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Movado Group, Inc. Dials Back Expectations

By Joe Tenebruso - Apr 1, 2016 at 3:39PM

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The watchmaker warns of a challenging retail environment in fiscal 2017.

Movado's Museum Sport Motion Smartwatch. Source: Movado.

Movado Group (MOV 5.50%) reported fiscal 2016 fourth-quarter results on March 31. The luxury watchmaker managed to hit its full-year revenue and earnings targets but issued a tepid outlook for the year ahead.

The raw numbers

 

Q4 FY2016

Q4 FY2015

Growth (YOY)

Sales

$143.264 million

$133.911 million

7%

Net Income

$7.888 million

$10.051 million

(22%)

Earnings Per Share

$0.34

$0.40

(15%)

Source: Movado Group Q4 2016 earnings press release.

What happened with Movado Group this quarter?

  • Net sales increased 7% year over year to $143.3 million, and 10.1% on a constant-currency basis.
  • Gross profit rose 12% to $75.4 million -- with gross margin increasing to 52.6% of sales from 50.3% in the year-ago quarter -- as price increases, supply chain sourcing improvements, and favorable changes in channel and product mix more than offset the negative impact of foreign exchange rate fluctuations.
  • Operating margin also improved, rising to 8.1% from 7.5% in the year-ago period, as operating income jumped 14% to $11.5 million.
  • However, net income fell 22% to $7.9 million, mainly due to a higher provision for income taxes in the fourth quarter compared to Q4 2015. And earnings per share, which were aided somewhat by share buybacks, declined 15% year over year.

What management had to say
Chairman and CEO Efraim Grinberg highlighted Movado's successes in the company's earnings press release:

We are very pleased to end fiscal 2016 with a solid fourth quarter and to have delivered on the annual revenue and earnings targets that we set at the beginning of the year. Our sales increase of 5.5% on a constant currency basis, gross margin expansion and adjusted operating income growth of 3.7% in fiscal 2016 reflect our ability to navigate and execute in a challenging retail environment. Both our fourth quarter and fiscal 2016 performance demonstrate the strength of our Movado brand and licensed brand portfolio, which continue to outperform the overall watch market, as well as the early success of our new collection launches.

However, Grinberg appears to be bracing for another difficult retail environment in the year ahead:

We remain confident in the positioning of our brands and businesses as we begin fiscal 2017. We expect our owned and licensed brands to continue to benefit from our strong innovation pipeline and our investments in our global infrastructure, which are expected to fuel continued growth despite our expectation that the environment will remain challenging.

Capital returns
Under its previous $100 million share buyback program, Movado repurchased approximately 111,000 shares in the fourth quarter and nearly 1,860,000 shares across all of fiscal 2016. That program expired on Jan. 31, 2016, and Movado announced that its board of directors has authorized a new $50 million share repurchase program with an expiration date of Sept. 30, 2017.

Additionally, Movado's board approved an 18% increase in the company's quarterly cash dividend to $0.13 per share.

Management changes
Movado also announced that Vice Chairman and Chief Operating Officer Rick Coté will retire in June 2016. Coté will remain on Movado's board of directors, and the company does not plan on replacing the COO role and instead will transition Coté's responsibilities to other managers.

"I want to thank Rick for his significant contributions to Movado Group," said Grinberg. "He has assisted the Company in developing the operating strategy that has led to our consistent growth. He has been a great partner and friend and I am pleased to have Rick continue as a member of our Board."

Looking forward
Management issued its outlook for fiscal 2017, including sales in the range of $585 million to $600 million, operating income between $65 million and $70 million, and net income of approximately $43.3 million to $46.7 million. In addition, full-year earnings per share are expected to be in the range of $1.85 to $2.00. Those figures are significantly below the $750 million in sales, $115 million in operating profit, and more than $3.00 in EPS that Movado initially targeted in its FY2014 to FY2017 strategic plan. 

"Our plans for fiscal 2017 call for a challenged global economy and retail environment, yet we are continuing to invest for the long-term growth of the company," added Grinberg. "We expect the continued implementation of our stated strategy by our talented team to result in sustained long-term profitable growth for our company and increased value for our shareholders."

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