MOV - Earnings call transcript Q2 2020

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Operator

Good day. Welcome to the Movado Group, Inc. Fiscal Second Quarter 2020 Earnings Conference Call.

As a reminder today's call is being recorded and may not be reproduced in whole or in part without permission from the company.

At this time, I would like to turn the call over to Rachel Schacter of ICR. ahead. go Please

Rachel Schacter

morning Efraim Good Sallie me the on Chief Thank Chairman everyone. and is Grinberg, Officer. and Chief call Financial you. With Executive DeMarsilis, Officer;

Litigation the would Before deemed started, familiar to Act may within which with. Reform in statements I'm like are company's contained all Safe the statements constitute the conference to sure we forward-looking you're Harbor I Private XXXX. meaning be remind this get The not which language facts, Securities you of of call, historical

Actual may statements includes which which filings results uncertainties, of differ future company's suggested materially SEC of in due risks today's from press such are all number the the those described release. in to a with and

a to the financial supplemental release. If comparable GAAP non-GAAP directly this financial presentation press of be any measure information this non-GAAP financial provided measure most measure is financial will used our as in call, on

over Group. turn Now, Chairman Movado of call I'd and to Officer to like Efraim Executive Grinberg, the Chief

Efraim Grinberg

strategic will investments we results have. initiatives our the year. glad for to morning performance Thank quarter Sallie quarter highlights a second be would you, our the Rachel. And some with discuss review of and updated of outlook. begin quarter that questions then and welcome may call. you ongoing financial our then review you and the I'll and conference brand And Movado then with answer share second and any for Group's to good

on the constant For by grew to or quarter, sales a million X.X% currency basis. $XXX.X XX%

basis. X.X% MVMT, year, of on of constant acquired quarter currency last the the grew which in we addition by third a sales Excluding

same and million at of versus income impact, reflected operating ongoing headwinds. quarter for Movado Our operating was MVMT discussed building year. previously $XX.X in the the gross decline income strong $XX.X XX.X% significant brand despite currency into for period The Adjusted Group. margin quarter our currency the the investments, million in last remained integration

majority of fourth its year. currently makes of have the discussed, previously the quarter the profits we As MVMT during

reflect the our The $X.XX excluded quarter estimated During we for the quarter, brand. projections the per results. growth revalued GAAP contributed current for adjusted to share earnings in and is for MVMT our from the contingency payments reevaluation

and to to about prospects. continue expect ongoing MVMT we sales excited contribute growth its remain and profit long-term We

to very We a also balance $XXX continue with in maintain sheet cash. almost strong million

our recognize We our for wholesale operating trade are market increasingly and tensions in changes even environment category ongoing a partners that an more volatile challenging policy. we in made by global and and

we global visibility is level reduced basis. that in on retail channel There a a of distribution operate in the

expected In currency are affecting and addition, imported facing headwinds China the we Xst. September watches impact from of beginning tariffs

these outlook challenges, for are the year. the we today our updating of balance Given

have We Olivia the international we and innovation, are and important are the of both that deliver the product building center excellence on over MVMT, the confident acquisitions that decisions made of in strategic bottom-line. market of position to the top our us results the years and to establishment right few last digital investments Burton our

to continue habits consumer it products to in our and At to making and a mind brands we preferences of evolving, is our the use when feel shopping are important with resources consumer. time invest top

shift years changes a conducted. Our being few and and over last challenges are impact in sales facing of including category the retail smartwatches and is the where significant significant how

in environment, are and quarter responded fiscal movado.com for over grew proactively year. second to double have and is note this pleased the to this on XXX% We by that track sales in

and new campaign Ceramics, our like spring online introducing Movado are and accomplishing were a XX our We products innovative consumers. resonated strong video driven new BOLD in Evolution, Modern with results television by Museum collection. Bold that this content The by

quarter. in helped sell-through during specialty second store the department These and channels our biggest also our efforts

to able saw saw behind we channel, direction in our program heading we the While strong that we and important strategy. we right Movado in momentum of in our are us not results product mall-based marketing Yet Movado channels, with an strong our jewelry store marketing distribution. offset spring were part the declines convinced these that

season, available product excited horizon sizes are new Movado for about powered as on ceramic by For new Wear, men new the Bold first for the we introductions as fall OS we that our Fusion, new featuring and Google's a X.X Connect a and Movado in Evolution bezel two strong Her our our including smartwatch Bold women. well have the Men's

great retailers' as the to business about of support producing driving as and products content excited our new We're our performance. well new e-commerce are launch these terrific

to for demand we point-of-sale both China, our region. the this brand, as Movado in and investments increase driving begun In we have the make online marketing progress at in

In the our Europe, we strong portfolio, drove licensed and double-digit market Middle in Asia, share and Americas. with both internationally especially East, domestically, gains brand growth the but

digital have We other excited about continued this fall. accomplished initiatives product we across and in this investment our marketing and efforts, our strong innovation brand with are for portfolio

U.K. the surrounding headwind the uncertainty is facing Brexit. for watch and with continued is significant market an our fashion now environment important brands, retail

Coach women fall As new a excited for With partners about products slim driven well products and Perry digital at product for us season. Audrey, and our to brands we like the specific for are season by look watch innovations, introductions the category-leading upcoming retail supported like compelling Charles, marketing. in continues holiday our portfolio, crystal-set by perform new

We are of our China sale investments traction see to both retail in also beginning points gain in online. and our

in strong the have Tommy We Hilfiger world. growth around seen

association marketing and Tommy to that interactive Hilfiger assortment we will few the shop-in-shop partnered with limited fall, product able compelling along Macy's are their Square a basis excited brand we powerful This Hilfiger Herald a we been at introduce to Over new a growth. jeans Tommy drive has years, Tommy on last collection. also launch with watch double-digit have a ambassadors, brand the create to with

while sell-through our the in spring, Yet, in We Brexit-challenged Edition HUGO past strong In we fashion the response we have facing one number from Germany, chronograph. we strong headwinds especially BOSS, Ocean U.K. seen watch brand saw that that introduced and France remain a products this market. the in

products seen brand like momentum and new LACOSTE in closely have past our Crocodile by the driven strong the several Parisian iconic the collection. with quarters, For associated we

also with We results billboard campaign. the innovative and of driven including influencers marketing, these use localized have

a prospects will category. integration We're the make its support continue brick-and-mortar launch to MVMT accessories of providing into true in powered Movado distribution, brand wholesale the fall, U.S. SAP with to watch by develop progress with we of to This channel, platform the global August of the We've continuing X. MVMT e-commerce presence. operations the excited business We our the MVMT into integrated as MVMT Group's the and infrastructure. successfully about migrated distribution

is developed invest will of Angeles, on by and the Los TV campaign, groundbreaking product team support in launched We digitally. wholesale a the being national introductions, support business. cable as in our rollout, new e-commerce new be which well to This campaign strong as will

when we success saw spring, watch which this in field our launched collection, out styles. sold We quickly new several in

We strong a also launched to response. men's jewelry

– to our Everscroll We computer both from continue MVMT collection by and sunglasses well to very iconic MVMT with screens. perform with users light protect generated

quickly part MVMT our from been the under we watch about. the Burton new team became now excited for start. of contributor which has a launch been sea our all a that collection, and we are quarter, the will years, bestseller. During Olivia company two very strong MVMT the introduced collection has Elements This third the spring,

their well the will perform be for collaborating Garden our becoming in see store U.K. – more collection of Cadbury the season, important tin believe Olivia continues will Our Burton to an great exposure are Covent we This coming jewelry in and very with iconic Burton. this holiday and be for even Olivia great part brand. we Christmas

addition, holiday campaign the U.S. we launch new a In in also will support to our sales. video

outlet our to Turning stores.

held continued rents on basis, an soft margins gross strong, stores flat sales traffic and saw new with several overall expenses while in increased back profitability. increasing quarter second our driven by remain locations The

several initiatives gaining Our environment. drive teams improvement. are share Movado infrastructure a The in market Group we and working marketing investments help leading our traffic making are in the are brands, difficult to on

a to navigate, powerful we steps make We a have foundation, taking sales continuing invest Group with which strategy sustainable are a profit drive brand, has developed to for while sure global We to the Movado place has right difficult and that in to the growth future. to solid team believe fortunate talented the long-term. that environment, innovation a and are strong for

putting we the and compelling place in of second we're looking consumers. for the are year, that delivering to initiatives half our the products With exciting forward to

turn Now, to I Sallie. would call to like the over

Sallie DeMarsilis

and everyone. Thank you, good Efraim, morning,

begin I'll a our quarter and balance call, with second For our outlook. and then financial discuss of sheet, review today's results

I begin, for the XXXX and the I results in items point our XXXX. special out to fiscal half of first included fiscal like Before would

Movado primarily Group Included of amortization the six MVMT fiscal $X.X assets, compensation accounting describes also a and XXXX adjustments, table GAAP October to MVMT of to measure. acquisition. of release comprised X, press in includes intangible these Our of deferred non-GAAP of purchase million related on and items the pre-tax charges, months was the XXXX. acquired

diluted second the this charge pre-tax tax, dollars XXXX. of After $X.X million per after equates share. or $X.XX the $XXX,XXX $X tax in charge million or fiscal to quarter was of

include equates Our to pre-tax connection GAAP charge, with is diluted share. related to of second last year results million the $X.XX MVMT. after-tax $X This which pre-acquisition per quarter the expenses $XXX,XXX for in or

second of $X.XX the MVMT related gain $XX.X acquisition the or million liability included income in per re-measurement the share. XXXX. $XX.X non-cash up the benefit this quarter diluted of After-tax fiscal equates non-operating Additionally, million a associated with contingent to consideration to

certain included will as well These and to hurdles, the assumptions re-measured the by we changes the volatilities estimates XXXX. expect losses in key future estimated consideration fair purchase brand as or and you discount As value to performance of recall, upon for be, revenue brand's recognize as contingent rates that may payments the and payments be and achievement case based other through contingent of will assumptions. gains EBITDA determined financial be fiscal performance periodically future two MVMT

Similarly the acquired per share. Movado million to XXXX share. the non-cash X, intangible assets. for acquisition of fiscal approximately results which related included Group or equates equates XXXX diluted after-tax Olivia $X.X first of on charge, million or per related million to the half After-tax $X.X $X.X fiscal Burton of $X.X $X.XX July approximately of a XXXX. the first half the in diluted million amortization was Included the acquired of to charge $X.XX

of in included equates which remaining fiscal six the the for our discussed. the the $XXX,XXX diluted per balance XXXX exclude special results fiscal of with months initiatives. the $XXX,XXX estimate GAAP remarks savings $X.XX in to connection benefit, pre-tax after-tax accrual will share just my cost for first items or of The XXXX Our change

our Now turning to results.

owned quarter of fiscal and quarter licensed was million $XX.X increase $XXX.X our driven sales second fiscal overall growth the were from or second XXXX. of million, the sales brands. increase a in For The XXXX, by X.X% both in

sales for million To a compared were of U.S. constant period brand last Sales in end this million, sales increased brand dollars year. and our in the watch brand In and dollars, increased segment sales X.X% internationally. our were accessories same categories. constant and in and the as by accessories both up XX.X% increase watch owned in $XXX.X driven of brand XX.X% licensed $XXX.X sales to

By Europe, The XX.X% year. and quarter There last second sales increased geography, and million in million to to In business strongest our the business year. million brand dollars, X.X% $XX.X unfavorable increased with brand compared the of currency international second the growth U.S. East fiscal $XX.X was and the million constant the sales X.X% prior America. compared accessories impact watch international a to being accessories to Latin of $XX.X XXXX. Middle watch significant quarter increased to in $XX.X

XX% locations of XX in mix. by was The offset basis channel increase year. For by These or in of increased one unfavorable store profit quarter, currency margin rates. gross change as due exchange compared end driven sales, the year. the sales partially including retail was the and flat operated and to million the quarter, higher second quarter in $XX.X of last point are product locations last fixed primarily XX.X% costs leverage on to million Canadian to or foreign year. $XX.X favorable the was XX outlet last the the XX we business compared to At company's Gross

operating This our Operating expected to newest sales which brand Contributing last in costs This MVMT, related our expenses mix joint business was to and in The venture initiatives than future latest our $XXX,XXX. of profit growth leading currency included offset same approximately reduction quarter. increase Spain operating recent and operating as of income by was XX.X% impacted the of $XX.X second period the $XX the growth MVMT over the positive in locations. expansion million, in in expenses the inclusion of headwind, impact income for an to million for the increase more year operating combined a and gross period. year. unfavorably channel our outlet were increase with product such current

second expense of XX.X% effective of in effective an the tax tax million or tax Income income XX.X% fiscal $X.X XXXX, quarter second compared in quarter other tax the impacted the quarter by $X.X the million earnings expense for rate recorded timing rate year. effective rate of to items. XXXX The second or of discrete jurisdictional of was fiscal and of prior tax and changes in the

XXXX impact in $X.X currency positive $XX.X impacted due or $X.XX. share. fiscal second quarter second per tax of or second $X.XX the to in the million effective by diluted per of in lower EPS of earnings XXXX income on in per $X.XX The rate per headwinds share net The the Net was year share diluted negatively quarter was $X.XX fiscal versus the diluted period. ago quarter million the share income

for XX, ended our at from basis, XXXX. six-month year-to-date looking Now On constant were results. million, dollar increase XXXX sales increased the of fiscal $XXX.X XX.X%. an Sales a period July XX.X%

Gross compared $XXX.X the to the discussed. as of to was a margin sales million the current or year similar The sales increase the XX% in of gross second result XX.X% year. of or for just months last quarter profit was percent six first reasons $XXX.X million

of period. per million income Net million For $X.XX in share to the or compared ago ended six million year XX, months to per diluted the was XXXX. share net was or XXXX, in income $XX.X $XX.X $XX.X July million operating as diluted $XX.X $X.XX income fiscal compared

$XXX.X year-over-year our MVMT third last year, on decrease borrowed last Now our of of balance of by of end was offset the primarily turning Cash end the second year. in at was quarter million revolver. $XX $XXX.X to sheet. the by at acquisition million partially driven quarter versus The quarter the million

year increase $X.X at primarily a the million, year, Inventory due This well Accounts joint to the the compared to support overall period. inventory $XXX receivable was was our in growth million up newest increase prior million to the of the end venture, of our in Spain MVMT, as to due was as the from brand sales. to as last New same period sales. $XX.X quarter related

Capital potential This Burton. $X.X million and repurchased approximately included related we of offset under repurchase the both from was stock $X.X expenditures months our of for expense Year-to-date amortization million to dilution stock $X.X six depreciation and the amortization share program, million. to million Olivia were of awards. primarily assets $X.X and the acquired intangible MVMT

I will discuss for XXXX. now fiscal outlook updated our

As Efraim our an environment be continues increasingly are our to in global and and the volatile. market mentioned, challenged category partners operating wholesale

beginning watches British headwinds the we China are addition, of with Euro currency imported from pound specifically facing the and and more In tariff affecting the September impact X.

we challenges, year. our of for these prudent was update the Given felt balance the to it outlook today

Gross to the approximately for For of percent slightly to of year. sales fiscal flat impact down million. $XXX and due from a margin currency million remainder XXXX, be anticipated now of mix range be in year, to the sales last are unfavorable to the $XXX to

invest discussed, operating continue for business will a strong for and opportunities expenses, future our we As growth. as to in have important we foundation initiatives to provide

date We Spain or sales the weighted have acquisition not the joint MVMT as continue of while of execution year the to than prior heavily anniversaried of make the to a these expect since timing our we investments, percentage venture.

million effective million. be $XX.X now range and $XX tax to reflects a to the income rate. in net of of income in million a approximately projected approximately million This is XX% to Operating now $XX is expected range be $XX to

of be in fiscal continued a support Capital to range for expectation updated share site. diluted XXXX $XX $X.XX. million in earnings $X.XX include at our improvements to in expenditures to fiscal estimated XXXX, Our approximately is per and amount e-commerce

The $XX.X consideration for the fiscal the and excludes for million and provided $XXX,XXX the change in initiative. of amortization acquisition of expenses the liability fiscal have of remeasurement the related savings related intangible we and contingent cost acquisitions to for million Olivia XXXX outlook estimate $X assets MVMT remaining other accrual the MVMT the Burton. to of The the for approximately XXXX acquired

assumes foreign The prevailing can therefore pound further and our impact further considerable British prevailing currency significant deterioration fluctuations a Euro which foreign in rates. tariff exchange company's outlook currencies outlook of or from results. Our no contemplate as such rates have on not the also no assumes does changes

would like up call now questions. I to open the for

Operator

comes question. Our a Instructions] from question line this proceed we'll you. Thank question-and-answer your conducting with Oliver At the of first Company. Cowen be time, Chen [Operator and with Please session.

Oliver Chen

morning. Good you. Thank Hi.

what reduced what as retail well U.S. on Regarding your as And across with geographies wholesale? your of you. globally Thank and trends driving in retail the visibility of comments, versus what's terms are thoughts seeing within the you're channels? level

Efraim Grinberg

Sure.

especially the So, also of going brick-and-mortar getting economies tensions. do it on a channels, lot obviously People world, of in have challenges with channels volatility lot lot a e-commerce commentary slowing Europe Brexit. also with of -- but you're trade you global around with of globally then about having and to a the

U.K. So sales been challenged of highly last months. over number have the retail

I combination and what reduces So, you you factors think future. see predictability many all time. the have That at out visibility that same of the the for there converging the of different

Oliver Chen

implications on change in U.S. inventory your And channel when what growth well? wholesale as the thoughts you And does revenue Sallie guidance growth, inventory the much relative having too zoom are to for out have your now?

Efraim Grinberg

still is especially the being challenged. see the U.S. So channel jewelry think we mall-based I

those investments. some programs have We and the some to marketing to what's spring, seen make programs results out -- are in from we marketing that's seeing rolled those significant as strong continue we encouraging

fall, the our I'll For address let inventory. Sallie

Sallie DeMarsilis

of levels new the businesses We're very with then comfortable with that this has purchases. to inventory obviously, inventory do lot before. joined quarter higher year and timing the than, second have levels. our our team A yes it are the of So the

be the So track the we expect of with at year. to inventory levels close on those

Oliver Chen

relevant are earnings. tariffs? the happening? tariffs very given the in And portfolio percentage how them impact a planning topic exposed to execute is of your about scenario to and well on And you to really Okay. What as dynamism this how the consumer of as strategizing your most are

Efraim Grinberg

Sure. Sure.

it's in process. the very So I think early on

initiatives, working affect just an in it business September in and They So profits. and U.S. we some terms will have certain on of effect gross to of watch predominantly, will effect actions take will suppliers do fashion pricing Xst. take our with our terms

an Obviously have believe affect as But definitely our on the brands the So -- I smartwatch. our business international impact licensed in businesses. don't U.S. U.S. affects MVMT business. they U.S. so well our in it as and

Oliver Chen

or Okay. in but competitive been remarks is also in speaking the Those the and for there category something our the you And called being economy very e-commerce even watch you're your incrementally different seeing that have of your factors and nature competition prepared perspective just while, generally smartwatches. a the Efraim called also to on the about circular the that environment? you changes trends

Efraim Grinberg

seeing sales we're and to our think the years investments. in we've to able testament the continue. I which think our And seen our past this team we're of our is seeing and initiatives really trends I a number environment, that grow in

believe generally and do to out the the that we sign our out share always in of maintain investments and to helped gaining to we it's it's of in are business it's excitement a declining thing type expensive more that So and getting to cycles. support obviously, past us market we -- but continue more come our are, it's right will stronger that is paying off that these because market, a do

Oliver Chen

does question business the done? interesting. on underlied? business? our MVMT at to on deal what how time, you to perspective was Why was thoughts the compare revaluation modeling is MVMT From it a the And your relative And that Okay. last the which the like acquired

Efraim Grinberg

then So I'll first then revaluation. bit a and last part the about start with talk part and Sallie -- the little the let

an in that add -- seeing growth both will just medium-term for in sales this MVMT and It’s the in and So the sales that and the the future we're and still long-term. over short-term profits achieve level staged can time that we was four-year that to three transaction of earn-out, believe not and period and terms will of a it that growth, of is and in change.

in and an to a excited the learnings nicely added still to So talk to to really content growing but about we're the from the we've excited gotten to really going really perspective e-commerce us and consumers be of the the U.S. has that for about lot we're and today perspective acquisition, how rollout the company. strength it's And globally. and wholesale

Sallie DeMarsilis

actually at years' earn-out it's first average to payouts time. and two touched based points lot And years, in sales direct-to-consumer just the ago. a to EBITDA that as so going end happens, moment then, one one of at perspective two comments there's growth so payment well over two average estimate an related second looking his as to business the forecast wholesale a of be next of And and where the up Efraim, defined four the global on The line, years, the you're the from as of at the top of by the calculation the agreement. both the on

a very process. it's complicated So

will annually, periodically be that calculation And and have it. looking adjusting at to we

adjustment would of would fiscal things continue through expect to which our earn-out of large So category, happened you the but the XXXX. end with is that this upon end period, this based up the first the other we at the be happening to be globally one a is fine-tuning fairly

Oliver Chen

much. you Thank Best very of luck.

Sallie DeMarsilis

Okay. Thanks, Oliver.

Efraim Grinberg

being our call thank we Thank for listening I'd you forward everybody talking end to you. our for to quarter. on Thank you. the third look And at to and today of and like

Operator

Thank This teleconference. you. today's concludes

lines at for Thank this disconnect participation. you may your time. You your

Movado (MOV) 28 Aug 192020 Q2 Earnings call transcript