Movado Group Inc (MOV) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Movado Group's fourth-quarter and full-year earnings conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company.

Now, I'd like to introduce Ms.

Leigh Parrish of FD.

Please go ahead.

Good morning everyone, and thank you for joining us today.

With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer, Rick Cote, President and Chief Operating Officer, and Sallie DeMarsilis, Chief Financial Officer.

Before we begin, I'd like to note that this conference call contains forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Factors which could cause actual results to be materially different from any future results expressed or implied are discussed in the Company's filings with the Securities and Exchange Commission.

Such forward-looking statements include statements regarding Movado's performance for fiscal 2012.

However, the failure to update this information should not be taken as Movado's acceptance of these estimates or forward-looking statements on a continuing basis.

Movado Group may also choose to discontinue presenting future estimates at any time.

Let me now outline the order of speakers for today's call.

Rick will begin, then turn the call over to Sallie, and Efraim will close.

Management will then be glad to answer any questions you might have.

I would now like to turn the call over to Rick.

Good morning and welcome to Movado Group's fourth-quarter conference call.

This morning's press release included quite a few important announcements, and I would like to spend a few moments reviewing those items.

First, we are very pleased with our adjusted financial results for the quarter and the fiscal year.

Our brands experienced a very strong holiday season sales performance.

As a result, fourth-quarter sales increased greater than 24% versus the prior year, adjusted fourth-quarter operating income expanded to $3.6 million, and adjusted EBITDA grew to $6.9 million.

For the year, we grew our topline by 14% and returned our business to profitability on an adjusted basis with adjusted operating profit of $13 million and adjusted EBITDA of $26.7 million.

Our balance sheet remains strong, as evidenced by our net cash position in excess of $100 million, and our operating cash flow from continuing operations of over $53 million in fiscal 2011, on top of over $40 million delivered in fiscal year 2010.

Sallie will discuss our results in more detail later on the call, but overall we are quite pleased with our financial performance for the year.

Second, you will have seen that our Board has decided to reinstate our dividend and has declared a $0.03 quarterly dividend payable April 29.

Assuming a full year of $0.03 quarterly dividends, this would equate to an annualized dividend payment of approximately $3 million.

The reinstatement of our dividend is reflective of the Board's and management's confidence in the Company, our very strong balance sheet, and expected continued future profitability and cash flow.

Third, we have amended our credit agreement, resulting in major improvements in virtually all of the financing provisions and bringing them in line with today's more favorable financing terms.

Finally, let me spend a few moments discussing the non-cash charges we recorded in the fourth quarter.

We recorded a $10 million non-cash tax charge to record valuation allowances on certain of the Company's Swiss deferred tax assets, similar to the $20 million charge taken in the prior-year third quarter on certain US deferred tax assets.

As of the end of fiscal year 2011, we have in excess of $30 million in deferred tax asset reserve valuations, and we anticipate that the vast majority of these reserves will reverse back into income in the future.

Additionally, we recorded $28 million of non-cash charges in the fourth quarter for inventory and certain long-term asset impairments as a result of us taking the proactive steps to exit the manufacturing of proprietary mechanical movements and dispose of discontinued gold product.

These actions relate predominately to our luxury category.

We believe that these are the appropriate steps to take in order to better focus on delivering our future desired sales and profit objectives.

Ebel and our Luxury category have struggled for the past few years, as did the entire luxury market.

To reverse this trend as part of our multi-year growth strategy launched this past fall, we embarked upon a market analysis of our Ebel brand with the objective of returning Ebel to a healthy level of sales and profit growth.

This assessment highlighted several near-term initiatives which we have begun implementing.

First, we reconfirmed that Ebel needs to continue to focus primarily on expanding its position in the women category.

Second, we recognized the need to embark upon delivering new leadership product that would provide consumers with exceptional and differentiated products with an appropriate price-value equation, specifically in the consumer price point segment between $2000 and $5000.

To complement this enhancement of our product offering, we would also need to embark upon an updated and tailored marketing program as we look to reposition how the brand is perceived.

We are very excited about these prospects and these new product initiatives will be seen in the marketplace by mid-calendar year 2012.

Third, as I just noted, we made a decision to exit the in-house mechanical movement manufacturing business at Ebel, as the lack of critical mass results in a nonsustainable product cost.

We are writing down the costs of the mechanical movement parts and some other costs resulting in a $9 million non-cash charge.

In addition, we made the decision to realize value from discontinued gold watches via a gold melt recovery program.

This action allows us to take advantage of the high market value of gold rather than selling this product in the marketplace at substantially discounted values which could potentially damage our brand image and go-forward business plans.

This resulted in a $13 million non-cash charge with the expectation that we would realize approximately $11 million in cash from the sale of melted gold.

Now, let me summarize the trends we saw in the market and within our business in the fourth quarter and fiscal year.

From a global economic perspective, the watch category has benefited from an improved economy, stock market valuation and consumer confidence.

We continue to believe that the US and European economies will show moderate growth moving forward with consumers remaining cautious in their spending and the potential risk of price inflation.

Additionally, the Asia market, which represents a small portion of our business, remains robust despite the tragic events in Japan.

It is important to note that component parts supplied by Japan are important to our business and longer-term disruption in Japan could impact future Asian production.

During the year, we experienced strong watch retail sellthrough performance at our retail partners, particularly here in the US.

We are helping drive this strong retail sellthrough performance with sales growth across Movado and our licensed brands.

In addition to improved results in our US Wholesale business, our international wholesale business continues to perform well, driven by our licensed brands' performance and Movado in the China market.

Let me give you a few brand performance highlights for the year.

Our Movado brand continues to maintain a leading market share in our key price points of $500 to $1500 and a strong market position in the $1500 to $3000 price point segment.

We remain focused on product differentiation and segmentation, and we are particularly delighted that our major US retail partners are continuing to experience strong sellthrough of Movado branded products.

As discussed on our previous conference call, the launch of Movado Bold, which is all about enhancing the museum dial image, was one of our primary initiatives for the holiday season.

This was supported by television advertising, print advertising, and the launch of our new Movado website and e-commerce site.

Our objective with Bold was to introduce Movado to a new, innovative segment targeting a younger, more fashionable consumer, and to expand the brand into the $300 to $500 fashion price point category.

We believe we have delivered and exceeded these expectations.

These initiatives have reinvigorated the entire Movado brand and allowed us to add new prestigious distribution in the specialty store channel.

Our retail partners are very excited with Bold's strong sellthrough performance and the level of consumer excitement it has generated for the entire brand.

Movado's performance was also fueled by products like Concerto, our collection designed exclusively for women and one of our featured products in our holiday print advertising campaign.

Other important strong product performers were SE Extreme with a carbon fiber dial starting at $1995.

The new Serio classic museum bracelet priced from $995 to $1495, Datron Automatic at $995, and the Series 800 Sports Collection.

On an international basis, Movado China continues its strong growth, driven by product sellthrough in existing retail doors and continued retail expansion in both major and secondary markets.

China will continue to be a growth -- a strong growth driver for Movado.

For the current year, the Movado brand will continue delivering exceptional product offerings in television advertising to further drive consumer awareness and traffic.

Additionally, our Movado website enhancements provide the consumer with the following -- state-of-the-art search engines; brand information regarding our history; ambassadors and featured product highlights; e-commerce shopping capabilities; and digital media expansion to allow our consumers to experience Movado in the multiple digital forums.

With ESQ by Movado, we're focusing on energizing the brand with strong new products and price point introductions as well as door expansion with existing accounts in independent jewelers.

The conversion to ESQ by Movado is greatly enhancing the brand's awareness and prestige, delivering improved retail sellthrough this past fall season.

We will continue supporting ESQ by Movado with television advertising.

For our Ebel brand, we continue to focus on expanding our position in the women's category and specifically in the consumer price segment between $2000 and $5000.

Our current Braslia, Classic Wave and Beluga product offerings provide the core of our women's product primarily in the $2500 and above price range.

Our recently launched Ebel Classic Sport, sharply priced starting at $1800, helped deliver improved sellthrough performance during the holiday season.

As previously mentioned, we have begun designing new leadership product to provide consumers with exceptional differentiated product in the future.

Our license for (inaudible) division continues to perform extremely well.

This division grew 21% in the fourth quarter and 21% for the full year compared to fiscal 2010 with every licensed brands levering double-digit sales increases in every key global market.

This growth was driven by innovative product designs in key price points that are resonating with consumers.

Some of the strong product performers for licensed brands were the Coach Boyfriend watch, the Tommy Hilfiger Windsurf and Ritz products, sharp price points in sports-inspired watches in HUGO BOSS, our jelly-strap sports-inspired pedigree product offering in Juicy Couture, and Lacoste logo design products like Goa, a new fashion watch under $100 which has had exceptionally strong retail sellthrough performance.

The licensed brands are well-positioned to continue their strong growth performance.

Our outlook retail division continues to be a strong and important performer for our business.

The continued renovation of our existing stores with a greater focus on branding has helped fuel increased traffic and sales conversion.

In summary, we believe we have taken the appropriate actions in this past fiscal year which will allow us to focus on our future growth and profit initiatives.

We believe we are on track to achieve the goals that we outlined in our previously announced strategic plan.

Fiscal 2011 was a good year for Movado, and we are excited with all the great plans and initiatives we have in place to drive our business this year.

We believe that television advertising, continued strong print marketing, a focused digital strategy to support our consumers' brand experience vehicles and great product offering will continue to drive consumer demand.

Now I'd like to turn the call over to Sallie to discuss our financial results and guidance.

Thank you Rick, and good morning everyone.

I'm very pleased to be with you today presenting our financial results for the fourth quarter and full fiscal year.

I will first cover the operating results for the fourth quarter and fiscal year, followed by the balance sheet, and I will close with guidance.

To begin, I'd like to point out that special items reported in the fourth quarter and twelve-month periods of fiscal 2011 for the comparable periods of the prior year.

Please refer to our press release for a description of the items, as well as a table reconciling adjusted results to GAAP.

Our GAAP results for the fourth quarter of fiscal 2010 include $1 million, or income of $0.02 per diluted share, of sales of excess discontinued product.

For the twelve-month period, our GAAP results of fiscal 2010 include $14.6 million, or a loss of $0.06 per diluted share, of sales of excess discontinued product.

There were no such sales in the fourth quarter or twelve-month period of fiscal 2011.

As Rick discussed, gross margin for the fourth quarter and fiscal 2011 includes a $24.1 million or $0.81 per diluted share non-cash pretax charge recorded for non-core gold and mechanical movement inventory.

And the same periods of last year include an $8.8 million or $0.28 per diluted share non-cash pretax charge primarily for excess non-core component inventory.

Operating expenses for the fourth quarter and fiscal 2011 include a $3.1 million or $0.10 per diluted share pretax non-cash charge primarily related to intangible assets, [fueling] costs and tradeshow booths for the Basel Fair.

Our GAAP results for fiscal 2011 also include the reversal of a $4.3 million, or $0.17 per diluted share, retirement liability taken in the third quarter.

Results for the fourth quarter and fiscal 2010 included a $2.5 million or $0.08 per diluted share non-cash pretax charge primarily related trade show booths for the Basel Fair.

Fiscal 2010 interest expense includes a charge of $1.3 million, or $0.03 per diluted share, related to the refinancing and repayment of the Company's former credit and note agreements.

There were no such expenses in fiscal 2011.

On a GAAP basis, the tax provision for the fourth quarter and fiscal 2011 includes $10.1 million, or $0.40 per diluted share, of non-cash tax expense related to valuation allowances on certain Swiss net deferred tax assets.

Results for the fourth quarter and fiscal 2010 included $3.1 million, or $0.13 per diluted share, and $26.5 million, or $1.08 per diluted share, respectively, of tax expense on valuation allowances recorded on US deferred tax assets, partially offset by an income tax benefit for increased utilization of carryback periods.

The balance of my remarks will exclude the special items just discussed.

Also, I would like to remind you that the financial results of the Movado boutiques, which were closed in the second quarter of fiscal 2011, are reported as discontinued operations.

Sales for the fourth quarter were $101 million, up from the prior year by $19.9 million or 24.5%.

Sales were higher than the prior year, driven by growth in every brand category.

For the year, sales were $382.2 million, up from fiscal '10 by $47.1 million or 14.1%.

For the fourth quarter, sales in our Wholesale segment were $83.2 million, or 35.1% above prior-year sales of $61.6 million.

Sales were above prior year in all categories, with the largest growth coming from the accessible luxury category.

For the twelve months, sales in our Wholesale segment were $329.1 million, or 17.4% above prior-year sales of $280.3 million.

Sales were above prior year in all categories.

For the fourth quarter, the US Wholesale business was up 60.5% year-over-year.

For the year, the US Wholesale business was above fiscal 2010 by $22.1 million or 17.7%.

Sales in the Accessible Luxury and Licensed brand categories for the quarter and the year were above prior years -- prior periods.

The International Wholesale business in the fourth quarter was up 22% year-over-year.

Sales were above prior year in all categories.

For the year, the International Wholesale business was up 17.2% from fiscal 2010.

Sales were above prior year in all categories, primarily driven by the licensed brand category.

For the fourth quarter, the Company's retail business decreased by $1.7 million, or 8.8%, versus prior year.

For the year, the Company's retail business is down 3.1% versus fiscal 2010.

On a comp store basis, our outlets were down 6.4%, as compared to the prior year, as a result of intentionally reduced promotional activity.

At the end of the year, the Company operated 33 outlet stores.

Gross profit in the fourth quarter was $55 million versus $37.9 million last year.

Gross margin for the quarter was 54.5% as compared to 46.7% for the prior year.

For the twelve months, gross profit was $209.3 million versus $176.8 million last year.

Gross margin for fiscal 2011 was 54.8%, as compared to 52.8% in the prior year.

The increase in gross margin for both the quarter and the full year was primarily driven by fluctuations in currency and overhead absorption.

Operating expenses for the quarter were $51.4 million, above prior year by $600,000, or 1.1%.

For the twelve months, operating expenses were $196.3 million, above prior year by $11.6 million, or 6.3%.

The increase for the year was primarily the result of the following -- a $5.6 million increase due to both the translational -- due to both the translation of our international subsidiary's financial results as well as the unfavorable transactional effect of foreign denominated assets held in weakening currencies; a $4.8 million increase in compensation and benefits resulting from salary increases, reinstatement of certain benefits such as the 401(k) match, and performance-based compensation; and a $3.3 million increase in marketing.

These increases were partially offset by a decrease in expenses in other areas.

Operating income for the quarter was $3.6 million, compared to an operating loss of $12.9 million in the same period of the prior year.

Operating income for the twelve months was $13 million, compared to a loss of $7.9 million in fiscal 2010.

Income tax expense of $1.8 million in the fourth quarter of fiscal 2011 compares to an income tax benefit of $10.2 million recorded in the fourth quarter of the prior year.

The effective tax rate for the fourth quarter of fiscal 2011 includes the effects of the recent adoption of interim reporting guidelines.

For fiscal 2011, income tax expense of $3.4 million compares to an income tax benefit of $9.1 million in fiscal 2010.

On an adjusted basis, income from continuing operations in the fourth quarter was $1.3 million, or $0.05 per diluted share, versus an adjusted loss from continuing operations of $3.4 million, or $0.14 per diluted share, in the year-ago period.

On an adjusted basis, income from continuing operations for the year was $7.1 million, or $0.28 per diluted share, versus an adjusted loss of $2.1 million or $0.08 per diluted share in fiscal 2010.

Adjusted EBITDA for the fourth quarter increased to $6.9 million, compared to an adjusted EBITDA loss of $9.3 million in the fourth quarter of fiscal 2010.

Adjusted EBITDA for the year increased to $26.7 million compared to an adjusted EBITDA of $7.6 million in fiscal 2010.

Now, turning to our balance sheet, our cash at the end of the year was $103 million versus $71 million in fiscal 2010.

Additionally, we had no debt outstanding at the end of fiscal 2011 as compared to total debt of $10 million at the end of the prior year.

As a result, the Company's net cash position at the end of fiscal 2011 was $103 million, up from $61 million a year ago.

As Rick mentioned, we are pleased to have amended our credit facility to reflect more favorable market rate conditions and to modify certain covenants.

As we do not have any borrowings currently outstanding or any significant borrowings forecasted, the modification for the interest rates will only modestly impact interest expense.

Accounts Receivable of $59.8 million is below prior year by $8 million.

Inventory of $179.5 million decreased from $204.1 million for the prior year.

I would like to remind you that the fiscal 2011 inventory balance is after the inventory charges recorded in the fourth quarter.

On a constant-dollar basis, inventory decreased by $35.7 million, or 17.5%.

Excluding the effect of the additional inventory charge and on a constant-dollar basis, inventory decreased by 7.4%.

Capital expenditures for the year were $7.3 million and depreciation expense was $11.9 million.

Lastly, we are extremely pleased with our cash flow from continuing operations, which was over $50 million for the year.

Now, I would like to comment on our outlook for the current fiscal year.

For fiscal 2012, we anticipate our EBITDA will range between $31.5 million and $33.5 million, net income will range from $15 million to $16.5 million, and diluted earnings per share to range from $0.60 to $0.65 per share.

These results are predicated on an 11% to 13% increase in sales and an effective tax rate of between 10% and 15%.

A few points of clarity as it relates to net income and our effective tax rate -- as previously mentioned, for GAAP purposes, in fiscal 2010, we recorded $30 million of expense due to establishing valuation allowances against our deferred tax assets in the United States.

In fiscal 2011, we did the same for Switzerland, recording an additional $10 million.

We expect that we will be able to utilize the majority of these deferred tax assets within their statutory limits and that these valuation allowances may reverse back into income in the future.

The more favorable forecasted tax rate of 10% to 15% on a GAAP basis is based upon fiscal 2012 earnings and the continued requirement for accounting for valuation allowances.

For purposes of the longer-term strategic plan, we are maintaining a 30% effective tax rate.

We also want to remind everyone that, although we do not provide quarterly guidance, our first quarter ending April 30 is historically our smallest sales quarter.

With our level of fixed operating expenses, we anticipate that the first quarter will show a small loss on the bottom line.

The guidance we have provided does not assume any additional unusual charges for fiscal 2012.

I would now like to turn the call over to Efraim.

Thank you Sallie.

I am pleased with our overall performance for fiscal 2011.

Last fall, we communicated our multi-year strategic plan to our investors.

Our performance for the year reflects the initial success of the execution of this plan.

As Rick and Sallie discussed, this led to improving operating results and we're pleased that we increased sales by 14% while we grew EBITDA to $26.7 million from $7.6 million on an adjusted basis.

Our balance sheet, with over $100 million of net cash, has never been stronger.

During the year, we experienced strong results in our Movado brand with sales growth in excess of 20%.

Growth in our Movado brand was fueled by the very successful introduction of the Movado Bold collection, strong product innovation and a re-energized marketing program.

Additionally, we continued to experience solid results with our licensed brands as we focused on strong trend-right product introductions.

All of these efforts are helping to generate excitement for our portfolio of brands, domestically and internationally.

As Rick mentioned, we are very focused on improving the results of our Ebel brand.

With the actions that we took during the year, including the closing of our boutiques, we are now on a path to continue to grow our brands and increase sales and profitability.

We continue to be committed to driving solid, consistent growth by leveraging the full potential of the Movado brand, building on our licensed brand success globally, and generating further improvements across our business.

We are also pleased to have reinstated our quarterly dividend.

As announced this morning, we've added two additional members to our Board of Directors -- Maurice Reznik, Chief Executive Officer of Maidenform Brands, and Alex Grinberg, Senior Vice President, Consumer Customer Centric Initiatives for Movado Group.

Maurice's business acumen, particularly related to marketing, merchandising and sales, coupled with his expertise in leading a public company, will be very valuable to Movado Group.

Alex brings strong knowledge of our Company's operations and the values that are so important to our culture.

We believe Maurice and Alex will be a strong complement to our current Board of Directors.

Finally, I want to say how proud I am of our team.

For the past several years through a difficult economic environment, we have focused on returning to the core strengths of our business.

With our strong brand portfolio across a variety of price points and markets, we are looking forward to continue to generate growth on both the top and bottom line.

We would now like to open up the call to questions.

(Operator Instructions).

Jeff Blaeser, Morgan Joseph.

Good morning.

Thank you for taking my question.

Can you touch on first what you are seeing at the retail inventory levels, any changes there?

Are they starting to pick up the sell-in, or a bit more comfortable about bringing a little bit more product in?

Also, can you touch on commodity prices, higher gold?

Is that -- I know you've been pricing down some of your merchandise, so is that becoming less and less of a factor with more of a focus on some of the licensed and Movado brands?

I think -- let me answer the first part of that.

From a standpoint of retail inventories, I'm assuming you're talking the retail trade.

Our own retail outlet stores, inventory is the same level.

So from a retail trade standpoint, obviously that's an important metric as well as inventory turns and sellthrough performance.

So from our standpoint, those are at very healthy levels and at good positions and our sellthrough is very much in line -- our sales performance is very much in line with the sellthrough sales performance that's taking place in the marketplace.

From a standpoint of commodity prices, yes, that's a reality we have to deal with.

Obviously, gold price is moving up.

That's certainly made gold product very, very expensive in the marketplace, and the sale of gold product much more difficult, and obviously a lot more focus on more affordable product offerings.

When you get into the vast majority of our price points, gold is not a critical factor but obviously component -- we do deal with the component price increases that take place.

We do have to be cognizant of consumer -- the situation out there from a standpoint of their availability and willingness to take price increases, so we have to balance that.

Obviously, we want to make sure that we focus in on continuing with growth in our market share.

Thank you very much.

(Operator Instructions).

Thank you.

That does conclude our question-and-answer session today.

I'll now turn the call over to management for any closing comments they might have.

Very well.

Thank you very much for participating on today's call.

We look forward to communicating again with you at the end of our first-quarter performance.

Thank you.

This concludes today's conference call.

Thank you for your participation.