Executive Summary / Key Takeaways

• Movado Group (NYSE:MOV) is executing a strategic reset focused on cost reduction, brand building, and product innovation to navigate a challenging global retail environment and improve profitability, leveraging its strong balance sheet with over $200 million in cash and no debt.
• Recent performance in Q1 FY26 showed a modest 1.9% net sales decrease year-over-year, impacted by unfavorable sales mix (owned brands down, licensed brands up) and negative foreign exchange fluctuations, while operating income declined significantly due to higher FX losses and increased performance-based compensation offsetting cost savings.
• The company is implementing a cost-savings initiative targeting approximately $10 million in annualized savings for FY26, alongside a planned $15-20 million reduction in marketing spend, aimed at aligning expenses with sales and driving a meaningful improvement in profitability.
• Key product innovations, including smaller, trend-focused watches and hybrid movements, are central to the strategy, alongside a shift to more digitally focused marketing and growth in categories like jewelry and markets like India, positioning the company for potential market share gains despite the difficult backdrop.
• Significant risks include ongoing macroeconomic uncertainty impacting consumer spending, volatility in U.S. tariffs, foreign currency fluctuations, and the need to fully remediate internal control weaknesses following recent misconduct in a foreign subsidiary, leading management to withhold FY26 financial guidance.

Setting the Stage: A Legacy Adapting to Modern Currents

Movado Group, Inc., founded in 1961 as North American Watch Corporation and later rebranded, has established itself as a significant player in the design, sourcing, marketing, and distribution of watches, jewelry, and accessories. Operating primarily through its Watch and Accessory Brands segment and a smaller Company Stores retail footprint, MOV manages a diverse portfolio encompassing both esteemed owned brands like Movado, Concord, and Ebel, and globally recognized licensed brands such as Coach, Tommy Hilfiger, Hugo Boss, Lacoste, and Calvin Klein. This dual-brand strategy allows MOV to address various consumer segments, from accessible fashion to higher-end offerings.

The company operates within a competitive landscape that spans from mass-market fashion watch companies like Fossil Group (FOSL) to luxury giants like Swatch Group (SWGAY) and broader jewelry retailers like Signet Jewelers (SIG), as well as accessory players like Tapestry (TPR). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, MOV holds an estimated 2-4% aggregate share in the global watch market. Its growth trajectory, while recently impacted by macro headwinds, has generally aimed to outpace the industry average. Compared to Fossil, MOV has shown stronger recent revenue growth driven by its e-commerce focus and licensed brands, though Fossil often demonstrates better cost efficiency in its supply chain. Against Swatch Group, MOV operates in a different tier but faces a competitor with significantly larger scale, vertical integration, and superior R&D investment, particularly in movement technology. Signet and Tapestry compete more broadly in retail and accessories, leveraging extensive physical footprints or powerful fashion brand equity.

Movado's strategic positioning emphasizes brand building, product innovation, and leveraging its multi-channel distribution network, including a growing focus on direct-to-consumer e-commerce. This approach aims to differentiate it from competitors primarily focused on wholesale or traditional retail. The company's history of acquiring and managing diverse brands has shaped its operational complexity but also provides a wide reach across different consumer tastes and price points.

Innovation as a Competitive Edge

While Movado Group may not possess a single, proprietary "core technology" in the same vein as a specialized materials company, its technological differentiation lies significantly in its approach to product innovation and digital distribution platforms. In product development, this includes:

• Hybrid Automatic Movements: Featured in collections like the Hugo Boss Bossmatic, these movements combine the energy generation of automatic watches (powered by wearer motion) with the accuracy of quartz. This offers consumers a blend of traditional watchmaking appeal with modern precision and convenience, including a stated six-month power reserve for the Bossmatic. This provides a tangible benefit over purely mechanical watches requiring regular winding or quartz watches needing battery replacements, potentially appealing to a broader segment seeking reliability and ease of use.
• Ana/Digi Sport Watches: The Lacoste LC33 collection, priced accessibly at $95, represents innovation in design and functionality for a younger, sport-oriented consumer. Its combination of analog and digital displays caters to diverse preferences and provides multiple timekeeping features.
• Lab-Grown Diamonds: The introduction of Movado watches featuring lab-grown diamonds allows the company to offer high-quality diamond timepieces below the $2,000 price point. This provides a significant value proposition compared to natural diamonds, broadening the accessibility of diamond-set watches and potentially expanding the market for the Movado brand.
• Design-Focused Newness: Across its portfolio, MOV is emphasizing smaller, shaped cases (e.g., Movado Mini Bangle, Bold Mini Quest, Coach Cass, CK Meridian) and exploring new materials and aesthetics (e.g., translucent Lacoste LC33). These initiatives are direct responses to evolving consumer trends, particularly among younger demographics and women, and are crucial for maintaining brand relevance and driving sales in a fashion-driven market.

In distribution, MOV's investment in its e-commerce platforms, such as Movado.com, represents a technological focus aimed at enhancing the direct-to-consumer experience. Growth in this channel (Movado.com sales increased 16.9% in Q3 FY25) demonstrates the effectiveness of this digital strategy. Compared to competitors heavily reliant on traditional wholesale, MOV's digital push offers potential benefits like higher gross margins (as noted by management), faster feedback loops on consumer preferences, and greater control over brand presentation and pricing. While direct quantitative comparisons on platform speed or specific digital conversion metrics versus all peers are not detailed, the reported sales growth indicates a tangible benefit.

The "so what" for investors is that these innovation efforts are vital for MOV's competitive standing. Product innovation helps maintain brand desirability and capture new market segments, potentially driving higher average selling prices or increasing unit volumes. The focus on accessible luxury (lab-grown diamonds) and trend-forward designs helps counter competition from both lower-cost fashion brands and higher-end luxury players. The digital strategy enhances reach and profitability, offering a necessary counterpoint to the challenges in traditional retail channels. While R&D investment levels are not explicitly detailed with specific targets like some technology companies, the continuous stream of new product families and the adoption of features like hybrid movements signal a commitment to staying relevant in a dynamic market.

Financial Performance and Operational Realities

Movado Group's recent financial performance reflects the challenging macroeconomic environment and the strategic investments and adjustments being made. For the three months ended April 30, 2025 (Q1 FY26), net sales were $131.8 million, a decrease of 1.9% compared to $134.4 million in the prior year period. On a constant currency basis, the decrease was 1.0%, indicating that unfavorable foreign exchange rates had a notable $1.2 million negative impact on the top line.

Breaking down the sales performance reveals key operational dynamics. The Watch and Accessory Brands segment saw net sales decrease by 2.0% to $114.8 million. This was primarily driven by a significant 17.0% decrease in owned brands sales ($6.8 million), partially offset by a robust 8.3% increase in licensed brands sales ($6.2 million). Geographically within this segment, US sales were down 1.4% ($0.5 million), while International sales decreased by 2.3% ($1.8 million), including the $1.2 million negative FX impact. The decline in International owned brands was particularly steep at 29.5% ($3.1 million), spread across all regions, while International licensed brands grew 4.5% ($3.0 million), driven by Europe, the Middle East, and the Americas (excluding the US). The smaller Company Stores segment experienced a 1.7% sales decrease to $17.0 million, primarily due to unfavorable sales mix, despite a new store opening.

Gross profit for Q1 FY26 was $71.4 million, down $1.5 million from $72.9 million in the prior year. The gross margin percentage slightly decreased to 54.1% from 54.3%. This 20 basis point decline was influenced by approximately 100 basis points of negative impact from foreign exchange fluctuations, 30 basis points from increased shipping costs, and 20 basis points from decreased leverage of fixed costs due to lower sales. These headwinds were partially offset by a favorable sales mix contribution of approximately 130 basis points, highlighting the positive impact of the shift towards higher-margin licensed brands and potentially e-commerce channels. Operating expenses (SGA) increased slightly by $0.3 million (0.4%) to $71.1 million. This increase was primarily driven by a significant $2.7 million rise in foreign exchange losses on intercompany balances, attributed to a highly volatile currency environment, and a $1.0 million increase in performance-based compensation. These increases were partially offset by a $2.4 million decrease in payroll-related expenses (including $0.6 million in severance costs from the cost-savings initiative) and a $1.2 million reduction in marketing expense. The unfavorable impact of foreign currency rates on foreign subsidiaries' SGA expenses was $1.5 million.

The combination of lower gross profit and slightly higher operating expenses resulted in a significant decline in operating income, falling to $0.3 million in Q1 FY26 from $2.1 million in Q1 FY25. Net income attributable to Movado Group, Inc. also decreased to $1.4 million ($0.06 per diluted share) from $2.0 million ($0.09 per diluted share). The income tax provision decreased to $0.7 million from $2.0 million, with the effective tax rate dropping to 34.0% from 48.7%, influenced by changes in valuation allowances, foreign tax credits, GILTI limitations, and jurisdictional earnings mix.

Looking at the balance sheet as of April 30, 2025, Movado maintains a strong liquidity position with $203.1 million in cash and cash equivalents, although this is down from $225.4 million a year prior. A substantial portion of this cash ($86.4 million) is held by foreign subsidiaries. The company has no outstanding debt under its $100 million revolving credit facility, leaving $99.7 million available. Working capital decreased to $385.5 million from $398.5 million, primarily due to the decrease in cash and an increase in accrued liabilities, partially offset by a notable increase in inventories ($189.3 million vs. $165.2 million). Management noted the inventory increase was primarily due to timing of receipts.

Cash flow from operations was a use of $7.2 million in Q1 FY26, compared to a use of $18.1 million in Q1 FY25. The change was significantly influenced by the timing of inventory receipts and a decrease in trade receivables. Investing activities used $2.8 million, mainly for capital expenditures ($1.5 million) related to Company stores and shop-in-shops, and long-term investments ($1.3 million) in growth companies and venture funds. Financing activities used $0.5 million, primarily for shares surrendered by employees related to stock awards, a decrease from $9.9 million used in Q1 FY25 which included open market share repurchases and dividends paid. The company declared a $0.35 per share dividend ($7.8 million) in Q1 FY26, payable in May 2025, demonstrating a continued commitment to shareholder returns supported by its cash position.

Overall, the financial performance in Q1 FY26 highlights the pressures from the external environment and the costs associated with strategic adjustments and FX volatility. While sales saw a modest decline, profitability was significantly impacted. The strong balance sheet and available liquidity provide a buffer to execute strategic initiatives and navigate the uncertain period.

Strategic Responses and Outlook

In response to the challenging environment and the need to improve financial performance, Movado Group is actively implementing several strategic initiatives. A key focus is the cost-savings initiative, which began in the second half of fiscal year 2025 and continued into Q1 FY26 with additional severance accruals. This program, involving headcount reductions and operational adjustments, is expected to yield approximately $10 million in annualized savings for fiscal year 2026. Complementing this, the company plans a significant reduction in marketing expenditures, anticipating a $15 million to $20 million year-over-year decrease in FY26 compared to FY25's elevated investment levels. These expense management efforts are aimed at aligning the cost structure with anticipated sales levels and driving a meaningful improvement in profitability.

Simultaneously, Movado is continuing its brand-building efforts and product innovation. The Movado brand refresh is ongoing, supported by new product introductions like the Mini Bangle and Bold Mini Quest, designed to appeal to current trends and broaden reach. The introduction of lab-grown diamonds is a strategic move to offer value and expand the addressable market for the Movado brand. Marketing strategy is shifting towards more digitally focused venues for greater agility and conversion focus. For licensed brands, the emphasis remains on developing iconic products that resonate with the DNA of each fashion partner, with specific successes noted in Coach, Hugo Boss, Lacoste, and Calvin Klein, particularly in women's watches and men's jewelry. The company sees jewelry as a significant growth opportunity across its portfolio. Geographic expansion in markets like India is also a focus, where the Movado brand has shown strong growth.

Despite these strategic actions, the outlook for fiscal year 2026 remains uncertain. Due to the prevailing macroeconomic environment and the unpredictable impact of tariffs, management has elected not to provide formal financial guidance at this time. This reflects the volatility in consumer spending, particularly in key markets like the US and Europe, and the uncertainty surrounding the final implementation and rates of recently proposed US tariffs on imported goods, which could significantly increase costs of sales. While the company is developing mitigation plans, including selective price increases and potential supply chain adjustments, the outcome is not yet clear.

Management's commentary suggests a focus on managing the "controllables" – primarily expenses and operational execution – while remaining flexible. They aim to return to profitable, sustainable growth by ensuring expenses are in line with sales and capitalizing on opportunities in product innovation and targeted market growth. The strong balance sheet provides the necessary flexibility to navigate this period of uncertainty and continue investing selectively in strategic priorities.

Risks and Challenges

Movado Group faces several significant risks that could impact its financial performance and investment thesis.

• Macroeconomic Uncertainty and Consumer Spending: The most prominent risk is the uncertain global economic environment, which directly impacts consumer discretionary spending on items like watches and jewelry. Inflation, elevated interest rates, and potential recessionary pressures in key markets like the US and Europe could continue to suppress demand and pressure sales volumes.
• Tariff Impact and Volatility: The recent imposition and potential future changes to US tariffs on imported goods, particularly from China, Switzerland, and Japan, pose a significant threat. These tariffs increase the cost of goods sold, which could necessitate price increases that dampen consumer demand or erode profit margins if costs cannot be fully passed on. The uncertainty surrounding final tariff rates adds complexity to planning and mitigation efforts.
• Foreign Currency Fluctuations: As a global company with significant international operations and purchases denominated in foreign currencies (Swiss Franc, Euro, Japanese Yen), Movado is exposed to foreign currency exchange rate risk. Volatility in exchange rates can negatively impact net sales, cost of sales, and operating expenses, as seen in the recent quarter's unfavorable FX impacts. While the company uses hedging strategies, these may not fully mitigate the risk, especially in highly volatile periods.
• Inventory Management: The increase in inventory levels in the recent quarter, while attributed to timing, highlights the ongoing challenge of managing inventory effectively in a volatile demand environment. Excess inventory can lead to increased carrying costs, potential obsolescence, and the need for markdowns, negatively impacting gross margins.
• Competition: The watch and jewelry market is highly competitive, with players ranging from large luxury conglomerates to agile fashion brands and emerging digital-native companies. MOV faces pressure on pricing, market share, and the need for continuous innovation to remain relevant. The rise of smartwatches also presents an indirect competitive threat by capturing consumer attention and spending.
• Internal Control Weakness and Investigation: The discovery of misconduct and subsequent restatement of financial statements, along with the identified material weakness in internal controls related to the Dubai branch, poses reputational risk and requires significant effort and resources to remediate. The ongoing SEC inquiry adds a layer of uncertainty regarding potential future consequences. While management is taking steps to address these issues, the process of strengthening controls and regaining full confidence in financial reporting effectiveness is critical.

These risks underscore the challenging operating backdrop against which Movado Group is executing its strategy. The success of its cost-savings initiatives, brand-building efforts, and ability to navigate tariff and FX volatility will be crucial determinants of its financial performance in the coming periods.

Conclusion

Movado Group is currently navigating a complex and uncertain global market, characterized by cautious consumer spending and volatile trade dynamics. The company's recent performance reflects these pressures, with modest sales declines and compressed profitability in the most recent quarter, exacerbated by foreign exchange impacts and specific operational costs.

However, the investment narrative for MOV is centered on its strategic response: leveraging a robust balance sheet with significant cash reserves and no debt to fund a focused reset. This involves aggressive cost management targeting substantial annualized savings, a rationalization of marketing spend towards more efficient digital channels, and a continued commitment to product innovation across its diverse brand portfolio, particularly in areas like accessible luxury, trend-driven design, and hybrid technology. The company is also strategically pursuing growth in key international markets and product categories like jewelry.

While the lack of formal fiscal year 2026 guidance underscores the prevailing uncertainty, management's focus on controlling expenses and executing on brand and product initiatives provides a clear path towards improving profitability from fiscal year 2025 levels. The competitive landscape remains challenging, but MOV's established brand equity, multi-channel presence, and targeted innovation efforts position it to potentially gain market share as the environment evolves. Key factors for investors to monitor will be the effectiveness of the cost-savings program, the impact of new product introductions on sales trends, the ability to mitigate tariff impacts, and the successful remediation of internal control weaknesses. Despite the headwinds, Movado Group appears strategically positioned to emerge stronger by focusing on operational efficiency and targeted growth, supported by its financial resilience.