MOVADO GROUP INC [MOV] Filings

10-Q 1 mov-20230430.htm 10-Q 10-Q

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

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

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

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

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

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.

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