Movado Group, Inc. Reports Fourth Quarter and Fiscal 2008 Results
PARAMUS, N.J., March 27 /PRNewswire-FirstCall/ -- Movado Group, Inc. (NYSE: MOV), today reported results for its fourth quarter and fiscal year ended January 31, 2008.
Full Fiscal Year 2008 Performance
Net sales for fiscal 2008 increased 5.0% to $559.6 million and included $31.2 million of excess discontinued product sales and a one-time accrual of $15.0 million for product returns associated with the Company's previously announced closing of approximately 1,400 wholesale doors selling the Movado brand in the United States (see attached table for a reconciliation of GAAP to non-GAAP measures). Year-ago net sales included $16.6 million of excess discontinued product sales. Adjusting for these items recorded in both periods, net sales rose 5.2% to $543.3 million. On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, and excluding the previously mentioned discontinued product sales and accrual for product returns, net sales rose 2.7%.
Adjusting for the aforementioned items in both fiscal 2008 and fiscal 2007 and unusual items recorded in fiscal 2007, gross margin expanded 150 basis points to 64.0% of sales compared to 62.5% of sales last year. Adjusted gross profit in fiscal 2008 was $347.7 million versus $322.9 million last year. Without adjustments, gross margin for fiscal 2008 and fiscal 2007 was 60.2% and 60.6%, respectively, and gross profit for those periods was $336.7 million and $322.9 million, respectively. Adjusted operating profit in fiscal 2008 was $61.8 million, or 11.4% of sales, compared to $56.1 million, or 10.9% of sales, in fiscal 2007. Without adjustments, operating profit in fiscal 2008 was $50.8 million, or 9.1% of sales, compared to $52.3 million, or 9.8% of sales, in fiscal 2007.
Net income for fiscal 2008 was $60.8 million, or $2.23 per fully diluted share, and included the following special items:
- a $20.8 million net realized tax benefit, or $0.76 per fully diluted share, related to the resolution of a tax examination by the Internal Revenue Service and the further utilization of net operating loss carryforwards (NOLs) associated with our non-U.S. businesses partially offset by;
- a $0.24 per fully diluted share impact related to the aforementioned accrual for product returns
Adjusting for the special items recorded in both years, net income for fiscal 2008 increased 13.1% to $46.6 million, or $1.71 per fully diluted share, compared to $41.2 million, or $1.54 per fully diluted share recorded in fiscal 2007.
Efraim Grinberg, President and Chief Executive Officer, stated, "Considering the challenging economic and retail environment in the U.S., particularly during the holiday season, we are pleased with our overall performance. In fiscal 2008, we achieved adjusted EPS growth of 11%, adjusted gross margin of 64%, and adjusted operating margin of 11.4%. These results were achieved because of our diversified business model -- both geographically and from a brand portfolio perspective. Today, approximately 50% of our wholesale revenue is generated outside of the United States. With our powerful brands and strong balance sheet, we are well positioned to weather these challenging times."
Fourth Quarter Performance
Net sales for the fourth quarter of fiscal 2008 were $138.6 million, or 2.6% below last year, and included the previously mentioned one-time accrual of $15.0 million and $8.9 million of excess discontinued product sales. Year- ago net sales included $4.4 million of excess discontinued product sales. Adjusting for these items recorded in both periods, net sales rose 4.9% to $144.6 million. On a constant-exchange-rate basis, which excludes the effect of translating foreign-currency-denominated sales into U.S. dollars, and excluding the previously mentioned discontinued product sales and accrual for product returns, net sales rose 0.8%.
Adjusting for the aforementioned items and unusual items recorded in both periods, gross margin expanded 120 basis points to 64.3% of sales compared to 63.1% of sales last year. Adjusted gross profit in the fourth quarter of fiscal 2008 was $93.0 million versus $87.0 million last year. Without adjustments, gross margin for this year and last year was 59.0% and 61.1%, respectively, and gross profit for those periods was $81.8 million and $86.9 million, respectively. Adjusted operating profit was $14.2 million compared to $15.0 million in the year-ago period. Adjusted net income was $10.8 million, or $0.40 per fully diluted share, versus $11.4 million, or $0.42 per fully diluted share last year. Without adjustments, this year's net income was $19.6 million, or $0.72 per fully diluted share, versus $14.0 million, or $0.52 per fully diluted share last year.
Rick Cote, Executive Vice President and Chief Operating Officer, stated, "In fiscal 2008, we significantly expanded our adjusted gross margins through new product introductions and a strong international performance. Importantly, our business remains a significant cash flow generator, with over $150 million in cash flow from operations provided over the past two years, and we possess a very strong balance sheet with a cash position of $170 million at fiscal 2008 year-end and a net cash position in excess of $100 million."
Mr. Grinberg concluded, "We remain focused on doing the right things for the long-term success of our business, positioning ourselves today to emerge even stronger when the domestic economy begins to recover. New initiatives are in place across each of our brands for this year and we look forward to the innovative products we plan to introduce at the Basel Watch Fair in April. We are also very excited about our Movado brand strategy, which builds on the strength and aspirational appeal of the brand across all channels through product, merchandising and marketing initiatives, along with a more streamlined distribution -- ultimately increasing productivity in remaining locations."
Share Repurchase Program
During the fourth quarter of fiscal 2008, the Company initiated a share repurchase program to buyback up to one million shares of the Company's common stock to reduce or eliminate earnings per share dilution caused by the shares of common stock issued upon the exercise of stock options and in connection with other equity based compensation plans. As of March 27, 2008, the Company had repurchased 599,207 shares of its common stock at an average cost of $19.30 per share.
Fiscal 2009 Guidance
Movado Group projects fiscal 2009 net sales will be in the range of $555 million to $565 million. The Company maintains its diluted earnings per share guidance of approximately $1.65 to $1.72, based on a projected tax rate of 24%. This guidance reflects a more cautious outlook on the U.S. economic environment, which the Company believes could be offset by favorable foreign exchange rates. This guidance continues to include an approximate $0.20 per fully diluted share negative impact related to expected wholesale door closings, certain expenses related to the Company's ERP implementation, and severance costs to be paid as part of the Company's previously announced Movado brand strategy. In fiscal 2008, the Company reported adjusted diluted earnings per share of $1.71, which excludes the aforementioned net tax benefit and the accrual for product returns.
The Company's management will host a conference call today, March 27th at 10:00 a.m. Eastern Time. A live broadcast of the call will be available on the Company's website: www.movadogroup.com. This call will be archived online within one hour of the completion of the conference call.
Movado Group, Inc. designs, sources, and distributes Movado, Ebel, Concord, ESQ, Coach, Tommy Hilfiger, HUGO BOSS, Juicy Couture and LACOSTE watches worldwide, and operates Movado boutiques and 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"). These non-GAAP financial measures are designed to complement the GAAP financial information presented in this release and management believes they present information regarding the Company that is useful to investors. The non-GAAP financial measures presented should not be considered in isolation from or as a substitute for the comparable GAAP financial measure.
The Company is presenting net sales and gross margin excluding excess discontinued product sales and a one-time accrual for product returns associated with the new Movado brand strategy because the Company believes that it is useful to investors to eliminate the effect of these unusual items in order to improve the comparability of the Company's results for the periods presented.
The Company is also presenting adjusted operating profit, which is operating profit excluding the impact of the product return accrual, an accounts receivable adjustment due to a change in estimate and an out-of- period foreign exchange adjustment. The Company is also presenting adjusted net income (and associated per share measures) which is net income excluding the diluted impact of the product return accrual, an accounts receivable adjustment due to a change in estimate, an out-of-period foreign exchange adjustment, a tax settlement with the IRS, the further utilization of NOLs from the Ebel acquisition and a gain on a sale of artwork. Management believes that presenting adjusted diluted earnings per share is useful for investors because it improves comparability of results for the periods presented by eliminating items that affect those line items that are not expected to recur, although such items may, in fact, recur in the future.
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 the new Movado brand strategy, the ability of the new Movado brand strategy to improve the Company's 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, 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.
(Tables to follow) MOVADO GROUP, INC. Consolidated Statements of Income (in thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended January 31, January 31, 2008 2007 2008 2007 Net sales $138,567 $142,261 $559,550 $532,865 Cost of sales 56,770 55,322 222,868 209,922 Gross profit 81,797 86,939 336,682 322,943 Selling, general and administrative expenses 78,618 71,907 285,905 270,624 Operating profit 3,179 15,032 50,777 52,319 Other income, net - 973 - 1,347 Interest expense (801) (936) (3,472) (3,785) Interest income 1,293 1,020 4,666 3,280 Income before income taxes and minority interest 3,671 16,089 51,971 53,161 (Benefit) / provision for income tax (16,162) 1,841 (9,471) 2,890 Minority interest 220 199 637 133 Net income $19,613 $14,049 $60,805 $50,138 Net income per diluted share $0.72 $0.52 $2.23 $1.87 Number of shares outstanding 27,201 27,012 27,293 26,794 MOVADO GROUP, INC. Reconciliation tables (in thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended January 31, January 31, 2008 2007 2008 2007 Operating profit (GAAP) $3,179 $15,032 $50,777 $52,319 Returns reserve provision (1) 11,000 - 11,000 - A/R reserve adjustment (2) - - - 6,000 Out-of-period FX adjustment (3) - - - (2,211) Adjusted operating profit (non- GAAP) $14,179 $15,032 $61,777 $56,108 Three Months Ended Twelve Months Ended January 31, January 31, 2008 2007 2008 2007 Net income (GAAP) $19,613 $14,049 $60,805 $50,138 Returns reserve provision (1) 6,600 - 6,600 - A/R reserve adjustment (2) - - - 3,706 Out-of-period FX adjustment (3) - - - (1,729) Sale of assets (4) - (524) - (524) Tax adjustments (5) (15,430) (2,158) (20,814) (10,385) Adjusted net income (Non-GAAP) $10,783 $11,367 $46,591 $41,206 Number of shares outstanding 27,201 27,012 27,293 26,794 Adjusted net income per share (non-GAAP) $0.40 $0.42 $1.71 $1.54 (1) Non-cash charge to sales returns reserve due to closing of certain wholesale doors in the U.S. The reserve represented a $15.0 million reduction in net sales with a related $11.0 million reduction in operating profit. (2) Non-cash charge to accounts receivable reserve due to a change in estimate. (3) One-time benefit recorded for an out-of-period adjustment related to foreign currency. (4) Gain on sale of a non-operating asset. (5) To present financials at a consistent 25% effective tax rate for both periods. Actual taxes in both periods reflect the utilization of net operating loss tax carryforwards and lower effective tax rates. Fiscal 2008 actual taxes also include a favorable settlement of an IRS audit. MOVADO GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) January 31, January 31, 2008 2007 ASSETS Cash and cash equivalents $169,551 $133,011 Trade receivables, net 94,328 111,417 Inventories 205,129 193,342 Other current assets 50,317 35,109 Total current assets 519,325 472,879 Property, plant and equipment, net 68,513 56,823 Deferred income taxes 20,024 12,091 Other non-current assets 38,354 35,825 Total assets $646,216 $577,618 LIABILITIES AND EQUITY Current portion of long-term debt $10,000 $5,000 Accounts payable 38,397 32,901 Accrued liabilities 42,770 45,610 Deferred and current taxes payable 8,526 5,946 Total current liabilities 99,693 89,457 Long-term debt 50,895 75,196 Deferred and non-current income taxes 6,363 11,054 Other liabilities 24,205 23,087 Minority interest 1,865 443 Shareholders' equity 463,195 378,381 Total liabilities and equity $646,216 $577,618 Impact of adoption of FIN 48: As a result of the adoption of FIN 48, the Company recorded a reduction to the February 1, 2007 retained earnings in the amount of $7.7 million representing the cumulative effect of the adoption.SOURCE Movado Group, Inc. CONTACT: Investor Relations: Suzanne Rosenberg
Vice President Corporate Communications, Movado Group, Inc.
Leigh Parrish or Stephanie Rich, both of Financial Dynamics
+1-212-850-5600, for Movado Group, Inc.
Web site: http://www.movadogroup.com