Movado Group Inc (MOV) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the Movado Group's third quarter 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, 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 FTI Consulting.

Please go ahead.

Thank you.

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 Group's performance for fiscal 2012.

However, the failure to update this information should not be taken as Movado Group'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 conference call.

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

Management would then be glad to answer any questions that you may have.

And now with that out of the way I'll turn the call over to Rick.

Thanks, Leigh.

Good morning, and welcome to Movado Group's third quarter conference call.

We are very pleased with the strong financial results we achieved in the third quarter and our progress year-to-date.

Importantly, we have delivered consistently positive sales trends over the last seven quarters, and are pleased to see that the strategic fine-tuning of each of our brands over the last year or so is bearing excellent results.

We are also particularly pleased with the significant improvement we have achieved in adjusted profit year-to-date, even in the face of the challenging environment and rising costs.

We believe this underscores the strength of our brand portfolio, and implementation of the strategic plan we announced last year.

Let me discuss our results for the third quarter and the nine month period.

We continued to see broad-based strength with growth in every brand category.

Our business continues to exhibit more normalized replenishment patterns with strong customer demand and customer sell-through.

As a result, sales increased a robust 16% for the third quarter and sales for the nine month period increased 23% versus the prior-year periods.

Based on the sales momentum and our disciplined expense management, we were also able to improve gross margin despite product cost pressures.

Our strong sales performance allowed us to achieve operating income of $19.1 million in the third quarter, an increase of approximately 35% relative to adjusted operating income last year, and EBITDA of $22 million, a 27% increase versus adjusted EBITDA last year.

For the nine month period, on an adjusted basis, we more than tripled operating income to $25.7 million and more than doubled EBITDA to $34.5 million.

In addition, our balance sheet remains exceptionally strong, as evidenced by our net cash position which continues to grow.

At the end of the quarter, we had a net cash position of $138 million, compared to $103 million at the end of fiscal 2011, and $63 million for the same quarter last year.

Our current business plans do not require any debt financing and our equity position remains strong at nearly $400 million.

We are also pleased to have declared our normal quarterly dividend.

As I just mentioned we are particularly pleased with our consistently positive results in the recent time frame.

Specifically our sales increases for the first nine months of fiscal 2012 have been led by strong performances in our largest businesses, Movado and the licensed brands.

As many of you may recall, in our last fiscal year 2011 we had positive sales growth each quarter with overall full year sales growth of 14%.

This has been followed by three consecutive quarters of double-digit sales growth so far in fiscal 2012.

Similarly, we have generated an adjusted operating profit for the last five quarters, delivering positive adjusted EBITDA performance and earnings per share.

We believe this demonstrates the successful changes we have made to our business structure and the strategies we have put in place to refine our product lines, improve the competitive positioning of each of our brands and introduce more frequent and focused innovation.

Now let me briefly discuss some global trends and provide some specific brand highlights for the third quarter and nine month period.

From a global perspective, the watch category continues to perform well.

And we continue to experience strong watch sell-through performance at our retail partners.

In the China market we are experiencing strong growth driven by continued strength in Movado and our investment behind the launch of our licensed brands.

As a result, we have grown our China business more than 50% in the third quarter and year-to-date periods versus the same periods last year.

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

Movado sales grew 13% for the third quarter, and for the nine month period grew 29% as compared to the same periods in fiscal 2011.

Our Movado brand in the United States continues to hold the leading market share position in our key price points of $500 to $1,500, and a strong market position in the $1,500 to $3,000 price point segment.

Additionally, Movado continues to outpace the category in total in the $300 to $3,000 price point range and increase its market share in our core $500 to $1,500 price range.

All distribution channels in the US are performing very well with double-digit gains in department and chain stores and even greater growth in our broad and specialty channel distribution.

Important components of our strategy have been product segmentation and the design of product into specific product pillars.

In our Classic pillar, we have launched the new Museum Classic on a strap at $495 and a bracelet style at $695.

In our Sport pillar, both the Movado Sportiva, retailing from $895 to $1,995, and the new Series 800 collection, offered at price points of $1,295 to $1,495, have also been retailing extremely well.

In our For Her pillar, the new Circlo family has just hit stores in time for the all important holiday season and in our Trend pillar, the Movado Bold bracelets, metals and metallics are helping drive our strong growth.

Our holiday advertising campaign is now in full gear, as we partner with our retailers on key cooperative advertising vehicles.

As an example, Bloomingdales has selected us as a Top 10 Gifting Idea in their Nifty Gifty's Catalog.

And Sak's has also selected Movado for their Holiday Gift Guide.

On a national front, our TV campaign kicked off on November 28 and we are in most of the major magazines with full page ads supporting our two-tone Concerto, our Datron Quartz Chronograph, and our Series 800 Chronograph on a leather strap in both November and December publications.

And we continue to utilize digital as a strong messaging vehicle.

We believe we are well positioned to realize a growing share of retail this holiday season.

With ESQ by Movado, we remain focused on energizing the brand with new products and price point introductions as well as door expansions with existing accounts in 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.

Sales in our luxury category increased by 22% in the third quarter, and gained 21% for the nine month period as compared to the same periods of last year.

We remain focused on expanding our positioning for Ebel in the women's category and specifically in the customer price point segment between $2,000 and $5,000.

We are designing new leadership product for introduction next year to further enhance Ebel's product positioning similar to what we have done so successfully for the Movado brand.

Our licensed brand division continues to perform extremely well.

This division grew sales by 26% in the third quarter, and by 30% in the nine month period of fiscal 2012 versus the same periods last year.

And we would note that this is on top of 21% sales growth in fiscal year 2011.

Every licensed brand delivered double-digit sales increases on a year-over-year basis for both the third quarter and the nine months of fiscal year 2012.

Our licensed brand growth is being driven by innovative product designs at key price points that are resonating well with consumers.

Some of the leading product performers for licensed brands were the Coach Boyfriend with expanded material and rose gold product offerings, the Tommy Hilfiger Windsurf and [rich] products, the HUGO BOSS Aviator and slim classic watches, our Pedigree and Bow product offerings in Juicy Couture, and the Lacoste Biarritz Advantage and Goa product offerings.

Our outlet retail division remains an important contributor to 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 remain excited that all of the initiatives we have diligently been working on have been successful in creating momentum in our business.

We also look forward to the exciting plans we have in place for delivering sustainable, profitable growth into 2012 and beyond.

We believe that the breadth and depth of our more focused product offering, supported by continued television advertising, combined with strong trip marketing and focused digital strategy will all contribute to strong holiday sell-through and ongoing consumer demand into 2012.

While we recognize that the environment remains challenging, we are encouraged by the strength we are seeing in our business.

As such, we are pleased that we have been able to exceed our initial plans for the year-to-date, as our efforts to fine tune the positioning of each of our brands have firmly taken hold.

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 third quarter and year-to-date period.

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

To begin, I'd like to remind you that effective February 1, 2011, the Company changed its method of valuing its US inventories to the average cost method from the first in, first out or FIFO 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.

My remarks this morning will reflect this change.

I would also 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.

Lastly, I would like to point out a special item reported in the third quarter of last year.

Our GAAP results for the third quarter of fiscal 2011 include the reversal of a $4.3 million, or $0.17 per diluted share liability that was related to our retirement liability that will no longer be paid.

The $4.3 million was recorded as a reduction of operating expenses.

With that in mind, the balance of my remarks will exclude this special item.

Please refer to our press release for a table reconciling adjusted results to GAAP.

Sales for the third quarter were $142.6 million, up from the same period of the prior-year by $19.6 million, or 16%.

On a constant dollar basis, sales increased by 13.3% when compared to the prior-year period.

For the nine months, sales were $345.7 million, up from fiscal 2011 by $64.5 million, or 22.9%.

On a constant dollar basis, sales increased by 18.8% when compared to the prior-year period.

For all periods, the higher sales were due to growth in every brand category.

For the third quarter, sales in our Wholesale segment were $129.6 million, or 17.7% above sales of $110.2 million for the same period of last year.

For the nine months, sales in our Wholesale segment were $308.9 million, or 25.6% above prior-year sales of $246 million.

For both the third quarter and the nine month periods, sales were above prior-year in all categories.

For the quarter, the US Wholesale business was up $7.8 million, or 14.7% year-over-year.

For the nine months, the US Wholesale business was above the comparable period of fiscal 2011 by $24.1 million, or 21.3%.

The increase in sales for both periods was driven by higher sales in the accessible luxury and licensed brand categories as compared to the same periods of last year.

For the third quarter, the International Wholesale business was up $11.6 million, or 20.5% year-over-year.

For the first nine months of fiscal 2012, the International Wholesale business was up $38.8 million, or 29.3% from fiscal 2011.

For the third quarter, the increase in sales was driven by higher sales in the luxury and licensed brand categories.

For the nine months sales were above prior-year in all categories, primarily driven by the licensed brand category.

Sales from the Company's Retail business increased 1.3% as compared to the prior-year third quarter.

For the first nine months, the Company's Retail business was up $1.5 million, or 4.4% versus the first nine months of fiscal 2011.

The increases in sales for both periods were the result of additional stores.

The increases in sales -- I'm sorry, at the end of the third quarter, the Company operated 33 outlet stores and our Movado Brands flagship store.

Gross profit for the quarter was $81 million, versus $68.9 million in the third quarter of last year.

Gross margin for the quarter was 56.8%, as compared to 56% for the third quarter of last year.

For the first nine months of fiscal 2012, gross profit was $190.6 million, versus $151 million -- I'm sorry, $151.8 million last year.

Gross margin for the nine months was 55.1% in fiscal 2012, as compared to 54% for the prior-year period.

The increase in gross margin for both the quarter and the nine month period was favorably impacted by leverage gained on fixed costs, as well as a shift in channel and product mix which were offset by unfavorable fluctuations in foreign currency rates.

Operating expenses were $61.9 million, above the prior-year period by $7.2 million, or 13.2%.

For the nine months, operating expenses were $164.9 million, above the prior-year by $19.9 million, or 13.7%.

The increases were primarily the result of the following -- a $4.7 million increase for the quarter and a $9.3 million increase for the nine months in compensation and benefits resulting from salary increases, reinstatement of certain benefits such as 401-K match, and performance-based compensation; a $2.4 million increase for the quarter, and a $6 million increase for the nine months was due to a combination of the translation and transactional impact of FX; and a $4.6 million increase in marketing for the nine months.

Operating income for the third quarter was $19.1 million compared to $14.2 million in the same period of the prior year.

Operating income for the first nine months of fiscal 2012 was $25.7 million, compared to $6.8 million in fiscal 2011.

During the second quarter of fiscal 2012, a building in Switzerland that was no longer being utilized was sold for a gain of $747,000, or $0.02 per diluted share.

This gain is presented as Other Income on our financial statements.

Income tax expense of $2.1 million in the third quarter of fiscal 2012 compares to income tax expense of $781,000 reported in the third quarter of the prior year.

For the first nine months of fiscal 2012, income tax expense of $3.7 million compares to an expense of $1.6 million in fiscal 2011.

The tax provision for all periods includes the effects of the application of guidelines related to accounting for income taxes in interim periods as well as accounting for valuation allowances.

Income from Continuing Operations in the third quarter of fiscal 2012 was $16.4 million, or $0.65 per diluted share versus adjusted income from Continuing Operations of $12.8 million, or $0.52 per diluted share in the year-ago period.

Income from Continuing Operations for the first nine months of fiscal 2012 was $21.3 million, or $0.85 per diluted share versus $3.2 million, or $0.13 per diluted share in the comparable period of fiscal 2011.

EBITDA for the third quarter increased to $22 million compared to EBITDA of $17.4 million in the third quarter of fiscal 2011.

EBITDA for the first nine months of fiscal 2012 increased to $34.5 million compared to $17.3 million for the same period last year.

Now, turning to our balance sheet.

Our cash at the end of the third quarter of fiscal 2012 was $138 million, versus $63 million in the same period of fiscal 2011.

Additionally, we had no debt outstanding at the end of the third quarter of this fiscal year or at the end of the prior year period.

On a constant dollar basis, accounts receivable is up 1.2%, and inventory has decreased 21.8% from the prior-year period while our sales have increased more than 20% year-over-year.

Accounts receivable of $94 million at the end of the third quarter of this year is above the prior-year balance of $92 million.

Inventory of $176 million at the end of the third quarter of this year decreased from $208 million at the end of the prior-year period.

Let me spend a moment discussing the status of our initiative to reduce inventory.

As many of you know, we are in the process of recovering gold from our excess non-core merchandise.

To date we have recovered approximately $13 million from this process.

We expect that the gold melt initiative will be nearly complete by the end of our fiscal year.

Additionally in the second quarter of this year, we sold $809,000 of excess movements that were not needed for our forecasted production, and we expect to complete an additional sale of approximately $3.3 million of mechanical movements and related parts in the fourth quarter of this fiscal year.

Capital expenditures for the first nine months of fiscal 2012 totaled $4.5 million.

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

Based on our strong performance, we are updating our guidance for this year.

Our increased guidance is EBITDA will range between $40.5 million and $42 million.

Net income will range from $23.3 million to $24.5 million.

And diluted earnings per share will range from $0.93 to $0.98 per diluted share, as compared to our previous guidance of $0.60 to $0.65 per share.

We anticipate an effective tax rate of approximately 15% on a GAAP basis which is based upon the expected full year fiscal 2012 earnings and the continued requirement for accounting for valuation allowances.

For purposes of our longer-term strategic plan, we continue to forecast a 30% effective tax rate.

The updated guidance we have provided does not assume any unusual items for the remainder of fiscal 2012.

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

Thank you, Sallie.

I would also like to note how pleased we are with our results for the third quarter as well as our year-to-date performance in fiscal 2012.

Our performance is a testament to the team's consistent execution against our plan and the health of our brand portfolio.

We believe that we are only beginning to realize the full benefit of the strategic initiatives we implemented last year.

As Rick and Sallie mentioned, we have continued to build on our momentum throughout the year, and once again achieved broad-based sales growth across all our brand categories in the third quarter.

In particular, we are very pleased by the ongoing strong sell-through of our Movado and licensed brands, which continue to resonate very well with consumers and validate our positioning in the marketplace.

Additionally, our commitment to returning Ebel to growth by focusing on its Women's watches is beginning to generate results and we are developing exciting new collections to be launched next year that we believe will continue to grow this brand.

Our continued strong performance in China demonstrates the success we had in placing a greater importance on capturing Movado Group's growth opportunities in this important market.

We see strong opportunity for further growth in China and other international markets in the future.

Overall, we believe we have the right plans, product, and team in place to maintain our momentum and drive future growth.

We have a solid platform in place that gives us the ability to increase sales and profitability as we continue to build on our relationships with our Retail Partners and our brands with consumers.

At the same time, our solid infrastructure provides us with a global platform to grow sales while managing our expenses.

Our balance sheet is very strong and allows us to invest in our business and explore new opportunities.

We have strong initiatives in place supporting our brands, and look forward to an exciting holiday season.

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

Thank you.

Ladies and gentlemen, at this time we will be opening up the call for question-and-answer session.

(Operator Instructions)

In order to allow time for everyone's question to be answered, Management asks that you please limit yourself to one question and then return to the queue to ask any follow-up questions.

(Operator Instructions)

Jeff Blaeser, Morgan Joseph.

Good morning.

Thanks for taking my question.

Early in the call you mentioned normalized retail replenishment patterns, I believe it was.

Is that still kind of a one in, one out type of trend or are you seeing retailers kind of expanding their in-store or back-office inventories and buying a little bit more than what they're selling at this point?

I think we're pretty much in a what we sell in is sell-through.

Obviously, there's a little bit of build for the holiday season.

And so, our sales that have taken place, it's now looking at the sell-through that's taking place in November and December, and January, for us, is a little bit of a replenishment month for sell that has taken place.

But, if you look over a trend period, three-, six-month, nine-month type of period of time, we believe we're well aligned with sell-in being equal to sell-out that's taking place.

We do have some door expansions globally around the world, but that's not the driver of our volume.

It's consumer sell-through that's taking place.

Okay.

And, on the luxury side, that growth is pretty good.

I'm assuming that's mostly Ebel?

Is that mostly coming from expanding women's market share, getting back some of that category?

I think it certainly has to do with getting back and our focus on that.

Also, we have an opportunity -- as we were going through the gold melt process of having some product that we were able to sell in the marketplace that was good buy for consumers out there.

So, part of that is a little bit of a one-time growth in Ebel because of our opportunity of selling some gold product at better prices than the melt price.

And, finally, with the positive China momentum, would that open the door for other lines to be offered in China, or is that a little bit longer, farther down?

I think that's a little bit longer term.

Obviously, we've got our key brands in there -- Movado and all of our licensed brands.

Certainly, there's opportunity for our luxury category there; but, first, we need to get those luxury categories performing in the key strategic markets that they're performing in now.

And then, that's an opportunity later on.

So, yes, I see it a little longer term.

Thank you very much.

Thanks.

(Operator Instructions)

Chris Smith, Artisan.

I was just wondering if you could update your thoughts on where the Company now stands relative to the fiscal '14 targets that were provided last September for revenue of $520 million to $540 million, and EPS of $1.40 to $1.50?

We're still on track to deliver our performance there.

There, obviously, may be some shifts in the individual components that take place, but we believe we're in line with the plans that we've outlined in our strategy.

Okay.

Is the target still to get to an operating margin of 12%?

The objective is still to get to an operating margin of 12%.

And, again, as I said, there may be some shifts and adjustments taking place.

But certainly we see that as our plans and that's built into our plans of where we objectively want to achieve.

And the cash has definitely built up nicely on the balance sheet.

Any thoughts about doing a special dividend?

At this point in time there is no thoughts at all, other than making sure we continue the strength that we're building on, making sure that we have the ability of remaining independent and not having to have the need for debt borrowing.

So, right now, we continue with our plan of continuing to generate strong cash flow and add to our cash balances.

Okay.

The last one I had, the outlook on new licenses and acquisitions, how does that look?

Again, from a standpoint, our business plans are very much focused on our organic growth.

We always look at opportunities out there and, as those opportunities materialize, we would obviously communicate that to the public.

But we are very much focused in on the opportunities that we have within our portfolio right now.

Okay.

Thanks.

(Operator Instructions)

If there are no more questions, I would like to thank you all for participating in today's conference call and we wish all of you a great holiday season.

And, we hope that everybody shops out there.

So, thank you very much.

Thank you, ladies and gentlemen.

That will conclude today's presentation.