Movado Group Inc (MOV) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Movado Group's first-quarter earnings conference call.

At this time participants are in listen-only mode.

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

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

I would now like to introduce Ms.

Leigh Parrish of FD.

Please go ahead.

Thank you.

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

With me on the call today 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 statement on a continuing basis.

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

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

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

The Company would then be glad to answer any questions you might have.

And now I'd like to turn the call over to Rick.

Thanks, Leigh.

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

We are very pleased with our financial results for the quarter.

Our brands continued to experience very strong customer and consumer demand and as a result first quarter sales increased 23% versus the prior year.

This is on top of a 25% sales increase from the first quarter of fiscal year 2010.

Additionally, our disciplined expense management and improvements we have made to our business allowed us to deliver operating income of $1.6 million and EBITDA of $4.5 million in the first quarter.

Our balance sheet remains strong as evidenced by our net cash position which continues to grow.

At the end of the quarter, we had a cash position of $109 million compared to $103 million at the end of fiscal 2011 and $62 million for the same quarter last year.

Our current business plans do not require the need for any debt financing and our equity position remains strong at over $370 million.

Let me summarize the trends we saw in the market and within our business in the first quarter.

From a global economic perspective, the watch category continues to benefit 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 this year although we recognize consumers are remaining cautious in their spending and that there is a 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.

As we have previously stated, it is important to note that movements supplied by Japan are important to our business and continued disruption in Japan could impact future Asian production and deliveries.

With that said we continue to experience strong watch retail sell-through performance at our retail partners globally which is being driven by sales growth across Movado and our licensed brands.

In the China market we are experiencing strong growth also driven by these two areas of the business.

As a result, our growth in the China market exceeded 50% from the first quarter of last year albeit off of a small base.

Let me give you a few brand performance highlights.

Our Movado brand continues to hold the leading market share position in our key price points of $500 to $1500.

And the 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 North American retail partners are continuing to experience strong sell-through of Movado watches.

The execution of our Movado strategy continues to deliver very strong results.

Movado sales in the first quarter grew 41% as compared to fiscal 2011 which grew more than 50% from the first quarter of fiscal 2010.

The launch of Movado Bold in the second half of last year continues to reinvigorate the entire Movado brand and has allowed us to expand our doors in the specialty department store channel.

Movado Bold continues to deliver on it's objectives.

Up first, introducing Movado to a new innovative segment targeting a younger fashionable consumer.

Second, expanding the brand into $300 plus price fashion price point category.

And third, enhancing and expanding the appeal of the Museum Dial product offering.

Movado sales growth from the first quarter was primarily fueled by it's core product range, specifically products like Concerto, our collection designed exclusively for women, SE Extreme with a carbon fiber dial starting at $1995, the new Serio Classic Museum bracelet price from $995 to $1495, Datron Automatic at $995 and the Series 800 sports collection.

As I mentioned earlier, we are experiencing positive trends in the China market.

To be more specific, Movado China continues it's strong growth as we experience good product sell-through in existing retail stores and continued our retail expansion in both major and secondary markets.

We continue to support Movado with television advertising, print advertising, our new Movado website and expansion of our eCommerce site.

Our strong product offering along with our brand support initiatives are resulting in a much higher level of consumer awareness and excitement for the brand which in turn is helping to increase sell-through performance for our retail partners.

With ESQ by Movado we are focusing on energizing the brand with new product and price point introductions as well as door expansion with existing accounts and independent jewelers.

The conversion to ESQ by Movado is greatly enhancing awareness of the brand and its prestige, which is again delivering improved retail sell-through.

We will continue to support ESQ by Movado with spring and fall season television advertising.

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

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

Our Ebel Classic Sport, sharply priced starting at $1800, also continues to help deliver improved sell-through performance for this brand.

We are in the process of designing new leadership product this year for introduction next year.

We believe that these designs will provide consumers with exceptional differentiated product that reinforces Ebel's avant-garde heritage.

Our licensed brand division also continues to perform extremely well.

We grew sales in this division by 27% in the first quarter as compared to fiscal 2011 which is on top of a 37% sales increase in the first quarter of fiscal year 2010.

Every licensed brand is continuing to deliver double-digit sales increases.

This growth is being driven by innovative product designs and key price points that are resonating well with consumers.

Some of the leading product performance for the licensed brands were the Coach Boyfriend watch, the Tommy Hilfiger Windsurf and Morgan products, the HUGO BOSS Aviator, our jelly strap sports inspired pedigree product offering in Juicy Couture, and Lacoste logo designed products like Goa and Advantage.

Our outlet retail division remains 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 awareness, sales conversion and profitability.

In summary, we are excited about all the great plans and initiatives we have in place to continue the positive momentum in our business this year.

We believe that television advertising, continued strong print marketing, our focused digital strategy to support our consumers brand experience vehicles and great product offerings will all contribute to ongoing strong consumer demand.

Accordingly we be believe our brands, particularly in Movado and the licensed brands, are well positioned to maintain their strong growth performance.

Overall we believe we are on track to achieve the goals outlined in our previously announced strategic plan as well as our expectations for the year.

Now I'd like 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 first quarter.

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

To begin, I would like to point out the special item reported in the first quarter of last year fiscal 2011.

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

On a GAAP basis, the tax provision for the first quarter of last year includes $2.5 million, or $0.10 per diluted share of non-cash tax expense related to valuation allowances on certain net deferred tax assets.

Additionally, effective February 1, 2011, the Company changed it's method of valuing it's US inventory to the average cost method.

In prior years, primarily all of US inventories were valued using the first in, first out or FICO method.

The comparative consolidated financial statements of the prior year have been adjusted to apply the new accounting method retroactively and the details of the adjustment can be found in our Form 10-Q.

This change is made to align our inventory valuation using one global method.

Lastly I'd like to remind you that the financial results of the Movado Boutique, which were closed in the second quarter of fiscal 2011, are reported as discontinued operations.

The balance of my remarks will exclude the special items just discussed but they do reflect a change in accounting method used to value the US inventory.

Sales for the first quarter were $89.9 million, up from the same period of the prior year by $17.1 million or 23.4%.

The higher sales were due to growth in every brand category.

For the first quarter, sales of our wholesale segment were $80 million, or 25.5% above sales of $63.8 million for the same period of last year.

Sales were above the prior year in all categories with the largest increase coming from the accessible luxury and licensed brand categories.

The US wholesale business was up 17.9% year over year, sales in the accessible luxury and licensed brand category for the quarter were above first-quarter sales last year.

The international wholesale business was up 32.2% year over year.

Sales were above the first quarter of the prior year in all categories.

Sales from the Company's retail business increased $800,000, or 9%, versus the prior year first quarter as a result of additional stores.

At the end of the quarter, the Company operated 33 outlet stores and our Movado flagship store.

Gross profit for the quarter was $48.6 million versus $38.5 million in the first quarter of last year.

Gross margin for the first quarter was 54.1% as compared to 52.9% for the first quarter of last year.

The increase in gross margin was primarily driven by a shift in channel and product mix.

Operating expenses were $47 million above the prior year period by $3.4 million, or 7.8%.

The increase for the quarter was primarily the result of a $1.9 million increase in marketing, a $1.6 million increase in compensation and benefits resulting from salary increases, reinstatement of certain benefits such as a 401-k match and performance-based compensation, and a $500,000 increase due to the combination of the translational and transactional impact of FX.

Most of the other expense areas declined as compared to the first quarter of last year.

Operating income for the quarter was $1.6 million compared to an operating loss of $5.1 million in the same period of the prior year.

Income tax expense of $715,000 in the first quarter of fiscal 2012 compared to an income tax benefit of $2.1 million reported in the first quarter of the prior year.

The effective tax rate for both periods, includes the effects of the application of guidelines related to accounting for income taxes in interim periods.

Income from continuing operations in the first quarter was $500,000, or $0.02 per diluted share, versus an adjusted loss from continuing operations of $4 million, or $0.16 per diluted share in the year-ago period.

EBITDA for the first quarter increased to $4.5 million compared to an adjusted EBITDA loss of $1.6 million in the first quarter of fiscal 2011.

Now turning to the balance sheet.

Our cash at the end of the first quarter of fiscal 2012 was $109 million versus $62 million in the same period of fiscal 2011.

Additionally, we have no debt outstanding at the end of the first quarter of this fiscal year as compared to total debt of $10 million at the end of the prior year period.

As a result, the Company's net cash position at the end of the first quarter was $109 million up from $52 million a year ago.

Accounts receivable of $60.6 million is above the prior-year period by $1.4 million.

Inventory of $185.9 million decreased from $206.9 million of the prior-year period.

On a constant dollar basis, inventory decreased by 21.8%.

On a constant dollar basis and excluding the effect of the additional inventory charge taken in the fourth quarter of fiscal 2011, inventory decreased 11.7%.

Capital expenditures for the quarter was $1.6 million and depreciation expense was $2.6 million.

Now I would like to reiterate our outlook for the current fiscal year.

From fiscal 2012, we continue to 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 will range from $0.60 to $0.65 per share.

These full-year results continue to be predicated on an expected 11% to 13% increase in sales and an effective tax rate between 10% and 15%.

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

Our focus is on a longer term strategic plan, we are maintaining a 30% effective tax rate.

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

Now I'd like to turn the call over to Efraim.

Thank you, Sallie.

I am delighted with our start to the year.

We are benefiting from strong execution across the organization and improved trends within the watch industry.

Most importantly, we believe that our results for the first quarter demonstrate that the strategic initiatives we have implemented are creating momentum for our brands in the marketplace.

As a reminder, we are focused on four priorities.

First, unleash the growth potential of the Movado brand by introducing compelling new products that drive increased volume.

Second, capture the strong growth opportunities for our licensed brands globally.

Third, return Ebel to growth by focusing on it's Heritage women's watches and developing an exciting new collection to be launched next year.

Finally, place a major emphasis on capturing Movado Group's growth opportunities in China.

As Rick and Sallie discussed, the actions we have taken to support these priorities led to another quarter of improved operating results.

We are pleased to have experienced strong performance in our Movado and licensed brands both domestically and internationally, which drove our double-digit sales growth during the quarter.

Our Movado brand maintains the leading market share across a variety of price points.

The continued excitement behind our Movado Bold product introduction has provided a strong catalyst for continued growth in the Movado brand.

And an emphasis in product innovation in our licensed brands has continued to fuel their growth.

As we look to the balance of the year, we have exciting product introductions and marketing programs in place to help drive our performance.

We are confident in the strength of our iconic portfolio of brands, we have a solid infrastructure that we believe provides the global platform to grow sales while limiting our growth and expenses coupled with a very strong balance sheet.

Our team is focused on delivering our objectives and Movado Group is well positioned to achieve another year of growth.

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

Thank you.

Ladies and gentlemen, at this time we will opening up the call for questions and answers.

(Operator Instructions) And from Morgan Joseph & Co.

we'll go to Jeff Blaeser.

Good morning.

A couple of quick questions on the sales.

Do you think you're seeing any benefit on the wholesale side from the boutiques closing some of the product that you might have sold through the boutiques flowing into some of your wholesale channels?

And are we starting to see similar sales trends to last year, I know you expected to become a little bit more normalized this year, but obviously Q1 was much stronger than actually I was looking for, so was there some shift in retail purchasing that you have saw in the Q1?

Well we're seeing actually continued purchase close to the selling season.

So most of the purchases now are based on sell-through.

And you also obviously you do have some pickup we believe there were customers buying watches in the boutiques and some of that is transferring into the wholesale channel over time.

Yes and we don't obviously-- as you recall last year the trends improved during the year, so I think the comparables from a sales growth level will become more challenging particularly in the third and fourth quarter off of a very strong third and fourth quarter of last year.

Okay and I know you've given targets for gross margins in the 56% to 58% longer term range, would an increase mix make that more difficult if you started selling more of the higher end like Ebel type of products, and what do you have to do other than improved sales leverage to get to those levels?

Well I think it would be nice if the US Government could do something on strengthening the US dollar from a currency standpoint, but that is I think probably the biggest impact.

Yes things like mix will have an impact.

But when we're done, I would say the biggest 2 impacts that have really taken place, one is when we closed the boutiques, the boutiques were selling at a higher gross margin so that is out of our model.

But second is the currency.

Again the Swiss franc being today at 84-- the dollar being at $0.84 to a Swiss franc, we've been dealing more in the range of $1 when it was weak it was more like $1.20.

So the US currency as weak as it is, certainly has an impact on us because all of our products from Movado on up, Movado Ebel particularly, are purchased out of Switzerland, so that does have an impact in the ability of putting price increases in still a fragile economy is not the right thing to do.

Okay, thank you.

But we'll have improvement but not to the level that you would have seen.

Longer term is more currency getting to a more normalized level.

Okay great, thank you.

Next we'll hear from Jennifer Milan from Sterne, Agee.

Thank you and congratulations.

I was hoping you could just comment a little bit more about the channel and product mix that you saw within the quarter.

And then I think you eluded just now to the fact that you don't plan to increase retail prices, but I was wondering if you could talk about what you're seeing in terms of the cost environment and your plans for potential offset?

Well, we will have probably some marginal price increases in the second half of the year with a currency this week but we're not able to pass on the full impact of currency to consumers nor we believe it's really worthwhile not to at this time.

We continue to see strong sell-through in both Movado and our licensed brands.

Movado specifically in the US, China, Latin America and the Caribbean and in our license brands on a global basis with a very strong performance in the US as well.

So the trends that you're seeing from a channel standpoint are pretty consistent from what we're seeing in the mix of channels that we have out there.

I think you raised something from the costing standpoint, obviously we're all under the price pressures and potential price inflation that may take place and obviously we're trying to manage cost increases to the best of our ability.

But also that's where we come important of managing our expenses, things that we can control a little better and we continue to do a very good job in that area to help offset some of the other impacts that we may have that are impacting our marginal level.

Okay.

And then I was wondering if you talk about your plans for eCommerce and how the improved website has been performing?

And also whether you plan to open any new stores going forward?

We're very pleased with the Movado website where we have predominately been selling our Bold watch products, it has preceded our expectations.

It's still in the very initial testing stages.

But we're very pleased with its performance and not only on the sales side but also just the retention side.

We're able to-- more people visit the Movado website today than ever and they stay on it longer than they ever have, so the usability has helped as well.

Currently we do not have any plans to open up any more stores under our own brand names.

Okay.

And then lastly if you just talk about the timing of potential new product introductions and also timing in terms of your marketing plans for the balance of this year relative to last year?

We'll we're pretty much on a very similar calendar in terms of our marketing calendars, and that's really we market predominately around the holiday season.

So we're now at the very tail end of the spring season which is graduation and Father's Day.

And then we'll begin again with a very strong marketing program beginning in September really targeting the holidays in the fall.

In terms of product introduction, in terms of our licensed brands, we continue to introduce new products on a fairly frequent basis to continue to generate excitement and interest as well as within our Movado Bold family.

So we're currently introducing the new Movado Bold bracelet watch that is being introduced to the market for graduation.

And then we continue -- we will continue to also introduce products for the holiday season with a very strong push in the second half of the year.

So again those calendars pretty much remain consistent year on year.

The one thing we did do from a marketing standpoint this year which was incremental was the Movado TV advertising for the spring season.

Okay, great.

Thank you very much.

(Operator Instructions) At this time there are no further questions, we'll turn the conference back over to Management for any additional or closing comments.

I'd like to reiterate that we are very pleased with our first-quarter performance and I'd like to thank everybody for participating on the call today.

Thank you very much.

Ladies and gentlemen, that does conclude today's conference.

We thank you for your participation.