Movado Group Inc (MOV) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Movado Group first quarter fiscal year 2014 earnings 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.

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. Rachel Schacter of ICR.

Please go ahead.

Thank you.

Good morning, everyone.

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 get started, I would like to remind you of the Company's Safe Harbor language which I'm sure you are all familiar with.

The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the Company's filings with the SEC which includes today's press release.

If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release.

Now I would like to turn the call over to Rick Cote, President and Chief Operating Officer of Movado Group.

Thanks, Rachel.

Good morning and welcome to our conference call.

We had a solid start to the year with our first quarter results, positioning us well to achieve our previously issued full-year guidance.

Having just returned from the Basel Watch Fair in Switzerland, we saw firsthand the tremendous enthusiasm of the global retail community to our product offerings across our entire portfolio.

This reinforces that the brand strategies we are implementing are continuing to provide us with a solid platform for sustained growth.

We are excited about our full-year sales plan which is driven by strong double-digit sales growth in our licensed brands and accessible luxury categories.

Turning to a review of our first quarter, total sales increased 6% fueled by continued strong growth in our accessible luxury category.

We experienced some timing shifts which impacted our licensed brand sales in the quarter which I will review in more detail shortly.

Overall, we continue to see broad-based strength across our business with strong consumer demand and customer sell through.

Although certain retailers, particularly in Europe, were cautious with their open to buy at the end of the first quarter, presumably due to concern over microeconomic events, we also attribute this to the later timing of the Basel Watch Fair.

As retail sell through remained strong in Europe we see this as a timing issue, not a new trend.

Operating income was $10 million, an increase of 18% from the $8.5 million reported in the prior period.

This improved level of operating income was driven by the sales growth and leveraging of our operating expenses despite the planned reduction in gross margin percent.

Earnings per share came in at $0.32, an increase of 23% from the $0.26 reported in the prior period, despite recording a tax rate of 29% in the current quarter versus a 19% tax rate in the prior quarter.

Assuming a constant tax rate, our earnings per share increase would be 40%.

Our balance sheet remains exceptionally strong as evidenced by our combined accounts receivable and inventory levels increasing only 3% on a 6% sales increase.

Our net cash position remained substantial at $141 million, even after returning $37 million in cash dividends to our shareholders last year.

We're also pleased to announce that our Board of Directors has approved our regular $0.05 quarterly dividend as per this mornings press release.

Our equity position remains strong at over $420 million.

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

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

And we continue to experience strong sell through performance across our retail partners.

Based on our plans we believe we are well-positioned to achieve our sales growth expectations of 12% in fiscal year '14.

From an economic perspective, we continue to anticipate moderate growth in North America, modest growth in northern Europe, a continued recession in southern Europe, solid growth in South America, and conservative growth in Asia.

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

Globally accessible luxury sales grew 24% in the first quarter of fiscal 2014 as compared to the same period of fiscal 2013.

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

Additionally, Movado continues to outpace the category and increase its market share in total in the $300 to $3,000 price segment 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 broad and specialty channel distribution.

Product segmentation and our strategy to offer compelling product at key price points continues to help drive our growth.

Great performers in the first quarter included Cerena and Amoroso with diamonds for women and in the mens category, our classic Museum, Sport Museum bracelet and Vizio.

New products, which will be introduced later this year and were the highlight of this year's Basel Fair, included the new Museum thin classic collection, the SE Pilot and [Mary,] a 20-millimeter dot watch.

Movado Bold, part of our Swiss trend pillar, is still achieving expectations.

Strategically limited to less than 700 doors worldwide, Bold continues to add a fresh, younger perspective to Movado.

Bold is also well-positioned to continue bringing the consumer desired newness to the market.

Great product, along with a focused omni-channel marketing program, continues to help drive our strong Movado sales performance.

ESQ Movado, powered by Movado product and brand positioning, also had an excellent reception by retailers at the Basel Watch Fair.

Among the collections presented to retailers were the line extensions of the mesh bracelets in Capital, new diamond pieces in Origin in both round and rectangular cases, and the new Classica and Status collections.

There was also great excitement around the launch of ESQ One, a colorful fashion component to ESQ Movado.

ESQ One, an eye catching watch of unisex appeal that is cool, colorful, fashionable and fun, allows us to offer Swiss fashion on a silicone strap in 17 colors with a Swiss movement at $150 retail price.

The addition of ESQ One broadens the offering of ESQ Movado and makes for a compelling presentation at retail.

Our luxury category, which represented only 5% of our total sales in the first quarter, was down 4% in sales versus the prior period as we continue to focus on a more limited distribution structure.

In Ebel, we continue to focus on our key markets with our new and distinctive Onde and X-1 collections, along with the Ebel's core collection comprising the Wave, Beluga and Brasilia models.

In Concord, we continue to focus on the Middle East market with the reintroduction of Saratoga, which was launched in the second half of last year and Mariner, which will be launched late this fiscal year.

Our licensed brand division continues to perform extremely well.

And we expect our strategies to drive impressive sales growth of 15%-plus for the full year.

In the first quarter licensed brand sales were flat driven by the following items.

The preparation for repositioning Coach watches in the second half of this year as fashionable modern classics offering the quality and authenticity inherent in Coach, with an improved price value proposition to consumers.

As a result, we are purposely curtailing sell in to our retail partners to allow existing product to sell through.

The initial rollout of the Scuderia Ferrari brand globally, which is off to a great start.

The timing of new product introductions, which we purposefully delayed until the second quarter due to the timing of the Basel Watch Fair, compared to significant shipments of new products in the first quarter last year.

In European retailers delaying their open to buy until after the first quarter which we believe is in part a result of the Basel Watch Fair being held very late this year, corresponding with our quarter end.

Planned growth in our licensed brand division will be driven by innovative product designs at key price points that resonate well with consumers.

Our full-year plans call for continued strong double-digit licensed brand growth with the launch of the Scuderia Ferrari brand which happened in April, the very well received repositioning of Coach watches in the second half, and the very strong customer reaction at the Basel Fair to our Tommy Hilfiger, HUGO BOSS, Lacoste and Juicy Couture new product offering and brand positioning.

Our outlet retail division remains an important contributor to our business, from both the 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 profitability.

Our sales for the quarter were flat and our profitability continues to be strong.

We just recently opened a new store in Phoenix, Arizona which will keep our store count at 34 outlet stores.

We remain excited that the initiatives we have been diligently working on have succeeded in creating momentum in our business.

And while we recognize that the economic environment remains challenging, we are pleased with the start -- with our start for the year and confident the plans we have in place will allow us to achieve our planned financial results for the year.

I would now like to take a few minutes to remind you of our strategic plans which we announced during our fourth quarter conference call.

The efforts and initiatives implemented by our global team have positioned us to continue on the path of being a growth company.

Our growth will be driven by, first, the continued globalization of our Movado brand with increases in the number of global doors and retail linear footage.

As an example, we announced in February 2013 that in the UK we converted our 51% licensed brand joint venture to a 90% owned subsidiary affording us the opportunity to consolidate all of our brands under one platform, providing more direct exposure in the UK market.

Second, market share gains, continued new door openings and business expansion in our licensed brand division supported by the Ferrari global launch and the Coach watch repositioning.

Third, increases in our wholesale market sales and increased retail productivity.

Fourth, continued leverage of our strong global infrastructure, and fifth, consistent generation of cash flow from operations slightly greater than profitability.

Executing these initiatives will allow us to deliver our financial plans which call for consistent 10% sales growth per year and approximately 20% operating profit growth per year.

We believe our combination of powerful brands, superior infrastructure and our talented global management team position us to continue the path of above-average sales and profit growth.

Now I'd like to turn the call over to Sallie to discuss our financial results and fiscal year '14 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 then I will close with guidance.

To begin, sales for the first quarter were $110 million, up from the same period of the prior year by $6.4 million, or 6.1%.

Our US sales grew by 14.9% driven by accessible luxury, partially offset by a 2.3% decrease internationally.

For the first quarter, sales in our wholesale segment were $100 million, or 6.9% above sales of $93.5 million for the same period of last year.

The increase in sales was driven by growth in the accessible luxury category, partially offset by a planned decrease in our licensed brand category.

By geography, our US wholesale business increased 18.8% to $48.4 million, compared to $40.8 million last year.

Our international wholesale business decreased 2.3% to $51.5 million, compared to $52.7 million in the prior year.

Sales from the Company's retail business were relatively flat to last year.

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

Gross profit was $59.9 million, or 54.5% of sales, compared to $59 million, or 56.9% in the first quarter of last year.

The decrease in gross margin was driven by unfavorable channel and product mix, partially offset by the favorable impact of changes in foreign currency exchange rates.

Operating expenses were $49.9 million, below the prior year by 1.2%.

The decrease was primarily the result of a $1.3 million decrease in compensation, benefits, and the accrual for performance-based compensation, partially offset by a $400,000 increase in the transactional impact of foreign currency exchange rates.

Operating income increased 17.9% to $10 million, or 9.1% of sales, compared to $8.5 million, or 8.2% of sales in the year ago period.

During the first quarter of fiscal 2014, a building in Switzerland, which was no longer being utilized, was sold for a pre-tax gain of $1.5 million, or $0.04 per diluted share.

Income tax expense of $3.3 million, or 28.8% effective tax rate in the first quarter of fiscal 2014, compares to income tax expense of $1.6 million, or 19.1% effective tax rate recorded in the first quarter of the prior year.

The effective tax rate to last year includes the effects of the application of guidelines related to accounting for income taxes in interim periods, as well as accounting for valuation allowances.

Net income in the first quarter was $8.2 million, or $0.32 per diluted share, versus net income of $6.6 million, or $0.26 per diluted share in the year ago period, despite the year-over-year increase in the effective tax rate.

EBITDA for the first quarter increased to $12.8 million, compared to EBITDA of $11.5 million in the first quarter of fiscal 2013.

Now turning to our balance sheet.

Our cash at the end of the first quarter of fiscal 2014 was $141.5 million, versus $158.8 million in the same period of fiscal 2013.

Accounts receivable was up $7.3 million due to the increase in net sales.

Inventory was relatively flat to last year, while our sales increased more than 6% year over year.

Capital expenditures for the quarter were $6.5 million and depreciation and amortization expense was $2.8 million combined.

I would like to remind you that our capital expenditures were planned higher than normal for our first quarter due to the Basel Fair booth and our Swiss corporate offices.

We continue to project capital expenditures of approximately $19 million for fiscal 2014.

Now I would like to discuss our reiterated guidance for the current fiscal year.

We are still taking a cautious view of the global economy and we are assuming no significant fluctuations in foreign currency exchange rates.

For fiscal 2014, we anticipate our sales will increase approximately 12% to a range of between $570 million and $575 million.

Gross margin is expected to be approximately 54%, a decrease from fiscal 2013 due to the mix of business, the repositioning of the Coach brand and the launch of the Ferrari branded watches.

Operating income is projected to increase close to 20% to $68 million.

EBITDA is expected to increase to $80 million.

Due to the mix of global pre-tax results, the estimated effective tax rate for the current fiscal year is expected to be 28%.

And net income is planned to increase to approximately $48 million.

We expect diluted earnings per share in fiscal 2014 will increase to approximately $1.80.

Previously we announced the $50 million share repurchase program.

The purpose of this program is to offset normal dilution caused by share awards.

Because the share repurchase program will only be in place for a partial period this year, we do not expect the share repurchase program to have a significant impact on the weighted average number of shares outstanding for fiscal 2014.

For the first quarter, less than 15,000 shares were repurchased under this program which began in April.

The guidance we have provided assumes no unusual items for fiscal 2014 and excludes the sale of the building in Switzerland in the first quarter.

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

Thanks, Sallie.

We are pleased with our first quarter results and our strong start to the year.

During the quarter, we continued our positive momentum from the past 13 quarters.

Operating income grew faster than the pace of sales rising nearly 18%, validating our ability to leverage our infrastructure as we grow.

Earnings per share increased an impressive 23% in the first quarter despite a higher tax rate, which we believe reflects the health of the business and the sustainability of our brand strategies.

We are excited for what lies ahead for Movado Group in 2014.

In late April we unveiled our upcoming innovation including our new Ferrari watch collection and repositioned Coach product line at Basel World in Switzerland.

We are encouraged by the enthusiastic response across our brands which further demonstrates the strength of our design innovation and brand strategies.

We expect this positive response to lead to acceleration in our sales growth as we begin the second quarter and throughout the year.

As Rick mentioned, sell through of our Movado and licensed products remained strong during the quarter.

We are focused on delivering our fiscal 2014 objectives and we remain well-positioned to achieve our outlook of 12% sales growth and 20% operating income growth.

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

Thank you.

(Operator Instructions)

Oliver Chen, Citigroup.

Hi, congratulations.

Thank you, Oliver.

Regarding the outlook for the revenue growth in the different initiatives you have going on including Coach and Ferrari, which quarter will have the most benefit in terms of getting to your full-year guidance we would expect an acceleration in revenue growth?

Yes, I would expect that we will start seeing that in the second quarter, but the second, third and fourth quarter we will start seeing that.

Obviously Ferrari is off to a great start but we have only had one month of sales in place.

Coach repositioning will pretty much take place in late June and early July so we'll see a benefit of that in the second quarter.

And as we continue to launch our new products as I said, many of those will launch in the first quarter of last year then launch in the second and third quarter of this year.

We will see a good pick up in the second, third and fourth quarter for the rest of the year.

Also, there's been an industry interest in the emergence of a potential smart watch in that marketplace.

Could you comment on your overarching thoughts on that opportunity?

We really consider ourselves being in the fashion accessory category and for us it's about design more than it is about technology.

And I think there is a lot of talk going on.

I don't know exactly how it will manifest itself.

Today we were actually hearing about wearable computing versus just watches.

We will find out what wearable computing is.

Thank you.

And on the gross margin it was better than our expectations, but it was obviously down year over year.

Do you still expect channel and product mix to continue to weigh on the margins going forward?

And any comments on how we should think about the guidance in the next few quarters there?

I will address that Oliver.

Just to point out for this quarter, you know that last year was a tough quarter for us to compare, last year's first quarter was unusually high.

So we did have a lot of unfavorability in mix and that will somewhat continue throughout the rest of the year.

We're saying that we will be down year over year in total gross margin due to initiatives with Coach and Ferrari.

Last one, Efraim, if you can give us an update on your feelings on the consumer, the health of the consumer, and what you're seeing with marketplace trends.

We continue to see the category very strong, and there is a resiliency to the consumer and if you give them innovation and excellent value, we believe they continue to purchase.

And you saw that actually very strong sales from us domestically.

And I think internationally is more of a timing difference in terms of deliveries and newness into the international marketplace, which is really much more around Basel which last year was early in the quarter, and this year was very, very late in the quarter.

We see the consumer in the US being -- improving and continuing to be resilient.

In Europe I think a little bit more challenging, but again if you continue to give them a reason to buy, they will buy.

Thank you, best of luck, best regards.

Thank you, Oliver.

(Operator Instructions)

Mike Richardson, Sidoti.

Good morning and thank you for taking my call.

I was hoping you could expand a little bit, give us a little bit more color, maybe you have seen something after the quarter ended or what not as to why you think what is going on in Europe is a timing issue and not a change in trend.

For a couple of reasons.

Number one is we looked at the timing of Basel.

The timing of Basel was literally the last two weeks of our quarter, you've got all of your major retailers planning for the fair, being out in the fair.

We purposely looked at the level of newness that was very strong in the first quarter of last year because the timing of Basel was very early in the quarter, versus this year a lot of that being pushed out to the second quarter and beyond.

So we still see very strong retail sell through so consumers continuing to buy.

So obviously people are going to replenish their stock levels, and we just think it was a timing issue and very confident it was a timing issue at the end of the first quarter, particularly in Europe.

Okay and for Sallie, should we still assume you guys have guided to about 54% gross margin for the year.

Is that something we should still be have in the back of our minds for modeling purposes?

Absolutely, yes.

Okay.

And thinking about expenses for the rest of the year, I wouldn't think with stock performance that we would expect that compensation would continue to be down year over year.

Any guidance you can give us there?

I did something high-level if you didn't hear that, if I missed something, but we would continue to expect leverage on our operating expenses growing at a lower pace than our sales growth.

As for compensation, last year out of the gate we were pretty strong so we were accruing a higher performance compensation last year than would have been normal course of action.

This year we would expect -- at this point we are on track for our normal --

We also restructured some operations in Switzerland and Japan that also led to continued savings.

But we will see a spike up in expenses through the rest of the year, primarily as we continue to expand globally Ferrari and add resources for that internationally as well with Coach and the repositioning of Coach globally.

Okay and can you remind us what you expect the door count to be in Ferrari at the end of the year?

I think you mentioned that before.

We would expect to be at 2,500 doors at the end of the year and we are well on our way to achieving that.

Okay.

Is that going to be in China as well?

Yes, but on a limited basis, more for some of their own stores, but in the first year on a more limited basis in China.

Okay, thanks guys, good luck.

Thank you, Mike.

(Operator Instructions)

There are no further questions at this time.

I'd like to turn the conference back over to our speakers.

Okay, I would like to thank everybody very much for participating in today's first quarter conference call and I wish everybody an excellent summer and we look forward to reporting to you our second quarter when that is completed.

Thank you very much.

Thank you, that does conclude today's conference.

We appreciate your participation.