tax provisiongain of $0.1 million. As of July 31, 2020,2021, the Company’s British Pound, Chinese Yuan, US Dollar and Euro forward contracts had no gain or loss. The Company had no cash flow hedges as of July 31, 20202021 and July 31, 2019,2020, respectively.
Commodity Risk
The Company considers its exposure to fluctuations in commodity prices to be primarily related to gold used in the manufacturing of the Company’s watches. Under its hedging program, the Company can purchase various commodity derivative instruments, primarily futures contracts. When held, these derivatives are documented as qualified cash flow hedges, and the resulting gains and losses on these derivative instruments are first reflected in other comprehensive income, and later reclassified into earnings, partially offset by the effects of gold market price changes on the underlying actual gold purchases. The Company did not hold any future contracts in its gold hedge portfolio as of July 31, 20202021 and 2019,2020, thus, any changes in the gold purchase price will have an equal effect on the Company’s cost of sales.
35
Debt and Interest Rate Risk
Floating rate debt at July 31, 2021 and 2020 totaled zero and 2019 totaled $48.3 million (35 million in Swiss francs and $10 million) and $50.3 million (50 million in Swiss francs), respectively. The debt outstanding at July 31, 20202021 is based on LIBOR plus 2.75% per annum. As ofDuring the six months ended July 31, 2020,2021, the Company had weighted average borrowings of $68.6$9.8 million with a weighted average interest rate of 1.92%2.79%. The Company does not hedge these interest rate risks. Based on the average floating rate debt outstanding during the six months ended July 31, 2020,2021, a one-percent increase or decrease in the average interest rate during the period would have resulted in a change to interest expense of $0.3 millionapproximately $36,000 for the six months ended July 31, 2020.2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, it should be noted that a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that its objectives will be met and may not prevent all errors or instances of fraud.
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months ended July 31, 2020,2021, that havehas materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHEROTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a statement that such an estimate cannot be made.
In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply approximately $5.1 million in underpaid duties over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. TheSince February 2017, the Company continues to providehas been providing U.S. Customs with supplemental analyses and information supportingin response to U.S. Customs’ information requests. Most recently, the Company received summonses from U.S. Customs in December 2020 requesting additional information regarding component parts costs and the Company’s historical allocation formulas.procedures for allocating the value of imported watches among the component parts. The Company responded to these summonses in January 2021. Although the Company disagrees with U.S. Customs’ position and believes that the information it has provided supports the reasonableness of its historical allocation formulas, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S. Customs to reach a mutually-satisfactory resolution.
In addition to the above matter, the Company is involved in other legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition, future results of operations, beyond the amounts accrued, or cash flows.
Item 1A. Risk Factors
As of July 31, 2020,2021, there have been no material changes to any of the risk factors previously reported in the Company’s 20202021 Annual Report on Form 10-K.
This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed with the Securities and Exchange Commission on March 26, 2020 (the “2020 Form 10-K”), and is based on the information currently known to us and recent developments since the date of the 2020 Form 10-K filing. The matters discussed below should be read in conjunction with the risk factors set forth in the 2020 Form 10-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the 2020 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock, particularly in light of the fast-changing nature of the COVID-19 pandemic and its impacts on economic and operating conditions.
The recent COVID-19 novel coronavirus, or other public health threats and epidemics, could materially adversely affect our business.
In late 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) that began in Wuhan, China that has since spread to other regions in China and the rest of the world. The World Health Organization recognized COVID-19 as a pandemic on March 11, 2020. In response to the outbreak, in mid-March 2020, the Company and the majority of the Company’s wholesale customers temporarily closed all of their retail stores due to health concerns associated with the COVID-19 pandemic. Although the Company reopened all of its retail stores during the second quarter and most of the Company’s brick and mortar wholesale customers have reopened the majority of their retail locations as well, the discretionary consumer goods segment remains highly challenged. Various containment and mitigation measures that have been imposed by governmental and other authorities around the world (such as quarantines and other social distancing requirements) have already adversely affected sales of our products, given that those sales are heavily dependent on customer traffic in traditional retail stores, such as those of our wholesale partners, and our Company stores. Such measures have also adversely impacted our supply chain and resulted in late deliveries. The continuation or tightening of such containment and mitigation measures could continue or exacerbate the adverse effect on our results of operations and financial condition. In addition, as potential consumers of our products face layoffs and other negative economic impacts from the COVID-19 outbreak, their disposable income for discretionary purchases and their actual or perceived wealth may be negatively impacted, potentially having a materially adverse impact on our sales that may extend beyond the end of the health crisis.
Adverse general economic conditions arising from the COVID-19 outbreak, or from other public health threats and epidemics, could also result in an increase in bankruptcies or insolvencies involving our suppliers and wholesale customers, which could also have a materially adverse effect on our operations and financial condition. The impact of the outbreak of COVID-19 on the Company’s liquidity, revenues and results of operations cannot be predicted at this time due to the high level of uncertainty, unknown future developments and duration of containment measures.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 29, 2017, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time. This authorization expired on August 29, 2020. On March 25, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to $50.0$25.0 million of its outstanding common stock from time to time, through August 29, 2020, depending on market conditions, share price and other factors. TheUnder this share repurchase program, the Company mayis permitted to purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. This authorization expires on September 30, 2022. During the three months ended July 31, 2020,2021, the Company did not repurchase anyrepurchased a total of 322,765 shares of its common stock.stock at a total cost of $9.7 million, or an average of $29.93 per share.
At the election of an employee, upon the vesting of a stock award or the exercise of a stock option, shares of common stock having an aggregate value on the vesting of the award or the exercise date of the option, as the case may be, equal to the employee’s withholding tax obligation may be surrendered to the Company by netting them from the vested shares issued. Similarly, shares having an aggregate value equal to the exercise price of an option may be tendered to the Company in payment of the option exercise price and netted from the shares of common stock issued upon the option exercise. An aggregate of 10,379There were no shares were repurchased during the three months ended July 31, 20202021 as a result of the surrender of shares of common stock in connection with the vesting of certain restricted stock awards and stock options.
37
The following table summarizes information about the Company’s purchases for the three months ended July 31, 20202021 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:
Issuer Repurchase of Equity Securities
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Amount that May Yet Be Purchased Under the Plans or Programs |
| ||||
May 1, 2020 – May 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 36,405,816 |
|
June 1, 2020 – June 30, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,405,816 |
|
July 1, 2020 – July 31, 2020 |
|
| 10,379 |
|
|
| 10.36 |
|
|
| — |
|
|
| 36,405,816 |
|
Total |
|
| 10,379 |
|
| $ | 10.36 |
|
|
| — |
|
| $ | 36,405,816 |
|
Period |
| Total |
|
| Average |
|
| Total |
|
| Maximum |
| ||||
May 1, 2021 – May 31, 2021 |
|
| 5,790 |
|
| $ | 29.86 |
|
|
| 5,790 |
|
| $ | 24,511,334 |
|
June 1, 2021 – June 30, 2021 |
|
| 231,285 |
|
|
| 29.93 |
|
|
| 231,285 |
|
|
| 17,588,577 |
|
July 1, 2021 – July 31, 2021 |
|
| 85,690 |
|
|
| 29.92 |
|
|
| 85,690 |
|
|
| 15,024,558 |
|
Total |
|
| 322,765 |
|
| $ | 29.93 |
|
|
| 322,765 |
|
| $ | 15,024,558 |
|
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Item 6. Exhibits
| ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following financial information from Movado Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, | |
104 | Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL). |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MOVADO GROUP, INC. | ||||
(Registrant) | ||||
Dated: August | By: | /s/ Sallie A. DeMarsilis | ||
Sallie A. DeMarsilis Executive Vice President, Chief Operating Officer, Chief Financial Officer and Principal Accounting Officer |
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