Movado Group Inc (MOV) 2021 Q4 法說會逐字稿

Good day, everyone, and welcome to the Movado Group, Inc. Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in whole or in part without permission from the company.

At this time, I would like to turn the conference over to Rachel Schacter of ICR. Thank you. Please go ahead.

Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; and Sallie DeMarsilis, Executive Vice President, Chief Operating Officer and 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're 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 versus non-GAAP financial measure will be provided as supplemental financial information in our press release.

Now I'd like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Okay. Thank you, Rachel. Good morning, and welcome to our fourth quarter and year-end conference call. With me today is Sallie DeMarsilis, our Chief Operating Officer and Chief Financial Officer.

I will first share with you some highlights for the fourth quarter we just reported as well as our plans and strategies for the current year. Sallie will then walk through our financial results in greater detail. We would then be glad to answer any questions you might have.

While we are seeing improvements in terms of COVID-19 cases in the United States, we are experiencing closures across European markets and continued challenges in Latin America, especially Brazil and Mexico. We are hopeful that as vaccination rates increase around the world, we will slowly return to a new normal. Our thoughts are with the families that have experienced personal devastation from this disease.

Having just finished 1 of the most unusual years in our history, I couldn't be more proud of our teams around the world. Operating in the first and hopefully, only pandemic in our lifetimes, I am very pleased with our overall execution and results, given the challenging operating environment, and I would like to personally thank our teams for all that they accomplished this year. During fiscal 2021, we made significant progress in how we execute as a company, which positions us well for the future.

For the fourth quarter and the full year, we exceeded our expectations on both the top and bottom line. Our sales for the fourth quarter were down 6.6% to $178.3 million, and showed a sequential improvement from the third quarter. Our adjusted operating profit for the fourth quarter was $23.9 million versus $8.3 million last year, a 186% improvement, and higher than the $19.9 million, reported in the fourth quarter 2 years ago. For the year, our adjusted operating profit was $30.7 million, on sales of $506.4 million.

We finished the year with a very strong balance sheet, with cash of $223.8 million, and debt of $21.2 million. Our inventories declined by 11%, and our adjusted gross margin for the quarter increased by 220 basis points to 54.9%. Given our strong performance and balance sheet, we announced this morning that our Board approved a quarterly dividend of $0.20, and reinstated a share buyback program.

As a company, we have effectively reinvented and evolved over our history. With the onset of the pandemic, we knew we would have to add a greater sense of urgency as we continue down the path of becoming a consumer first company that we become a leader in the digital marketplace.

Several years ago, we highlighted and focused on those priorities with the setting up of our digital center of excellence. Because of those timely decisions, we were well positioned to accelerate our digital transformation during the pandemic. We also focused on disciplined management of operating expenses as well as committing to expenses as close to the time of execution as possible. We now prioritized keeping a significant part of our expenses as variable. Our adjusted operating expenses for the quarter declined by almost 20%.

As we enter this year, we intend to continue to tightly manage our operating expenses while also continuing to focus on growing our digital business and partnering with our wholesale customers. We are seeing the benefits of a consumer first strategy in driving our product innovation and in our marketing programs. We are pleased with the overall performance of our brands. And believe that we have continued opportunities for organic growth across our brand portfolio in both watches and jewelry, which is still a small category for us, that has potential for significant growth. We are also very excited that we will be launching Calvin Klein Watches & Jewelry in calendar 2022.

As we look at our brands, we are very pleased with how Movado performed last year, and the continued momentum that we are seeing as we enter fiscal 2022. Our movado.com business grew by 110% in the fourth quarter, driven by the acquisition of new customers, the launch of the Movado SE Collection, the growth of our jewelry collection and the continued demand for our Movado Bold watches.

In our wholesale channels, we also saw continued -- we also continued to see sequential improvement with strong growth in e-commerce as well as sequential improvement in overall performance in brick-and-mortar.

This spring, we are excited about our continued rollout of our SE Collection, which will be supported by television advertising in May and June in support of Mother's Day, Father's Day and the graduation gift-giving season.

With a strong performance by Movado Jewelry leading up to Valentine's Day, we are excited about its future growth prospects for the Movado brand. We are also very pleased with the strong execution of our retail team. As they delivered increased profitability in our outlet division, despite serious limitations on traffic during the important holiday season. So far, we have continued to see strong momentum in our stores during the beginning of the year.

Our licensed brands performed very well, considering the numerous closures in Europe, our largest region, and Latin America, an important market for our licensed brands as sales shifted to third-party digital channels and marketplaces. In total, we saw less than a 2% decline in our license brands for the fourth quarter.

In Tommy Hilfiger, we saw continued strong demand for our campaign watches, Mason for him and Liberty for her. We also continued to see strong online performance of our Tommy Hilfiger Jewelry Collection for both men and women. For the spring, we are featuring a new parker in our tried-and-true blue dial with brown strap combination.

In HUGO BOSS, we supported 2 of our biggest markets, France and Germany, with television campaigns, which continued to drive share gains in these markets in Europe, we have gotten a strong response to our new pilot edition and our new HUGO watches. In addition, we are continuing to grow and develop jewelry for HUGO BOSS.

For Coach, we are seeing a strong response to our newness with consumers. The new Preston for her features Coach's iconic key rose motif on a rotating disk. Our men's penetration in Coach is now 20%.

In Lacoste, we continue to see a strong performance from our iconic Lacoste watches like Boston, and we'll expand the collection with our new Tiebreaker watch. We are also collaborating with Lacoste on a new collection tied to the brand's collaboration with Polaroid.

In MVMT last year, the brand improved its profitability as we trim the collection and rationalize marketing spend. As we look to this year, we are now focused on growth and are encouraged by the strong response to our first introduction of the new spring collection crafted in white ceramic, which raises our average selling price. We'll continue to invest and test new marketing vehicles for the spring.

While Olivia Burton's home market of the United Kingdom was closed for much of the fourth quarter, which impacted sales in our brick-and-mortar's business, consumers continued to respond well to our OB Jewelry & Watches online. For the quarter, our net sales on ob.com grew by 20%. We're already seeing a strong response to our new Rainbow Bee collection for the spring in both watches and jewelry.

As we look ahead, there still remains a significant amount of uncertainty in the global environment as the pandemic continues. As the rollout of vaccines expand, we believe we will begin to see life return to a new normal. On a global basis, we are seeing an uneven rollout of vaccination programs and the delays in reopening of brick-and-mortar retail in certain areas of the world. As a company, the actions that we have taken position us well to continue to grow and drive both sales and profitability. We have increased the variability of our cost structure and are working diligently on improving our margins.

Our innovation across our product portfolio has proven to drive consumer demand for our brand, and our investments in our digital footprint have helped to position the company for the present and the future. Our teams throughout the world have acted with a sense of urgency, and we are focused on capturing the available opportunities while driving profitability and improving results.

During fiscal 2021, the company did an excellent job of significantly strengthening our balance sheet while taking the right actions to invest in our brands and our business. In fiscal 2022, we will continue to invest in growing our digital opportunities, our presence in the jewelry category and in driving innovation across our brands.

While there is still significant uncertainty remaining, we will continue to navigate the environment in a proactive manner and maintain a disciplined approach to spending.

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

Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for fiscal 2021. My comments today will focus on adjusted results. Please refer to the description of all of the special items included in our results for the fourth quarter in fiscal year period of fiscal 2021 and fiscal 2020 in our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures.

Our performance improved sequentially each quarter of this fiscal year, with our fourth quarter results highlighted by growth in e-commerce sales, expansion in gross margin and the disciplined management of expenses. We ended the quarter with a strong balance sheet and significant progress on our strategic initiatives.

For the fourth quarter of fiscal 2021, sales were $178.3 million, as compared to $191 million last year. As mentioned, we saw a sequential improvement in our top line versus prior quarters. Nonetheless, the impact of COVID-19 was felt globally with restrictions specifically affecting brick-and-mortar retail, leading to net sales declines across our segments of owned brands, licensed brands and company stores, as well as across most geographies. Importantly, consumer response to our brands and offerings remained strong, which is reflected in our e-commerce sales, both on our owned websites and those of third-party marketplaces.

Gross profit as a percent of sales was 54.9% compared to 52.7% in the fourth quarter of last year. The increase in gross margin was primarily driven by favorable channel and product mix, and favorable changes in foreign currency exchange rates.

Operating expenses were $74.1 million as compared to $92.3 million for the same period of last year. The decrease was driven by actions taken to minimize all nonessential operating costs, as well as reductions in payroll expense and the rightsizing of marketing expenses to the lower revenue base. At the same time, we maintained our investment spend on focus areas such as digital and e-commerce.

Expansion in gross margin and controlled spending in the fourth quarter drove a $15.6 million increase in operating income to $23.9 million, as compared to $8.3 million in the fourth quarter of fiscal 2020. We recorded income tax expense of $3.7 million in the fourth quarter of fiscal 2021, as compared to $4.5 million in the fourth quarter of fiscal 2020.

Net income in the fourth quarter was $19.7 million or $0.84 per diluted share as compared to $3.5 million or $0.15 per diluted share in the year ago period.

Now turning to our fiscal year results. Sales were $506.4 million, a decrease of 27.8% from fiscal 2020. The decrease in net sales was primarily attributable to the ongoing impact of the COVID-19 pandemic.

Gross profit was $271.2 million or 53.6% of sales, as compared to $375 million or 53.5% of sales last year. The slight increase in gross margin rate was primarily driven by the favorable changes in foreign currency exchange rates.

Operating income was $30.7 million compared to operating income of $50 million in fiscal 2020. Net income was $21.4 million or $0.92 per diluted share as compared to net income of $36.5 million or $1.57 per diluted share in the year ago period.

Now turning to our balance sheet. We closely managed our working capital while investing in areas we believe will give us a strong return, including digital. Overall, we saw increased cash on hand, lower inventory levels and a reduction in capital expenditures, which drove an increase in cash flow from operations for the year.

To this end, during fiscal 2021, we generated $68.4 million of operating cash flow, and our cash at year-end was $223.8 million as compared to $185.9 million last year. Additionally, outstanding debt was reduced from $51.9 million at the end of fiscal 2020 to $21.2 million at the end of fiscal 2021.

Accounts receivable were $76.9 million, down $1.5 million from the same period of last year. Inventory at the end of the quarter was $152.6 million, down 11% as compared to $171.4 million last year. Capital expenditures for the year were $3 million, and were lower than last year by $9.7 million as a result of disciplined actions just discussed.

Depreciation and amortization expense was $14.1 million, which included $3.4 million related to the amortization of the remaining acquired intangible assets of Olivia Burton and MVMT.

As Efraim mentioned, we are pleased with the progress we have made in this challenging environment and we believe we are taking the right actions to drive our business. However, we remain cautious due to the continued uncertainty around the duration of the COVID-19 pandemic and the resurgence in Europe and other important markets.

In terms of our outlook, while we are not providing annual fiscal 2022 outlook at this time, given visibility into near term performance, we are providing certain expectations for our first quarter of fiscal 2022. We currently expect first quarter 2022 net sales to be in the range of $110 million to $115 million compared to net sales of $69.7 million in the fiscal 2021 first quarter, and to be slightly profitable on an operating basis.

I would now like to turn -- to open the call up for questions.

(Operator Instructions) Our first question is coming from Oliver Chen of Cowen.

You're seeing that encouraging momentum from the customer. What are your thoughts on how you're seeing the trends in wholesale relative to your own stores? And do you expect a continued amount of volatility in the traffic levels in both channels?

So we expect to continue to see volatility. I think what we're seeing is there's some light at the end of the tunnel with the vaccination, especially with the progress that we're making in the United States. A lot more challenging in Europe, where 3 of our biggest markets are virtually closed from a traffic point of view. And what I believe is that you're also seeing the benefits in the U.S. of stimulus, that we see people with increased spend levels and conversion rates improve, while traffic continues to be down in stores. And we're seeing that both in our wholesale channels and our own channels. And then online continues to be very strong, particularly in the United States.

Efraim, what are your thoughts about how the wholesale channel inventories look now? And how wholesalers and department stores are thinking about planning inventories relative to what they're seeing and what levels they have currently in-store and online?

So I think that the inventories are in very healthy place. I think the retailers have done an excellent job of managing their inventories, particularly throughout now we're going on almost a year of -- or a little more than a year of the pandemic having an effect. So I think they've done an excellent job of managing their inventories. And really, the sell-through and the inventory levels are very closely aligned today, and that's on a global basis.

Okay. And Efraim, as you think about product innovation admits the pandemic, what's on your mind regarding the pipeline? And what consumers want, given that we're all experiencing the crisis? And how innovation may trend with the changes in at-home and flexibility of work?

So I think what we're continuing to see is an increase towards casual and what we call sport elegant collections that closely align with how people are living their lifestyles today. I think we are also seeing the category, I think, benefit from maybe a lack of spend in other categories today. And disposable income being spent on watches and jewelry and other accessories rather than as much maybe on apparel or entertainment or travel. So -- and as we continue to pursue innovation for us, the materials have become very important, colorations have become very important. And we continue to really closely align, especially on the licensing front with our brand partners, as they continue to innovate and we're closely aligned with their innovation.

Lastly, just on the model, the gross margin has been impressive. How much longer might you have the mix benefit? Or what should we monitor in terms of when you'll anniversary that and current trends there?

And you mentioned the variability of your cost structure as well. If you could elaborate on differences there? And what it implies for the model and leverage and deleverage? That would be helpful.

Sure. I'll ask Sallie to answer the gross margin question, then -- and we'll both talk a little bit about expenses.

So on margin, Oliver, this year, obviously, we benefited from mix as well as currency. Mix was really a component of moving more towards direct-to-consumer, which does have a higher gross margin, but also has some higher operating expenses related to it. I think we've almost already anniversaried it. As Efraim said, we're now -- hit the 12-month mark and moving on where we do think our direct-to-consumer will continue to be strong. That includes both of our outlet stores as well as our e-comm business. So I think that, that probably hits most of your gross margin items. Just keep in mind, too, that it is -- there is some fixed cost element in there. So we have the benefit in bigger quarters to have more leverage on those fixed costs than in smaller quarters.

And then I think the second part of...

On cost structure.

Cost structure. I think what we're doing -- and I'll really talk about -- we've applied an increased amount of discipline to our spending. Both from an infrastructure perspective, but also from a marketing perspective. And as marketing, for us, moves to more and more digital platforms, we're able to execute much closer to the time that the ads will run, and we're able to use a lot more variability in our spend based on what we're seeing in revenue trends. So we're really -- we are -- we -- as a company, we have embraced the digital marketplace and the changes that have occurred over the last year. And well, at the beginning, you see tremendous challenges as we navigated this, we also saw tremendous opportunities.

At this time, I'd like to turn the floor back over to Mr. Grinberg for closing comments.

Okay. I'd like to thank all of you today for participating and -- on our conference call. While there's still a lot of, obviously, uncertainty in the market, we really are very proud of what our team has accomplished this year, and we look forward to talking to you in our first quarter conference call. Thank you.

Ladies and gentlemen, thank you for your participation and interest in Movado Group. You may disconnect your lines, and log off the webcast at this time, and have a wonderful day.