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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, 2024

 

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 24, 2024 were 15,726,641 and 6,483,116 respectively.

 

 


 

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

April 30, 2024

 

 

 

 

Page

Part I

Financial Information (Unaudited)

 

 

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at April 30, 2024, January 31, 2024 and April 30, 2023

 

3

 

 

 

 

Consolidated Statements of Operations for the three months ended April 30, 2024 and April 30, 2023

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended April 30, 2024 and April 30, 2023

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended April 30, 2024 and April 30, 2023

 

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 5.

 

 

Other Information

 

28

 

 

 

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,

 

 

2024

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

225,372

 

 

$

262,059

 

 

$

198,257

 

Trade receivables, net

 

101,722

 

 

 

104,472

 

 

 

94,037

 

Inventories

 

159,618

 

 

 

148,031

 

 

 

195,235

 

Other current assets

 

22,258

 

 

 

17,962

 

 

 

25,804

 

Income taxes receivable

 

8,336

 

 

 

11,354

 

 

 

12,057

 

Total current assets

 

517,306

 

 

 

543,878

 

 

 

525,390

 

Property, plant and equipment, net

 

19,037

 

 

 

19,436

 

 

 

19,075

 

Operating lease right-of-use assets

 

89,155

 

 

 

82,661

 

 

 

76,194

 

Deferred and non-current income taxes

 

43,280

 

 

 

43,016

 

 

 

45,049

 

Other intangibles, net

 

6,935

 

 

 

7,493

 

 

 

8,996

 

Other non-current assets

 

75,702

 

 

 

72,598

 

 

 

66,792

 

Total assets

$

751,415

 

 

$

769,082

 

 

$

741,496

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

32,999

 

 

$

32,775

 

 

$

24,443

 

Accrued liabilities

 

41,976

 

 

 

38,695

 

 

 

48,858

 

Accrued payroll and benefits

 

7,340

 

 

 

7,591

 

 

 

7,597

 

Current operating lease liabilities

 

18,192

 

 

 

15,696

 

 

 

17,558

 

Income taxes payable

 

6,459

 

 

 

18,318

 

 

 

17,557

 

Total current liabilities

 

106,966

 

 

 

113,075

 

 

 

116,013

 

Deferred and non-current income taxes payable

 

8,143

 

 

 

8,234

 

 

 

14,540

 

Non-current operating lease liabilities

 

79,749

 

 

 

76,396

 

 

 

66,743

 

Other non-current liabilities

 

52,877

 

 

 

52,420

 

 

 

49,287

 

Total liabilities

 

247,735

 

 

 

250,125

 

 

 

246,583

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

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;
29,131,595, 29,004,001 and 28,824,156 shares issued and outstanding, respectively

 

291

 

 

 

290

 

 

 

288

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
6,483,116, 6,483,116 and 6,524,805 shares issued and outstanding, respectively

 

64

 

 

 

64

 

 

 

65

 

Capital in excess of par value

 

240,923

 

 

 

239,062

 

 

 

232,419

 

Retained earnings

 

465,435

 

 

 

470,317

 

 

 

455,979

 

Accumulated other comprehensive income

 

82,073

 

 

 

92,335

 

 

 

85,177

 

Treasury Stock, 13,404,954, 13,328,095 and 13,208,339 shares, respectively, at cost

 

(287,414

)

 

 

(285,270

)

 

 

(281,957

)

Total Movado Group, Inc. shareholders' equity

 

501,372

 

 

 

516,798

 

 

 

491,971

 

Noncontrolling interest

 

2,308

 

 

 

2,159

 

 

 

2,942

 

Total equity

 

503,680

 

 

 

518,957

 

 

 

494,913

 

Total liabilities and equity

$

751,415

 

 

$

769,082

 

 

$

741,496

 

 

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,

 

 

2024

 

 

2023

 

Net sales

$

136,669

 

 

$

144,905

 

Cost of sales

 

61,156

 

 

 

62,902

 

Gross profit

 

75,513

 

 

 

82,003

 

Selling, general and administrative

 

72,202

 

 

 

71,104

 

Operating income

 

3,311

 

 

 

10,899

 

Non-operating income/(expense):

 

 

 

 

 

Other income, net

 

2,172

 

 

 

1,025

 

Interest expense

 

(118

)

 

 

(113

)

Income before income taxes

 

5,365

 

 

 

11,811

 

Provision for income taxes (Note 9)

 

2,302

 

 

 

2,534

 

Net income

 

3,063

 

 

 

9,277

 

Less: Net income attributable to noncontrolling interests

 

172

 

 

 

149

 

Net income attributable to Movado Group, Inc.

$

2,891

 

 

$

9,128

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

Weighted basic average shares outstanding

 

22,253

 

 

 

22,226

 

Net income per share attributable to Movado Group, Inc.

$

0.13

 

 

$

0.41

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

Weighted diluted average shares outstanding

 

22,673

 

 

 

22,672

 

Net income per share attributable to Movado Group, Inc.

$

0.13

 

 

$

0.40

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended April 30,

 

 

 

2024

 

 

2023

 

Net income

 

$

3,063

 

 

$

9,277

 

Other comprehensive income/(loss):

 

 

 

 

 

 

Net unrealized gain/(loss) on investments, net of tax provision/(benefit) of $1 and ($11), respectively

 

 

4

 

 

 

(32

)

Amortization of prior service cost, net of tax provision of $3 and $4, respectively

 

 

12

 

 

 

15

 

Foreign currency translation adjustments

 

 

(10,339

)

 

 

4,002

 

Cash flow hedges:

 

 

 

 

 

 

Accumulated other comprehensive income/(loss) before reclassification, net of tax provision/(benefit) of $22 and ($64)

 

 

111

 

 

 

(323

)

Amounts reclassified from accumulated other comprehensive (loss)/income, net of tax (benefit)/provision of ($10) and $44

 

 

(50

)

 

 

220

 

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

 

 

(10,262

)

 

 

3,882

 

Less:

 

 

 

 

 

 

Comprehensive income/(loss) attributable to noncontrolling interests:

 

 

 

 

 

 

Net income

 

 

172

 

 

 

149

 

Foreign currency translation adjustments

 

 

(23

)

 

 

(145

)

Total comprehensive income attributable to noncontrolling interests

 

$

149

 

 

$

4

 

Total comprehensive (loss)/income attributable to Movado Group, Inc.

 

$

(7,348

)

 

$

13,155

 

 

See Notes to Consolidated Financial Statements

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Three Months Ended April 30,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

3,063

 

 

$

9,277

 

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

 

 

 

 

 

Depreciation and amortization

 

2,288

 

 

 

2,557

 

Transactional gains

 

(1,434

)

 

 

(114

)

Provision for inventories and accounts receivable

 

1,210

 

 

 

904

 

Deferred income taxes

 

(457

)

 

 

(1,029

)

Stock-based compensation

 

1,838

 

 

 

1,597

 

Other

 

82

 

 

 

559

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

1,094

 

 

 

415

 

Inventories

 

(15,990

)

 

 

(8,149

)

Other current assets

 

(5,090

)

 

 

(1,985

)

Accounts payable

 

1,082

 

 

 

(7,949

)

Accrued liabilities

 

3,067

 

 

 

3,739

 

Accrued payroll and benefits

 

(107

)

 

 

(9,844

)

Income taxes receivable

 

4,462

 

 

 

(1,166

)

Income taxes payable

 

(13,264

)

 

 

(11,083

)

Other non-current assets

 

95

 

 

 

635

 

Other non-current liabilities

 

(13

)

 

 

139

 

Net cash used in operating activities

 

(18,074

)

 

 

(21,497

)

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(1,624

)

 

 

(2,257

)

Long-term investments

 

(3,123

)

 

 

(600

)

Trademarks and other intangibles

 

(49

)

 

 

(26

)

Net cash used in investing activities

 

(4,796

)

 

 

(2,883

)

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(7,773

)

 

 

(29,901

)

Stock repurchases

 

(1,086

)

 

 

(381

)

Stock awards and options exercised and other changes

 

(1,058

)

 

 

 

Net cash used in financing activities

 

(9,917

)

 

 

(30,282

)

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

 

(3,948

)

 

 

1,349

 

Net decrease in cash, cash equivalents and restricted cash

 

(36,735

)

 

 

(53,313

)

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

 

262,814

 

 

 

252,179

 

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

$

226,079

 

 

$

198,866

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

225,372

 

 

$

198,257

 

Restricted cash included in other non-current assets

 

707

 

 

 

609

 

Cash, cash equivalents, and restricted cash

$

226,079

 

 

$

198,866

 

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, 2024 (the “2024 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, 2024 is derived from the audited annual financial statements, which are included in the Company’s 2024 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

 

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07 "Improvements to Reportable Segment Disclosures" which requires expanded disclosures about an entity's reportable segments, including more enhanced information about a reportable segment's expenses, interim segment profit or loss, and how an entity's chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024. ASU 2023-07 should be adopted on a retrospective basis. Early adoption is permitted. The Company is currently evaluating this ASU to determine the impact of adoption on its Consolidated Financial Statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures" which requires expanded income tax disclosures primarily related to an entity's effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and should be adopted on a prospective basis. Early adoption is permitted. The Company is currently evaluating this ASU to determine the impact of adoption on its Consolidated Financial Statements and 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,

 

 

2024

 

 

2023

 

Weighted average common shares outstanding:

 

 

 

 

 

Basic

 

22,253

 

 

 

22,226

 

Effect of dilutive securities:

 

 

 

 

 

Stock awards and options to purchase shares of
common stock

 

420

 

 

 

446

 

Diluted

 

22,673

 

 

 

22,672

 

 

7


 

 

For the three months ended April 30, 2024 and 2023, approximately 590,000 and 345,000, 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 26, 2024, the Company declared a quarterly cash dividend of $0.35 per share payable on April 23, 2024, to shareholders of record on April 9, 2024. The total dividends of $7.8 million were paid on April 23, 2024. During the three months ended April 30, 2023, the Company paid a special cash dividend of $1.00 per share, as well as a quarterly cash dividend of $0.35 per share, for a total of $29.9 million.

 

NOTE 4 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

April 30,
2024

 

 

January 31,
2024

 

 

April 30,
2023

 

Finished goods

 

$

129,316

 

 

$

117,909

 

 

$

158,206

 

Component parts

 

 

26,697

 

 

 

26,386

 

 

 

34,174

 

Work-in-process

 

 

3,605

 

 

 

3,736

 

 

 

2,855

 

 

 

$

159,618

 

 

$

148,031

 

 

$

195,235

 

 

 

 

NOTE 5 – DEBT AND LINES OF CREDIT

 

The Company and its U.S. and Swiss subsidiaries (collectively, the "Borrowers") are parties to an Amended and Restated Credit Agreement originally dated October 12, 2018 (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”). 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 both April 30, 2024, and April 30, 2023, there were no amounts of loans outstanding under the Facility. 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, 2024 and April 30, 2023. At April 30, 2024, the letters of credit have expiration dates through April 28, 2025. As of both April 30, 2024, and April 30, 2023, availability under the Facility was $99.7 million.

The Company had weighted average borrowings under the Facility of zero during both the three months ended April 30, 2024 and 2023.

8


 

The Company's Swiss subsidiary maintains unsecured lines of credit with a Swiss bank that are subject to repayment upon demand. As of April 30, 2024, and 2023, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.1 million and $7.3 million, respectively. As of April 30, 2024, and 2023, there were no borrowings against these lines. As of April 30, 2024 and 2023, 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, for both periods, in various foreign currencies, of which $0.7 million and $0.6 million, respectively, was a restricted deposit as it relates to lease agreements.

Cash paid for interest, including unused commitments fees and amortization of debt fees, was $0.1 million for both the three month periods ended April 30, 2024 and April 30, 2023.

 

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, 2024, the Company's net forward contracts hedging portfolio designated as qualified cash flow hedging instruments consisted of 6.0 million Euros equivalent with various expiry dates ranging through May 31, 2024. 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, 2024, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of 2.8 million Chinese Yuan equivalent, 22.0 million Swiss Francs equivalent, 22.2 million US dollars equivalent, 12.2 million Euros equivalent and 1.2 million British Pounds equivalent with various expiry dates ranging through October 3, 2024. 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 and 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, 2024, January 31, 2024 and April 30, 2023 (in thousands):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

April 30,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

April 30,
 2023
Fair
 Value

 

 

Balance
Sheet
Location

 

April 30,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

April 30,
 2023
Fair
 Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

112

 

 

$

26

 

 

$

 

 

Accrued
Liabilities

 

$

 

 

$

11

 

 

$

351

 

Total Derivative Instruments

 

 

 

$

112

 

 

$

26

 

 

$

 

 

 

 

$

 

 

$

11

 

 

$

351

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

April 30,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

April 30,
 2023
Fair
 Value

 

 

Balance
Sheet
Location

 

April 30,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

April 30,
 2023
Fair
 Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

 

 

$

528

 

 

$

591

 

 

Accrued
Liabilities

 

$

697

 

 

$

 

 

$

 

Total Derivative Instruments

 

 

 

$

 

 

$

528

 

 

$

591

 

 

 

 

$

697

 

 

$

 

 

$

 

 

As of April 30, 2024, January 31, 2024 and April 30, 2023, the balance of net deferred gains on derivative financial instruments designated as cash flow hedges included in accumulated other comprehensive income/(loss) were $0.1 million, $43,000 and ($0.3) million, respectively. For the three months ended April 30, 2024, and April 30, 2023, the Company reclassified $0.1 million and ($0.2) million, respectively, from accumulated other comprehensive income/(loss) to Net sales in the Consolidated Statements of Operations. No ineffectiveness has been recorded for the three months ended April 30, 2024.

See Note 7 - Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.

9


 

 

NOTE 7 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based on the Company’s assumptions.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of April 30, 2024 and 2023 and January 31, 2024 (in thousands):

 

 

 

 

 

Fair Value at April 30, 2024

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

251

 

 

$

 

 

$

 

 

$

251

 

Short-term investment

 

Other current assets

 

 

151

 

 

 

 

 

 

 

 

 

151

 

SERP assets - employer

 

Other non-current assets

 

 

559

 

 

 

 

 

 

 

 

 

559

 

SERP assets - employee

 

Other non-current assets

 

 

49,093

 

 

 

 

 

 

 

 

 

49,093

 

Defined benefit plan assets

 

Other non-current liabilities

 

 

 

 

 

 

 

 

32,996

 

 

 

32,996

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

112

 

 

 

 

 

 

112

 

Total

 

 

 

$

50,054

 

 

$

112

 

 

$

32,996

 

 

$

83,162

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

49,093

 

 

$

 

 

$

 

 

$

49,093

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

697

 

 

 

 

 

 

697

 

Total

 

 

 

$

49,093

 

 

$

697

 

 

$

 

 

$

49,790

 

 

 

 

 

 

Fair Value at January 31, 2024

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

246

 

 

$

 

 

$

 

 

$

246

 

Short-term investment

 

Other current assets

 

 

155

 

 

 

 

 

 

 

 

 

155

 

SERP assets - employer

 

Other non-current assets

 

 

510

 

 

 

 

 

 

 

 

 

510

 

SERP assets - employee

 

Other non-current assets

 

 

48,800

 

 

 

 

 

 

 

 

 

48,800

 

Defined benefit plan assets

 

Other non-current liabilities

 

 

 

 

 

 

 

 

33,731

 

 

 

33,731

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

554

 

 

 

 

 

 

554

 

Total

 

 

 

$

49,711

 

 

$

554

 

 

$

33,731

 

 

$

83,996

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

48,800

 

 

$

 

 

$

 

 

$

48,800

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Total

 

 

 

$

48,800

 

 

$

11

 

 

$

 

 

$

48,811

 

 

10


 

 

 

 

 

 

Fair Value at April 30, 2023

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

219

 

 

$

 

 

$

 

 

$

219

 

Short-term investment

 

Other current assets

 

 

153

 

 

 

 

 

 

 

 

 

153

 

SERP assets - employer

 

Other non-current assets

 

 

467

 

 

 

 

 

 

 

 

 

467

 

SERP assets - employee

 

Other non-current assets

 

 

45,302

 

 

 

 

 

 

 

 

 

45,302

 

Defined benefit plan assets

 

Other non-current liabilities

 

 

 

 

 

 

 

 

29,508

 

 

 

29,508

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

591

 

 

 

 

 

 

591

 

Total

 

 

 

$

46,141

 

 

$

591

 

 

$

29,508

 

 

$

76,240

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

45,302

 

 

$

 

 

$

 

 

$

45,302

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

351

 

 

 

 

 

 

351

 

Total

 

 

 

$

45,302

 

 

$

351

 

 

$

 

 

$

45,653

 

 

The fair values of the Company’s available-for-sale securities are based on quoted market prices. The fair value of the short-term investment, which is a guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives consist of cash flow hedging instruments and forward contracts (see Note 6 for further discussion) and are entered into by the Company principally to reduce its exposure to Swiss Franc and Euro exchange rate risks. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates and quoted interest rates.

 

The Company sponsors a defined benefit pension plan in Switzerland. The plan covers certain international employees and is based on years of service and compensation on a career-average pay basis. The assets within the plan are classified as a Level 3 asset within the fair value hierarchy and consist of an investment in pooled assets and include separate employee accounts that are invested in equity securities, debt securities and real estate. The values of the separate accounts invested are based on values provided by the administrator of the funds that cannot be readily derived from or corroborated by observable market data. The value of the assets is part of the defined benefit plan and included in other non-current liabilities in the Consolidated Balance Sheets at April 30, 2024, January 31, 2024, and April 30, 2023.

 

There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.

Investments Without Readily Determinable Fair Values

From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in companies in media, entertainment, information technology and technology-related fields and in digital assets. Through fiscal 2024, the Company invested approximately $8.4 million and during the first quarter of fiscal 2025, the Company invested an additional $3.1 million in venture capital funds. The Company has evaluated and will regularly evaluate the carrying value of its investments. One consumer products company in which the Company made an equity investment in fiscal year 2022 sold its business and assets in the first quarter of fiscal 2024 in a transaction that is expected to yield little or no return for equity holders. As a result, the Company has fully impaired its $0.5 million investment in this entity in the first quarter of fiscal 2024 and is recorded in Other income, net in the Consolidated Statements of Operations. The carrying value of the investments are recorded in Other non-current assets in the Consolidated Balance Sheets at April 30, 2024, January 31, 2024 and April 30, 2023.

 

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company has minimum commitments related to the Company’s license agreements and endorsement agreements with brand ambassadors, and also includes service agreements. The Company sources, distributes, advertises and sells watches and jewelry pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under the license agreements are generally based on a stipulated percentage of revenues, although most of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms, and some have renewal options, provided that minimum sales levels are achieved. Additionally, the license agreements require the Company to pay minimum annual advertising amounts.

 

The Company believes that income tax reserves are adequate; however, amounts asserted by taxing authorities could be greater or less than amounts accrued and reflected in the Consolidated Balance Sheet. Accordingly, the Company could record adjustments to the

11


 

amounts for federal, state, and foreign liabilities in the future as the Company revises estimates or settles or otherwise resolves the underlying matters. In the ordinary course of business, the Company may take new positions that could increase or decrease unrecognized tax benefits in future periods.

In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputed the reasonableness of the Company’s historical allocation formulas and proposed an alternative methodology that would imply $5.1 million in underpaid duties for all imports that entered the United States during the audit period which extended from August 1, 2011 through July 15, 2016, plus possible penalties and interest. Although the Company believes that U.S. Customs’ alternative duty methodology and estimate are not consistent with the Company’s facts and circumstances and has consistently disputed U.S. Customs’ position, the Company established reserves for a portion of the alleged underpayment indicated in the audit report. Between February 2017 and January 2021, the Company made numerous submissions to U.S. Customs containing supplemental analyses and information in response to U.S. Customs’ information requests. On May 1, 2023, the statute of limitations lapsed with respect to all entries encompassed by the audit period. As a result, during the second quarter of fiscal 2024, the Company released the reserves that it had established in respect of those entries.