Movado's Journey of Timeless Craftsmanship

Movado Group Inc. (MOV) is a global leader in the design, manufacture, and distribution of luxury watches and accessories. With a storied history spanning over a century, the company has carved a renowned reputation in the industry, captivating consumers worldwide with its distinctive timepieces and innovative brand portfolio.

Movado's origins can be traced back to 1881 when Achille Ditesheim founded a small watch company in La Chaux-de-Fonds, Switzerland. Originally known as Hillger & Tommaso, the company specialized in the production of high-quality watches. In 1905, the company introduced the Movado brand name, which quickly gained a reputation for innovative and stylish timepieces. The company's name, "Movado," which means "always in motion" in Esperanto, embodied its commitment to continual innovation and excellence. Over the decades, Movado's unwavering focus on design, quality, and precision has propelled it to the forefront of the luxury watch market.

In 1983, Movado made a transformative move by acquiring Concord, a prestigious Swiss watch brand, further bolstering its portfolio and global presence. The company continued its strategic expansion, adding renowned brands such as EBEL in 1999, Olivia Burton in 2017, and MVMT to its repertoire, each celebrated for their unique aesthetic and horological expertise.

In the early 2000s, Movado faced challenges as the watch industry experienced a downturn. The company responded by focusing on its core Movado brand and expanding its licensing agreements with well-known fashion labels. This strategy proved successful, allowing Movado to return to profitability and growth in the following years.

Today, Movado Group operates in two primary segments: Watch and Accessory Brands, which encompasses the design, manufacture, and distribution of its owned and licensed watch and jewelry collections, and the Company Stores segment, which oversees the company's network of retail outlets.

Navigating Challenging Tides with Resilience

Movado Group's financial performance has showcased its resilience in the face of a dynamic and at times, turbulent consumer landscape. In the fiscal year ended January 31, 2024, the company reported net sales of $672.6 million, a decrease of 10.5% compared to the previous year. This decline can be attributed to the ongoing challenges posed by the global pandemic, supply chain disruptions, and a shifting consumer landscape.

Despite these headwinds, Movado Group has demonstrated its agility and adaptability. The company's gross profit margin remained relatively strong at 55.1%, reflecting its ability to navigate pricing pressures and manage its cost structure effectively. Additionally, the company's operating income of $54.7 million and net income of $47.5 million, albeit lower than the prior year, underscore its continued profitability.

Strengthening the Portfolio: Owned Brands and Licensed Partnerships

Movado Group's diversified brand portfolio is a key strength, allowing the company to cater to a broad range of consumer preferences. The owned brands category, which includes the flagship Movado brand, as well as Concord, EBEL, Olivia Burton, and MVMT, accounted for 55.1% of the company's total net sales in fiscal 2024. These brands are renowned for their timeless design, innovative features, and enduring appeal.

In the licensed brands category, which represented 44.9% of net sales, Movado Group has forged partnerships with prestigious names such as Coach, Tommy Hilfiger, Hugo Boss, Lacoste, and Calvin Klein. These collaborations enable the company to leverage the brand equity and consumer recognition of its partners, further expanding its market reach and diversifying its revenue streams.

Movado Group's strategic focus on strengthening its owned and licensed brand portfolios has been instrumental in navigating the challenges posed by the pandemic and evolving consumer preferences. The company's ability to adapt its product offerings, marketing strategies, and distribution channels has allowed it to maintain its competitive edge and sustain its position as a leader in the luxury watch and accessories market.

Geographical Diversification and Channel Mix

Movado Group's geographic diversification has been a key component of its growth strategy. While the United States remains the company's largest market, accounting for 59.4% of net sales in fiscal 2024, Movado Group has also established a strong international presence, with sales in Europe, Asia, and other regions contributing 40.6% of total net sales.

The company's sales channels are also well-diversified, with the Watch and Accessory Brands segment contributing 85.6% of net sales and the Company Stores segment accounting for the remaining 14.4%. This balanced approach has enabled Movado Group to cater to the evolving preferences of consumers, whether they prefer the personalized in-store experience or the convenience of online shopping.

Embracing Digital Transformation and Sustainability

Movado Group has recognized the importance of digital transformation in the modern retail landscape. The company has invested in enhancing its e-commerce capabilities, improving its online platforms, and leveraging digital marketing strategies to engage with customers more effectively. These initiatives have proven crucial in the face of the pandemic, which has accelerated the shift towards online shopping.

Furthermore, Movado Group has demonstrated a commitment to sustainability, recognizing its responsibility as a global corporate citizen. The company has implemented various initiatives to reduce its environmental impact, including the use of sustainable materials in its product packaging and the implementation of energy-efficient practices in its operations. These efforts not only align with the growing consumer demand for eco-conscious brands but also position Movado Group as a socially responsible industry leader.

Financials

Movado Group's financial performance in fiscal 2024 reflected the challenges faced by the luxury goods industry. Net sales decreased by 10.5% to $672.6 million, while gross profit margin remained relatively strong at 55.1%. The company reported operating income of $54.7 million and net income of $47.5 million, demonstrating continued profitability despite the challenging environment.

For the most recent quarter (Q2 FY 2025), Movado Group reported revenue of $159.31 million and net income of $3.72 million. The company experienced a year-over-year decrease in net sales of 0.7% in constant dollars and 0.3% on a reported basis compared to the prior year period. This decline was primarily due to lower sales in the owned brands category and the Company Stores segment, partially offset by growth in the licensed brands category.

The Watch and Accessory Brands segment generated net sales of $133.92 million in Q2 FY 2025, while the Company Stores segment contributed $25.39 million. The overall gross profit margin for the quarter was 54.2%, down from 55.7% in the same quarter last year due to unfavorable channel and product mix.

Liquidity

As of January 31, 2024, Movado Group maintained a strong liquidity position. The company reported cash and cash equivalents of $276.5 million, providing a solid foundation to navigate ongoing market uncertainties and invest in future growth opportunities.

As of July 31, 2024, the company's cash and cash equivalents stood at $198.25 million. Movado Group has a $100 million senior secured revolving credit facility, with a $15 million letter of credit subfacility, a $25 million swingline subfacility, and a $75 million sublimit for borrowings by the Swiss Borrower. As of July 31, 2024, there were no amounts outstanding under the facility, and availability was $99.7 million.

The company's financial health is further evidenced by its strong balance sheet metrics. As of the most recent quarter, Movado Group reported a debt-to-equity ratio of 0.036, a current ratio of 4.41, and a quick ratio of 2.92, all indicating a robust financial position.

Geographic Performance

Movado Group's international operations continue to play a significant role in its overall performance. For the second quarter of fiscal 2025, the company's international operations accounted for a substantial portion of total net sales:

• Europe: 29.4% (compared to 29.1% in the prior year period)

• Asia: 9.5% (compared to 9.1% in the prior year period)
• Americas (excluding the United States): 9.0% (unchanged from the prior year period)
• Middle East: 7.8% (compared to 8.6% in the prior year period)

This geographic diversification helps Movado Group mitigate risks associated with economic fluctuations in specific regions and capitalize on growth opportunities across different markets.

Outlook and Challenges Ahead

As Movado Group navigates the evolving market landscape, the company has provided a cautious outlook for the future. For the fiscal year 2025, the company expects net sales to be in the range of $665 million to $675 million, with gross profit margins around 54% and operating income between $23 million and $26 million. The effective tax rate is now expected to be 25%, and earnings per diluted share are anticipated to be between $0.90 and $1.00.

The company's second-half sales are expected to be flat to up low single digits compared to the prior year, an improvement from the 3.1% decline in the first half. This guidance reflects the ongoing challenges in the consumer environment, particularly in the fashion watch category, which has been impacted across the industry. However, Movado Group has noted that it has executed well in this category relative to some competitors.

The challenges facing Movado Group are multifaceted, ranging from macroeconomic uncertainties and shifting consumer preferences to ongoing supply chain disruptions and intense competition in the luxury watch market. The European markets and the U.S. economy have shown signs of stress, impacting the overall industry. However, the company's strong brand portfolio, diversified geographic and channel mix, and commitment to digital transformation and sustainability position it well to weather the storm and continue its legacy of timeless luxury.

To address these challenges and drive future growth, Movado Group is focusing on brand-building initiatives, particularly around the Movado brand. The company has launched a new marketing campaign and is continuing to invest in strategic initiatives to improve performance over time.

Movado Group's storied history, unwavering focus on innovation, and adaptability in the face of adversity have solidified its reputation as a premier player in the luxury watch and accessories industry. As the company navigates the dynamic market conditions, investors will be closely watching its ability to leverage its strengths, seize new opportunities, and deliver sustainable growth for the years to come.