Movado Group Inc (MOV) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Movado Group's First Quarter 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) And 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. Jennifer Milan 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 would 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 differ materially 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 2013; 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 Efraim will close.

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

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

Thanks, Jennifer.

Good morning, and welcome to our conference call.

We are very pleased with our strong first quarter financial results.

Importantly, the strategic fine tuning of our brands over the past few years is bearing excellent results, which is demonstrated by the consistently positive sales trends we have delivered over the last nine quarters.

We are also particularly pleased with the significant improvement we have achieved in our profitability, even in the face of what remains a challenging environment and rising cost.

We believe our top and bottom line performance underscores the strength of our brand portfolio and the traction we are gaining from the strategic plan we began implementing in 2010.

We continue to see broad-based strength across our Business with strong customer -- consumer demand and customer sell-through.

Our sales increased 15% for the first quarter compared with the same period last year, lead by strong performance in our largest Businesses, Movado and our license brands.

We are pleased with our consistently positive sales results in the recent time frame as the first-quarter sales growth of 15% is on top of 22% sales growth for the full year fiscal 2012 and 14% adjusted sales growth for the full year fiscal 2011.

Based on our continued sales momentum in the first quarter and our disciplined expense management, we were also able to improve gross margin by 280 basis points year-over-year to 56.9% despite product cost pressures.

Our strong sales performance and expense management allowed us to deliver operating income of $8.5 million in the first quarter, an increase of $6.9 million from the prior year, more than double EBITDA to $11.5 million versus $4.5 million in the prior year, and grown net income to $6.6 million versus $0.5 million dollars in the prior year.

In addition to our sustained top-level growth over the last two years, we have generated an adjusted operating profit for the last seven quarters with positive performance in adjusted EBITDA in earnings per share.

We believe the successful changes we have made to our business structure and the strategies we have put in place have helped drive this performance.

This improved financial performance has also provided us the financial flexibility to continue to reinvest in growing the Business while returning value to our shareholders.

Our balance sheet remains exceptionally strong as evidenced by our net cash position of $159 million at the end of the first quarter and our reduced inventory levels despite higher sales.

As a reflection of our commitment to building long-term shareholder value, we are also pleased to announce that our Board of Directors has approved a cash dividend of $0.05 per share of the Company's outstanding stock as per this mornings press release.

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

Now, let me briefly discuss some global trends and provide some specific brand highlights for the first quarter.

From a global perspective, the watch category continues to perform reasonably well, and we continue to experience strong watch sell-through performance at our retail partners.

Our brands performed well in all global markets in the first quarter despite varying economic conditions.

Our plans anticipate moderate growth in North America, modest growth in Northern Europe, economic uncertainty continuing in Southern Europe, and reasonable continued growth in Asia and South America.

From a brand perspective, the execution of our Movado brand strategy continues to produce particularly strong results.

Globally, Movado sales grew 24% in the first quarter as compared to fiscal 2012.

Our Movado brand in the United States continues to hold the leading market share position in our key price points of $500 to $1500 and a strong market position in the $1,500 to $3,000 price point segment.

Additionally, Movado continues to out pace the category and increase its market share in total in the $300 to $3000 price segment and in virtually every category within this segment.

All distribution channels continue to perform well with double-digit gains in US department and chain stores and even greater growth in our broadened specialty channel distribution.

Product segmentation in the design of the desirable new products into specific pillars have been important components of our strategy with the Movado brand.

This spring, our nationally advertised Cerena, the new white ceramic and stainless steel lady's style with diamond markers retailing for $1,295, has sold extremely well.

Movado Bold with its infusion of fashion in the Swiss category continues to create a nice positive halo over the higher brand.

We believe we are well positioned with the Movado brand for the current dad-and-grad selling period with new items such as the Series 800 strap, retailing at $750 and $950, and the new Museum Sport Chronograph, retailing at $995.

The repositioning of ESQ to ESQ Movado has been well received by our retail partners.

The new design with the ESQ Movado branding will begin appearing in retail this September.

Prices will remain consistent with where they are today, ranging from $250 to $595, but with a much more elevated brand aesthetic.

We expect that sell-through at retail for ESQ will continue to greatly exceed sell-in to our retail partners until the new products begin to ship in the third quarter.

Sales in our luxury category declined 16% globally for the first quarter versus last year, in line with our plans as we prepare for major new product (inaudible) for the Ebel brand this fall.

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

Our License Brand Division continues to perform extremely well.

Our Global License Brand Team grew sales in this division by 30% in the first quarter on top of 28% sales growth for the full year and fiscal year 2012 and 21% sales growth for the full year fiscal 2011.

Growth in our License Brand Division is being driven by innovative product designs at key price points that are resonating well with consumers.

Some of the leading product performers for license brands during the first quarter were the Coach Boyfriend and Classic Signature product offerings, the Tommy Hilfiger Sidney, Andre, and Windsurf models, the HUGO BOSS Aviator and Slim Round watches, and the Lacoste Advantage and Goa collections.

Our Outlet Retail Division remains an important contributor to our Business from both a sales and profitability perspective.

The greater emphasis we have placed on branding and customer service at our existing stores has helped fuel sales conversion and improved profitability.

In summary, we remain excited that all the initiatives we have diligently been working on have been successful in creating momentum in our Business, and while we recognize that the environment remains challenging, we are pleased that we are able to exceed our initial plans to start the year and encourage by the sustained strength we are seeing in our Business as our efforts to fine tune the positioning of our brands have firmly taken hold.

Looking to the remainder of fiscal 2013, we plan to build on these initiatives by continuing to refine our product lines and introduce more frequent and focused innovation to enhance our offerings, maintain consumer excitement, and further improve the competitive positioning of each of our brands.

We look forward to the exciting plans we have in place for driving sustainable, profitable growth for the balance of fiscal 2013 and beyond.

We believe that the breadth and depth of our more focused product offering, supported by continued television advertising, combined with strong print support and a focused digital strategy will all contribute to strong continued sell-through and ongoing 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 first quarter.

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

To begin, sales for the first quarter were $103.7 million, up from the same period of the prior year by $13.8 million or 15.4%.

The higher sales were driven by growth in both the US and international businesses.

For the first quarter, sales in our wholesale segment were $93.5 million or 16.9% above sales of $80 million for the same period of last year.

The increase in sales was driven by growth in the accessible luxury and licensed brand categories.

The US wholesale business was $40.8 million or 15.2% above sales of $35.4 million for the prior-year period.

The increase in sales was driven by growth in the accessible luxury and license brand categories.

The international wholesale business was $52.7 million, up 18.2% year-over-year compared to $44.6 million last year.

Sales growth during the first quarter was driven by the licensed brand category.

Sales were strong in South America, Northern Europe, Asia, and Canada.

Sales from the Company's retail business increased 3% versus the prior year first quarter.

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

Gross profit for the quarter was $59 million versus $48.6 million in the first quarter of last year, which translates to gross margin of 56.9% as compared to 54.1% for the first quarter of last year.

The increase in gross margin was primarily driven by a shift in channel and product mix as well as leverage gained on fixed costs due to higher sales.

Operating expenses were $50.5 million, above the prior year by $3.5 million or 7.4%.

The increase for the quarter was primarily the result of the following.

A $2.8 million increase in compensation and benefits resulting from salary increases, certain employee benefits, and performance-based compensation, and a $1.1 million increase in marketing, partially offset by a $400,000 decrease due to the transactional impact of FX.

Operating income for the quarter was $8.5 million compared to operating income of $1.6 million in the same period of the prior year.

Income tax expense of $1.6 million or a 19.1% effective tax rate in the first quarter of fiscal 2013 compared to income tax expense of $700,000 or a 58.3% effective tax rate recorded 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 as well as accounting for valuation allowances.

The decrease in the effective tax rate is due to a shift in the mix of global pre-tax financial results.

Net income in the first quarter was $6.6 million or $0.26 per diluted share versus net income of $500,000 or $0.02 per diluted share in the year-ago period.

EBITDA for the first quarter increased to $11.5 million compared to EBITDA of $4.5 million in the first quarter of fiscal 2012.

Now, turning to our balance sheet.

Our cash at the end of the first quarter of fiscal 2013 was $159 million versus $109 million in the same period of fiscal 2012 with no debt outstanding at the end of either period.

Accounts receivable was up 2.7%, and inventory was down 7.4% from the prior-year period, while our sales increased more than 15% year-over-year.

Accounts receivable of $62.3 million is above the prior year by $1.7 million.

Inventory of $172 million decreased from $185.9 million at the end of the prior-year period.

On a constant dollar basis, inventory decreased by 5.1%.

Capital expenditures for the quarter were $800,000, and depreciation and amortization was $3.1 million combined.

I would also like to remind you that we are projecting capital expenditures of approximately $20 million for fiscal 2013, which is higher than our fiscal 2012 levels primarily because of the production of new Basel fair booths and the relocation of our Swiss office and warehouse.

Now, I would like to reiterate our recently increased guidance for the current fiscal year.

For fiscal 2013, we anticipate our sales will increase approximately 9% to $505 million to $510 million.

Operating income will increase approximately 25% to $43.5 million to $44.5 million.

EBITDA will increase approximately 20% to $55 million to $56 million, and net income will increase approximately 25% to $29 million to $29.7 million.

This guidance is based upon adjusted fiscal 2012 net income, applying a 30% effective tax rate, the same effective tax rate for fiscal 2013.

We expect diluted earnings per share in fiscal 2013 will increase to approximately $1.15.

Note that this guidance includes an investment in infrastructure for our newest license brand, Ferrari, but doesn't include any corresponding revenues as this new collection will not be introduced until early 2014 -- sorry, fiscal 2014.

This guidance we have provided does not assume any additional unusual items for fiscal 2013.

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

Thank you, Sallie.

I would also like to note how pleased we are to have achieved such a solid start to the new fiscal year as we continue to build on the momentum we've restored to our business over the past two years.

The first quarter of fiscal 2013 marks 9 consecutive quarters of revenue growth for Movado Group, and we believe this consistency is the direct reflection of the strategic initiatives we implemented to enhance the value proposition and improve the competitive positioning of each of our brands.

As Rick and Sallie mentioned, we again achieved double-digit sales growth in the first quarter, driven by a particular strength in our largest business, Movado, and our license brands.

With respect to Movado, product segmentation and the design of new products into specific pillars have allowed us to enhance and better focus our assortment, effectively improving our competitive positioning and providing further validation of our strategy.

Moreover, we are also encouraged by the strong customer acceptance of our new products, such as the Cerena, while the infusion of fashion provided by Movado Bold continues to create excitement around the entire brand.

The repositioning of ESQ to ESQ Movado has been well received by our retail partners, and we believe the new designs with new branding that will begin to appear at retail in September will help to further energize the brands.

Additionally, while our strategic focus on women's watches for Ebel has been gaining traction, we remain on track to launch two new collections in time for the holidays this year.

We believe these collections, which will be supported by an all new marketing campaign, will spur renewed excitement around the brand.

As we look to the remainder of fiscal 2013, we believe we have the right strategy, team, and product and marketing programs in place to maintain consumer excitement throughout the balance of the year.

While the macroeconomic environment remains uncertain, we will continue building on the initiatives we have implemented.

Specifically, we will continue to refine our product lines and introduce focused, frequent innovation, which is a hallmark of our Company, to keep our brands fresh and relevant with consumers.

Importantly, the solid infrastructure we have in place provides us with the global platform to grow sales, while our healthy balance sheet allows us to reinvest in the business and to drive sustained profitable growth and return value to our shareholders.

With consistent execution against our strategic initiatives, we remain confident in the future of the Company.

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

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

(Operator Instructions) We'll take our first question from Oliver Chen with Citi.

Hi guys.

Congrats on great results.

My question is related to your exposure within Europe.

Could you refresh us on your top markets there, your top three markets there, and also what you're seeing in the marketplace with respect to Germany and the customer and how your Business is going there, and then if there's anything we should know in terms of distribution versus comp growth opportunities in these markets?

Thank you.

A couple things.

Number 1 is obviously we don't go into detail by market, but as we did highlight our largest markets, say, are our Germany, UK, Spain, and as I outlined in my guidance in there, we see Northern Europe being modest growth as we look forward, and we see the Southern Europe continuing with economic uncertainty in what's going to take place there.

And I think to the second part of your question, it's not really new distribution growth, it's continued sell-through within the existing distribution.

Were there any characterizations as a follow-up to the brand performance or the product performance within these regions that was noticeably different in your core versus licensed?

Most of our Business in Europe, the largest part of our Business is licensed brand, and I think as Rick alluded to, the performance in Southern Europe was more challenging, the performance in Northern Europe was stronger, and it's basically continuing to execute against our strategy which is trying to offer great product to gain product innovation and continue to focus on offering value to the consumer as well.

Okay.

And last on this topic, do you see this trend to continue the northern versus southern dynamics.

Again, I'll come back and say that in the guidance I've given is that we see Northern Europe having modest growth, and we see Southern Europe continuing with economic uncertainty, so those markets are going to be interesting markets as they have been for the last year or so.

Okay.

Thanks.

I'll get back in the queue.

Thanks a lot.

We'll go next to Mike Richardson with Sidoti & Company.

Yes, good morning, and let me add my congratulations on a nice quarter.

Hello?

Yes, thank you.

I'm just wondering if -- I wanted to follow-up here a little bit.

I'm wondering if you've changed the way you're thinking about inventory levels given the economic uncertainty, specifically in Southern Europe?

I think from a standpoint of our inventory, I wouldn't sit there and say that there's a major change in our strategy.

We obviously continue to refine our cycle times and our turnaround times and all that.

We continue to invest behind strong product performers in each of our brands, and obviously, we produce inventory based upon where we see our forecast taking place around the world.

So we see the ability of continuing to have strong inventory performance versus our sales performance, so we may see pockets of growth taking place but certainly less than our sales growth that materializes each and every quarter.

Okay, great.

And with regard to gross margin, obviously a big jump here in the first quarter.

Can you give us an idea of how we should be thinking about that for the balance of the year?

I think previous guidance was sort of flattish year-over-year.

Yes, Mike.

I can address that.

This is Sallie.

The largest contributors to gross margin, the improvement we saw for this quarter, was the leverage on our fixed cost as well as the channel and product mix that we experienced, and that favorable shift in channel and product mix as compared to last year, it was really a function of who we're selling to.

Is it direct, is it indirect to distributors?

And we do not expect this level of favorability to continue the year-on-year comparison for the remainder of this year, but as I said that, we do not expect it to continue, to be clear.

Okay, thanks, and I also had one more, and then I'll jump out.

As part of the three-year plan, I think you guys had talked about expectations for China sales in the area of about $30 million.

Just wondering if that's still your target, and can you maybe give us an update on how things are going over there?

Yes.

China is, again, a small part of the Business, but an important for the long-term future of Movado Group and how we expect to position ourselves there.

We continue with good sales growth there; however, as we've all read in the paper, China market is not growing to the same level that it has been, which I don't think anyone really expected that to continue.

Inflation is certainly picking up there.

But our business, again, which is relatively small, Movado is reasonably well established with a standpoint of 150 to 175 doors, license brands are still in the early stages of focusing on its growth and its expansion, so we're pleased with where we are.

We certainly see achieving the outlines that we've outlined in our (inaudible) plan, but understand that the China economy was not going to continue on that ridiculous pace it has been on over the last couple of years.

Okay, great.

Thanks.

At this time, we have one question remaining in the queue.

(Operator Instructions) We'll take our next question from Oliver Chen with Citi.

Hi guys, thanks again.

About your earlier comments on inventory levels at your partners, could you just update us on what they look like at your retail partners?

And are you seeing kind of linear cabinet growth?

Is that a potential opportunity with them, specifically to what you're seeing in North America wholesale?

Thanks.

Sure.

I think inventories at retail are in a healthy position, so they're in balance is what I would say, and I think that you are seeing some moderate increase in linear square foot as people renovate areas and the watch category becomes more important to North American department stores, I think specifically dealing with your question, so but again, that's a moderate increase, and it's over a long period of time because it entails significant renovations on retailers parts.

Thank you, and also, your share gain is very impressive.

Could you roughly characterize what's happening with respect to other players losing share to you.

Are there trends in terms of who you're taking share from?

And if you could also just refresh us on what's happening in terms of the amazing growth in the sector at large and if the context for like why people could be buying multiple watches at this point in time?

Thanks.

Sure.

I think that over the last several years, we've been -- the whole category has been able to offer better product, better design, and more interesting design at very strong values, so that has expanded the category.

We believe that the expansion of that category is a long-lasting expansion, and I just think that we continue to stay focused on what we can control in our Business, which obviously from an operating perspective, our expenses and our operations, but also from a creative point of view is making sure that we offer the consumer great designs across our brands and continue to offer strong values at each and every price point.

So that's really what we're focused on is executing against our plan.

What do you think the marketplace is doing in terms of pricing?

I know you guys have had a prudent strategy to be positioned with strong value.

Have you seen other players follow a similar strategy or choose to do otherwise?

I think it's a very competitive marketplace, so everybody is aware of what's going on, I don't think, and so people continue to focus on offering strong value as a category.

I think you do see in other segments, in the upper-end segments, the luxury segments, over the last several years people have had to pass increases due in the US and dollar-based economies based on currency on very strong currency fluctuations, but that is somewhat balancing out now.

Okay, thank you, and my other question was on -- the full-year guidance looks very attractive.

Do you have a sense of if we could expect fixed cost leverage in terms of SG&A growth relative to your sales just roughly and how we think about that line item?

Thank you.

Oliver, this is Sallie.

I'll take that.

We would expect to have continued deleverage on our fixed cost, although you do have to add some fixed cost to -- as the sales grow, but you should definitely see our fixed cost growing at a lower rate than our sales growth.

Okay, thanks.

Thanks so much for your time today.

Thanks, Oliver.

(Operator Instructions) We'll take a follow-up question from Mike Richardson with Sidoti & Company.

Yes, hi.

Just one follow-up question.

This is going out a little bit.

Just with regard to the Ferrari license that's going to be rolled out next spring, is that going to be rolled out worldwide, or is that primarily in Europe, North America, just give me a sense there?

So that's obviously a worldwide global license, and obviously a well recognized, world brand, so that for us will certainly be a global business, and obviously with the size of that and the global nature of it, it will certainly take a couple years for us to be able to roll that out to the full extent that we want to.

But that absolutely is a global business, and again, a good example of how we would be able to leverage a pretty strong infrastructure we have around the world to be able to launch a new brand.

Okay, thanks.

Thank you.

That concludes our question-and-answer session today.

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

I would like to thank all of you for participating today, asking some very good questions, and wish all of you a great summer.

So again, thank you very much for participating today.

This concludes today's conference call.

Thank you for your participation.