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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended April 30, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 1-16497

MOVADO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

New York

13-2595932

(State or Other Jurisdiction

of Incorporation or Organization)

(IRS Employer

Identification No.)

 

 

 

650 From Road, Ste. 375

Paramus, New Jersey

07652-3556

(Address of Principal Executive Offices)

(Zip Code)

(201) 267-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

MOV

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’’ “accelerated filer,’’ “smaller reporting company,’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of May 22, 2023 were 15,617,654 and 6,524,805 respectively.

 

 


 

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

April 30, 2023

 

 

 

 

Page

Part I

Financial Information (Unaudited)

 

 

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at April 30, 2023, January 31, 2023 and April 30, 2022

 

3

 

 

 

 

Consolidated Statements of Operations for the three months ended April 30, 2023 and April 30, 2022

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended April 30, 2023 and April 30, 2022

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended April 30, 2023 and April 30, 2022

 

6

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

Item 4.

 

Controls and Procedures

 

26

 

Part II

 

Other Information

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

27

 

 

Item 1A.

 

 

Risk Factors

 

27

 

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

Item 6.

 

 

Exhibits

 

29

Signature

 

30

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

April 30,

 

 

January 31,

 

 

April 30,

 

 

2023

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

198,257

 

 

$

251,584

 

 

$

225,256

 

Trade receivables, net

 

94,037

 

 

 

94,282

 

 

 

92,744

 

Inventories

 

195,235

 

 

 

186,203

 

 

 

180,003

 

Other current assets

 

25,804

 

 

 

24,212

 

 

 

23,558

 

Income taxes receivable

 

12,057

 

 

 

10,908

 

 

 

3,421

 

Total current assets

 

525,390

 

 

 

567,189

 

 

 

524,982

 

Property, plant and equipment, net

 

19,075

 

 

 

18,699

 

 

 

18,434

 

Operating lease right-of-use assets

 

76,194

 

 

 

80,897

 

 

 

79,717

 

Deferred and non-current income taxes

 

45,049

 

 

 

44,490

 

 

 

42,854

 

Other intangibles, net

 

8,996

 

 

 

9,642

 

 

 

11,990

 

Other non-current assets

 

66,792

 

 

 

66,788

 

 

 

62,007

 

Total assets

$

741,496

 

 

$

787,705

 

 

$

739,984

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

24,443

 

 

$

32,085

 

 

$

44,140

 

Accrued liabilities

 

48,858

 

 

 

46,720

 

 

 

54,698

 

Accrued payroll and benefits

 

7,597

 

 

 

17,343

 

 

 

7,822

 

Current operating lease liabilities

 

17,558

 

 

 

17,681

 

 

 

16,588

 

Income taxes payable

 

17,557

 

 

 

28,591

 

 

 

15,141

 

Total current liabilities

 

116,013

 

 

 

142,420

 

 

 

138,389

 

Deferred and non-current income taxes payable

 

14,540

 

 

 

15,163

 

 

 

19,385

 

Non-current operating lease liabilities

 

66,743

 

 

 

70,910

 

 

 

70,440

 

Other non-current liabilities

 

49,287

 

 

 

48,668

 

 

 

47,301

 

Total liabilities

 

246,583

 

 

 

277,161

 

 

 

275,515

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

 

 

 

 

 

2,251

 

Equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares
   issued

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 100,000,000 shares authorized;
   
28,824,156, 28,806,511 and 28,771,219 shares issued and outstanding,
   respectively

 

288

 

 

 

288

 

 

 

287

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
   
6,524,805 shares issued and outstanding

 

65

 

 

 

65

 

 

 

65

 

Capital in excess of par value

 

232,419

 

 

 

230,782

 

 

 

224,708

 

Retained earnings

 

455,979

 

 

 

476,752

 

 

 

424,160

 

Accumulated other comprehensive income

 

85,177

 

 

 

81,295

 

 

 

75,032

 

Treasury Stock, 13,208,339, 13,194,339 and 12,673,763 shares,
   respectively, at cost

 

(281,957

)

 

 

(281,576

)

 

 

(264,602

)

Total Movado Group, Inc. shareholders' equity

 

491,971

 

 

 

507,606

 

 

 

459,650

 

Noncontrolling interest

 

2,942

 

 

 

2,938

 

 

 

2,568

 

Total equity

 

494,913

 

 

 

510,544

 

 

 

462,218

 

Total liabilities, redeemable noncontrolling interest and equity

$

741,496

 

 

$

787,705

 

 

$

739,984

 

 

See Notes to Consolidated Financial Statements

3


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended April 30,

 

 

2023

 

 

2022

 

Net sales

$

144,905

 

 

$

163,424

 

Cost of sales

 

62,902

 

 

 

66,739

 

Gross profit

 

82,003

 

 

 

96,685

 

Selling, general and administrative

 

71,104

 

 

 

71,391

 

Operating income

 

10,899

 

 

 

25,294

 

Non-operating income/(expense):

 

 

 

 

 

Other income, net

 

1,025

 

 

 

83

 

Interest expense

 

(113

)

 

 

(112

)

Income before income taxes

 

11,811

 

 

 

25,265

 

Provision for income taxes (Note 9)

 

2,534

 

 

 

6,011

 

Net income

 

9,277

 

 

 

19,254

 

Less: Net income attributable to noncontrolling interests

 

149

 

 

 

741

 

Net income attributable to Movado Group, Inc.

$

9,128

 

 

$

18,513

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

Weighted basic average shares outstanding

 

22,226

 

 

 

22,840

 

Net income per share attributable to Movado Group, Inc.

$

0.41

 

 

$

0.81

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

Weighted diluted average shares outstanding

 

22,672

 

 

 

23,397

 

Net income per share attributable to Movado Group, Inc.

$

0.40

 

 

$

0.79

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended April 30,

 

 

 

2023

 

 

2022

 

Net income

 

$

9,277

 

 

$

19,254

 

Other comprehensive income/(loss):

 

 

 

 

 

 

Net unrealized (loss) on investments, net of tax benefit of ($11) and ($2), respectively

 

 

(32

)

 

 

(5

)

Amortization of prior service cost, net of tax provision of $4 and $4, respectively

 

 

15

 

 

 

14

 

Foreign currency translation adjustments

 

 

4,002

 

 

 

(11,500

)

Cash flow hedges:

 

 

 

 

 

 

Accumulated other comprehensive (loss)/income before reclassification, net of tax (benefit)/provision of ($64) and $271

 

 

(323

)

 

 

1,367

 

Amounts reclassified from accumulated other comprehensive income/(loss), net of tax provision/(benefit) of $44 and ($28)

 

 

220

 

 

 

(139

)

Total other comprehensive income/(loss), net of taxes

 

 

3,882

 

 

 

(10,263

)

Less:

 

 

 

 

 

 

Comprehensive income/(loss) attributable to noncontrolling interests:

 

 

 

 

 

 

Net income

 

 

149

 

 

 

741

 

Foreign currency translation adjustments

 

 

(145

)

 

 

(200

)

Total comprehensive income attributable to noncontrolling interests

 

$

4

 

 

$

541

 

Total comprehensive income attributable to Movado Group, Inc.

 

$

13,155

 

 

$

8,450

 

 

See Notes to Consolidated Financial Statements

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Three Months Ended April 30,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

9,277

 

 

$

19,254

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

2,557

 

 

 

2,932

 

Transactional gains

 

(114

)

 

 

(340

)

Provision for inventories and accounts receivable

 

904

 

 

 

661

 

Deferred income taxes

 

(1,029

)

 

 

(491

)

Stock-based compensation

 

1,597

 

 

 

1,343

 

Other

 

559

 

 

 

66

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

415

 

 

 

(3,512

)

Inventories

 

(8,149

)

 

 

(24,286

)

Other current assets

 

(1,985

)

 

 

(5,570

)

Accounts payable

 

(7,949

)

 

 

(689

)

Accrued liabilities

 

3,739

 

 

 

6,103

 

Accrued payroll and benefits

 

(9,844

)

 

 

(17,073

)

Income taxes receivable

 

(1,166

)

 

 

5,116

 

Income taxes payable

 

(11,083

)

 

 

(3,765

)

Other non-current assets

 

635

 

 

 

(672

)

Other non-current liabilities

 

139

 

 

 

171

 

Net cash used in operating activities

 

(21,497

)

 

 

(20,752

)

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(2,257

)

 

 

(1,381

)

Long-term investments

 

(600

)

 

 

(1,850

)

Trademarks and other intangibles

 

(26

)

 

 

(22

)

Net cash used in investing activities

 

(2,883

)

 

 

(3,253

)

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(29,901

)

 

 

(7,940

)

Stock repurchase

 

(381

)

 

 

(14,439

)

Stock awards and options exercised and other changes

 

 

 

 

(405

)

Other

 

 

 

 

(85

)

Net cash used in financing activities

 

(30,282

)

 

 

(22,869

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

1,349

 

 

 

(5,026

)

Net decrease in cash, cash equivalents and restricted cash

 

(53,313

)

 

 

(51,900

)

Cash, cash equivalents, and restricted cash at beginning of year

 

252,179

 

 

 

277,716

 

Cash, cash equivalents, and restricted cash at end of period

$

198,866

 

 

$

225,816

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

198,257

 

 

$

225,256

 

Restricted cash included in other non-current assets

 

609

 

 

 

560

 

Cash, cash equivalents, and restricted cash

$

198,866

 

 

$

225,816

 

See Notes to Consolidated Financial Statements

6


 

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

The accompanying interim unaudited Consolidated Financial Statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023 (the “2023 Annual Report on Form 10-K”). The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2023 is derived from the audited annual financial statements, which are included in the Company’s 2023 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

 

 

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company has reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on the Consolidated Financial Statements or related disclosures.

 

 

NOTE 3 – EARNINGS PER SHARE AND CASH DIVIDENDS

The Company presents net income attributable to Movado Group, Inc. after adjusting for noncontrolling interests, as applicable, per share on a basic and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.

The number of shares used in calculating basic and diluted earnings per share is as follows (in thousands):

 

 

Three Months Ended April 30,

 

 

2023

 

 

2022

 

Weighted average common shares outstanding:

 

 

 

 

 

Basic

 

22,226

 

 

 

22,840

 

Effect of dilutive securities:

 

 

 

 

 

Stock awards and options to purchase shares of
common stock

 

446

 

 

 

557

 

Diluted

 

22,672

 

 

 

23,397

 

 

7


 

For the three months ended April 30, 2023 and 2022, approximately 345,000 and 170,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

 

On March 23, 2023, the Company declared a special cash dividend of $1.00 per share, as well as a quarterly cash dividend of $0.35 per share, both payable on April 19, 2023, to shareholders of record on April 5, 2023. The total dividends of $29.9 million were paid on April 19, 2023. The Company paid cash dividends of $0.35 per share, or $7.9 million, during the three months ended April 30, 2022.

 

NOTE 4 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

April 30,
2023

 

 

January 31,
2023

 

 

April 30,
2022

 

Finished goods

 

$

158,206

 

 

$

154,700

 

 

$

146,655

 

Component parts

 

 

34,174

 

 

 

28,805

 

 

 

30,896

 

Work-in-process

 

 

2,855

 

 

 

2,698

 

 

 

2,452

 

 

 

$

195,235

 

 

$

186,203

 

 

$

180,003

 

 

 

 

NOTE 5 – DEBT AND LINES OF CREDIT

 

On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A., each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated Credit Agreement (as subsequently amended, the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). As a result of the merger of Movado Watch Company S.A. into MGI Luxury Group S.A. in July 2022, MGI Luxury Group S.A. (subsequently renamed MGI Luxury Group GmbH as a result of the conversion of its corporate form) became the sole Swiss subsidiary of the Company party to the Credit Agreement (in such capacity, the "Swiss Borrower" and, together with the U.S. Borrowers, the "Borrowers"). The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) and has a maturity date of October 28, 2026. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrower, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions. The Credit Agreement contains affirmative and negative covenants binding on the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions).

 

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower, except that the Swiss Borrower is not liable for, nor does it guarantee, the obligations of the U.S. Borrowers. In addition, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the U.S. Borrowers’ assets other than certain excluded assets. The Swiss Borrower does not provide collateral to secure the obligations under the Facility.

As of April 30, 2023, and April 30, 2022, there were no amounts in loans outstanding under the Facility for either period. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both April 30, 2023 and April 30, 2022. At April 30, 2023, the letters of credit have expiration dates through April 26, 2024. As of April 30, 2023, and April 30, 2022, availability under the Facility was $99.7 million for both periods.

The Company had weighted average borrowings under the Facility of zero during both the three months ended April 30, 2023 and 2022, respectively.

8


 

A Swiss subsidiary of the Company maintains unsecured lines of credit with a Swiss bank that are subject to repayment upon demand. As of April 30, 2023, and 2022, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.3 million and $6.7 million, respectively. As of April 30, 2023, and 2022, there were no borrowings against these lines. As of April 30, 2023 and 2022, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.3 million and $1.2 million, respectively, in various foreign currencies, of which $0.6 million for both periods was a restricted deposit as it relates to lease agreements.

Cash paid for interest, including unused commitments fees, was $0.1 million for both the three month periods ended April 30, 2023 and April 30, 2022.

 

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company addresses certain financial exposures that include the use of derivative financial instruments. The Company enters into foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates. As of April 30, 2023, the Company's net forward contracts hedging portfolio designated as qualified cash flow hedging instruments consisted of 21.0 million Euros equivalent with various expiry dates ranging through July 27, 2023. The net gain or loss on the derivatives is reported as a component of accumulated other comprehensive income/(loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings using the same revenue or expense category that the hedged item impacted. The Company also enters into foreign currency forward contracts not designated as qualified hedges in accordance with ASC 815, Derivatives and Hedging. As of April 30, 2023, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of 24.7 million Chinese Yuan equivalent, 24.0 million Swiss Francs equivalent, 17.1 million US dollars equivalent, 17.4 million Euros equivalent and 2.8 million British Pounds equivalent with various expiry dates ranging through September 14, 2023. Changes in the fair value of these derivatives are recognized in earnings in the period they arise. Net gains or losses related to these forward contracts are included in cost of sales, selling, general and administrative expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.

The following table presents the fair values of the Company's derivative financial instruments included in the consolidated balance sheets as of April 30, 2023, January 31, 2023 and April 30, 2022 (in thousands):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

April 30,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

April 30,
 2022
Fair
 Value

 

 

Balance
Sheet
Location

 

April 30,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

April 30,
 2022
Fair
 Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts