Movado Group, Inc. Announces Second Quarter and Six-Month Results
PARAMUS, N.J., Sept 02, 2010 /PRNewswire via COMTEX/ -- Movado Group, Inc. (NYSE: MOV), today announced second quarter and six-month results for the period ended July 31, 2010. The Company completed the closure of its boutiques on June 30, 2010 and results for the boutiques for the quarter and six-month period are reported as discontinued operations. All financial results in this press release are for continuing operations unless otherwise stated.
Adjusted loss from continuing operations in the second quarter of fiscal 2011 was $1.1 million, or $0.04 per diluted share, compared to adjusted net income from continuing operations of $2.3 million, or $0.09 per diluted share in the second quarter of fiscal 2010. On a GAAP basis, loss from continuing operations in the second quarter of fiscal 2011 was $2.1 million, or $0.08 per diluted share, which included a tax provision due to non-cash deferred tax expenses of $0.9 million, or $0.04 per diluted share, related to changes in valuation allowances on deferred tax assets, taxes on repatriated foreign dividends and the application of interim tax reporting guidelines. This compares to income from continuing operations of $1.5 million, or $0.06 per diluted share for the second quarter of fiscal 2010, which included a pre-tax charge of $1.3 million, or $0.03 per diluted share, in interest expense related to the refinancing and repayment of the Company's former credit and note agreements. Net loss for the second quarter of fiscal 2011, including the results of discontinued operations, was $19.8 million, or $0.80 per diluted share, compared to net loss for the second quarter of fiscal 2010 of $0.2 million, or $0.01 per diluted share, both of which also include the aforementioned special items.
Second Quarter Fiscal 2011
- Net sales in the second quarter of fiscal 2011 increased 2.9% to $85.4 million compared to $83.0 million in the second quarter of fiscal 2010 primarily driven by growth in the licensed brand category. Excluding excess discontinued product sales of $1.0 million in the prior year quarter, net sales increased 4.1%.
- Gross profit was $45.6 million, or 53.4% of sales, compared to $47.4 million, or 57.1% of sales in the second quarter last year. Excluding excess discontinued product sales, adjusted gross margin in the second quarter of fiscal 2010 was 57.7% of sales. The gross margin percentage was unfavorably impacted by a shift in channel and product mix, and by fluctuations in foreign currency.
- Operating expenses increased 8.5%, to $46.6 million versus $42.9 million in the second quarter last year. Operating expenses in the second quarter of fiscal 2011 include a $2.3 million increase in marketing expense and a $2.2 million increase due to the unfavorable transactional effect of foreign denominated assets held in weakening currencies, partially offset by a decrease in expenses in most other areas.
- Operating loss in the second quarter of fiscal 2011 was $1.0 million compared to operating income of $4.5 million in the same period last year.
- Adjusted EBITDA in the second quarter of fiscal 2011 was $2.7 million compared to adjusted EBITDA of $8.6 million in the second quarter of fiscal 2010. The aforementioned special items had no material impact on EBITDA in the second quarter of either fiscal year period (see attached table for reconciliation of GAAP to non-GAAP measures).
First Half Fiscal 2011
- Net sales in the first six months of fiscal 2011 increased 9.7% to $158.2 million compared to $144.2 million in the same period of fiscal 2010 primarily driven by growth in both the U.S. and international wholesale categories. Excluding excess discontinued product sales of $5.2 million in the prior year period, net sales increased 13.9%.
- Gross profit was $85.8 million, or 54.2% of sales, compared to $79.2 million, or 54.9% of sales in the same period last year. Excluding excess discontinued product sales, adjusted gross margin in the first six months of fiscal 2010 was 57.5% of sales. The gross margin percentage was unfavorably impacted by a shift in channel and product mix, and by fluctuations in foreign currency.
- Operating expenses increased 8.0%, to $90.2 million versus $83.5 million in the same period last year. Operating expenses in the first half of fiscal 2011 include a $5.5 million increase in marketing expense and a $4.6 million increase due to the unfavorable transactional effect of foreign denominated assets held in weakening currencies, partially offset by a decrease in expenses in all other areas.
- Adjusted operating loss in the first six months of fiscal 2011 was $4.5 million compared to $3.6 million in the same period last year (see attached table for reconciliation of GAAP to non-GAAP measures). On a GAAP basis, operating loss in the first six months of 2011 was $4.5 million compared to $4.3 million in the same period last year, which included the aforementioned special items in fiscal 2010.
- Adjusted EBITDA in the first six months of fiscal 2011 was $2.7 million compared to an adjusted EBITDA of $4.3 million in the same period of fiscal 2010 (see attached table for reconciliation of GAAP to non-GAAP measures). Including the aforementioned special items, EBITDA in the first six months of fiscal 2011 was $2.7 million compared to EBITDA of $3.6 million in the same period of fiscal 2010.
- Adjusted loss from continuing operations in the first six months of fiscal 2011 was $4.5 million, or $0.18 per diluted share, compared to adjusted loss from continuing operations of $4.2 million, or $0.17 per diluted share in the same period of fiscal 2010. On a GAAP basis, loss from continuing operations for the first six months of fiscal 2011 was $6.8 million, or $0.27 per diluted share, which included a tax provision with non-cash deferred tax expenses of $2.3 million, or $0.09 per diluted share, related to changes in valuation allowances on deferred tax assets, taxes on repatriated foreign dividends and the application of interim tax reporting guidelines. This compared to loss from continuing operations of $5.5 million, or $0.22 per diluted share for the same period last year, which included a pre-tax charge of $1.3 million, or $0.03 per diluted share, in interest expense related to the refinancing and repayment of the Company's former credit and note agreements. Net loss for the first six months of fiscal 2011, including the results of discontinued operations, was $30.5 million, or $1.23 per diluted share. This compares to net loss for the same period last year of $10.2 million, or $0.42 per diluted share, which also included the aforementioned pre-tax charge in interest expense related to the refinancing and repayment of the Company's former credit and note agreements.
Efraim Grinberg, Chairman and Chief Executive Officer, stated, "We remain committed to executing our plan to return our company to profitability. We are continuing to experience improvements in retail sell through of our products, particularly in our licensed brands and our iconic Movado brand. As we return our focus to our wholesale business, we are pleased that we successfully completed the closure of our retail boutiques as planned. Our balance sheet remains strong with cash of $54 million at the end of the quarter after paying the majority of the cash portion of the closing costs of the retail boutiques. We are now very well positioned to capitalize on our portfolio of great brands, leverage our existing infrastructure and achieve sustainable sales and profit growth. We look forward to discussing our multi-year strategic plan with investors on September 15th."
Fiscal 2011 Guidance
Based on performance in the first half of the year, the Company maintained its guidance for fiscal 2011. The financial results of the retail boutiques are reported as discontinued operations and, as previously announced, the Company recorded additional pre-tax restructuring charges of approximately $20 million related to the boutique closures that are included in discontinued operations. All guidance referenced refers to continuing operations only.
The Company continues to anticipate that its adjusted EBITDA from continuing operations will range between $20 million and $25 million in fiscal 2011. With the requirement to record a valuation allowance on the majority of its deferred tax assets, the Company anticipates recording a tax provision for fiscal 2011. The Company also expects to realize a $4.3 million reduction of expenses in the third quarter of fiscal 2011 due to the reversal of a retirement liability to the Company's former chairman. On an adjusted basis, excluding the $4.3 million reduction of expenses, the Company anticipates its fiscal 2011 results from continuing operations will range from a net loss of $3 million, or $0.12 per share to net income of $2 million, or $0.08 per share. This guidance continues to be predicated on a 12% to 15% sales increase for the year (excluding fiscal 2010 excess discontinued product sales) and an increase in operating expenses due to the Company's investments in brand building.
Upcoming Conference Calls
The Company's management will host a conference call today, September 2nd at 10:00 a.m. Eastern Time. A live broadcast of the call will be available on the Company's website: http://www.movadogroup.com/. This call will be archived online within one hour of the completion of the conference call.
The Company also plans to issue a release and host a conference call on September 15th at 10:00 a.m. Eastern Time to discuss its multi-year strategic plan. A live broadcast of the call will also be available on the Company's website: http://www.movadogroup.com/ on the day of the call.
Movado Group, Inc. designs, sources, and distributes Movado, Ebel, Concord, ESQ by Movado, Coach, Tommy Hilfiger, HUGO BOSS, Juicy Couture and Lacoste watches worldwide, and operates Movado company stores in the United States.
In this release, the Company presents certain adjusted financial measures that are not calculated according to generally accepted accounting principles in the United States ("GAAP"). Specifically, the Company is presenting adjusted operating (loss)/income, which is operating (loss)/income under GAAP, adjusted to eliminate the effect of losses on sales of discontinued inventory (which occurred in fiscal 2010). The Company is also presenting adjusted EBITDA, which is operating (loss)/income under GAAP, adjusted to eliminate the above-described losses due to sales of discontinued inventory and to eliminate depreciation and amortization. The Company is also presenting adjusted (loss)/income, which is (loss)/income under GAAP, adjusted to eliminate the losses on sales of discontinued inventory, refinancing expenses and fees associated with the refinancing and repayment of the Company's former credit and note agreements and a non-cash charge due to a change in valuation allowances on the Company's deferred tax assets, taxes on repatriated foreign dividends and the application of interim tax reporting guidelines. The Company believes that adjusted EBITDA, adjusted operating (loss)/income and adjusted (loss)/income are performance measures that are useful to investors because they eliminate the effect of items that the Company believes are not characteristic of its ongoing business. Furthermore, adjusted EBITDA is useful as a performance measure to investors, since it gives investors a measure of the Company's ability to generate cash to service its debt and other cash expenditures. These non-GAAP financial measures are designed to complement the GAAP financial information presented in this release. The non-GAAP financial measures presented should not be considered in isolation from or as a substitute for the comparable GAAP financial measure.
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company has tried, whenever possible, to identify these forward-looking statements using words such as "expects," "anticipates," "believes," "targets," "goals," "projects," "intends," "plans," "seeks," "estimates," "may," "will," "should" and similar expressions. Similarly, statements in this press release that describe the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the Company's actual results, performance or achievements and levels of future dividends to differ materially from those expressed in, or implied by, these statements. These risks and uncertainties may include, but are not limited to: actual or perceived weakness in the U.S. and global economy and fluctuations in consumer spending and disposable income, the Company's ability to successfully implement its brand strategy, the ability of the Company's brand strategy to improve its net sales, profitability and other results of operations, the Company's ability to successfully introduce and sell new products, the Company's ability to successfully integrate the operations of newly acquired and/or licensed brands without disruption to its other business activities, the ability of the Company to successfully manage discontinuation of the Movado boutique business, changes in consumer demand for the Company's products, risks relating to the fashion and retail industry, import restrictions, competition, seasonality, commodity price and exchange rate fluctuations, changes in local or global economic conditions, and the other factors discussed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. These statements reflect the Company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this press release are likely to cause these statements to become outdated with the passage of time. The Company assumes no duty to update its forward looking statements and this release shall not be construed to indicate the assumption by the Company of any duty to update its guidance in the future.
(Tables to follow)
MOVADO GROUP, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Continuing
Operations:
Net sales $85,388 $83,013 $158,192 $144,186
Cost of sales 39,823 35,606 72,440 64,981
------ ------ ------ ------
Gross profit 45,565 47,407 85,752 79,205
Selling, general
and
administrative
expenses 46,607 42,942 90,249 83,540
------ ------ ------ ------
Operating (loss)
/income (1,042) 4,465 (4,497) (4,335)
Interest expense (676) (2,172) (1,348) (2,716)
Interest income 27 20 54 71
--- --- --- ---
(Loss) /income from
continuing
operations before
income taxes (1,691) 2,313 (5,791) (6,980)
Provision for /
(benefit from)
income taxes 375 881 792 (1,533)
--- --- --- ------
(Loss) /income from
continuing
operations (2,066) 1,432 (6,583) (5,447)
Discontinued
Operations:
Loss from
discontinued
operations, net
of tax (17,703) (1,709) (23,675) (4,743)
------- ------ ------- ------
Net Loss (19,769) (277) (30,258) (10,190)
Less: (loss) /
income attributed
to noncontrolling
interests (15) (44) 207 6
--- --- --- ---
Net loss
attributed to
Movado Group,
Inc. ($19,754) ($233) ($30,465) ($10,196)
======== ===== ======== ========
(Loss) /income
attributable to
Movado Group,
Inc.:
(Loss) /income
from continuing
operations, net
of tax ($2,051) $1,476 ($6,790) ($5,453)
Loss from
discontinued
operations, net
of tax (17,703) (1,709) (23,675) (4,743)
------- ------ ------- ------
Net Loss ($19,754) ($233) ($30,465) ($10,196)
======== ===== ======== ========
Per Share
Information:
(Loss) /income from
continuing
operations
attributed to
Movado Group Inc. ($0.08) $0.06 ($0.27) ($0.22)
Loss from
discontinued
operations ($0.72) ($0.07) ($0.96) ($0.19)
Net loss
attributed to
Movado Group,
Inc. ($0.80) ($0.01) ($1.23) ($0.42)
Weighted diluted
average shares
outstanding 24,747 24,505 24,709 24,485
MOVADO GROUP, INC.
Reconciliation tables
(in thousands, except per share data)
(Unaudited)
Three Months
Ended Six Months Ended
July 31, July 31,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Continuing
Operations:
Operating (loss) /
income (GAAP) ($1,042) $4,465 ($4,497) ($4,335)
Sales of excess
discontinued
inventory (1) - (51) - 713
--- --- --- ---
Adjusted operating
(loss) /income
(non-GAAP) (1,042) 4,414 (4,497) (3,622)
Depreciation and
amortization 3,700 4,152 7,221 7,931
----- ----- ----- -----
Adjusted EBITDA
(non-GAAP) $2,658 $8,566 $2,724 $4,309
====== ====== ====== ======
Three Months
Ended Six Months Ended
July 31, July 31,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Continuing
Operations:
(Loss) /income
attributed to
Movado Group, Inc.
(GAAP) ($2,051) $1,476 ($6,790) ($5,453)
Sales of excess
discontinued
inventory (1) - (32) - 446
Refinancing expenses
and fees (2) - 839 - 839
Tax adjustments (3) 948 - 2,331 -
--- --- ----- ---
Adjusted (loss) /
income attributed to
Movado Group, Inc.
(non-GAAP) ($1,103) $2,283 ($4,459) ($4,168)
======= ====== ======= =======
Adjusted (loss) /
income per share
(non-GAAP) ($0.04) $0.09 ($0.18) ($0.17)
Weighted diluted
average shares
outstanding 24,747 24,505 24,709 24,485
(1) Losses associated with sales of excess discontinued inventory.
(2) Expenses and fees associated with the refinancing and repayment of
the Company's former credit and note agreements which included a
non-cash pre-tax charge of $0.2 million related to the accelerated
recognition of deferred financing costs and a pre-tax charge of
$1.1 million for fees due to the former lenders. Both charges were
recorded in Interest Expense on the Consolidated Statements of
Income.
(3) Actual taxes in the current period have been adjusted for a non-cash
charge to record changes in the valuation allowances on the
Company's net deferred tax assets, taxes on repatriated foreign
dividends and the application of interim tax reporting guidelines.
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
July 31, January 31, July 31,
2010 2010 2009
---- ---- ----
ASSETS
------
Cash and cash equivalents $54,326 $70,975 $47,474
Trade receivables, net 60,420 67,206 76,689
Inventories, net 204,643 204,096 245,850
Other current assets 47,329 38,014 41,560
Total current assets 366,718 380,291 411,573
------- ------- -------
Property, plant and equipment, net 40,521 47,394 60,920
Deferred income taxes 13,372 12,347 27,020
Other non-current assets 24,408 29,345 24,502
------ ------ ------
Total assets $445,019 $469,377 $524,015
======== ======== ========
LIABILITIES AND EQUITY
----------------------
Accounts payable $19,902 $22,661 $13,607
Accrued liabilities 41,095 35,161 38,445
Deferred and current income taxes
payable 545 541 2,890
--- --- -----
Total current liabilities 61,542 58,363 54,942
------ ------ ------
Long-term debt 10,000 10,000 40,000
Deferred and non-current income
taxes payable 8,013 7,874 810
Other non-current liabilities 20,707 21,688 20,190
Noncontrolling interests 2,001 1,884 1,700
Shareholders' equity 342,756 369,568 406,373
------- ------- -------
Total liabilities and equity $445,019 $469,377 $524,015
======== ======== ========
SOURCE Movado Group Inc.