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01/10 23:39
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite macroeconomic uncertainties and a slight decline in gross margins, the company reported a 3% increase in sales and a significant rise in adjusted operating profit. The strong international performance, strategic inventory management, and a share repurchase program further contribute to a positive outlook. The Q&A section highlighted effective management strategies and a focus on market trends, with no unclear responses. These factors suggest a positive stock price movement over the next two weeks.
Sales Sales grew by 3% to $161.8 million year-over-year. The increase was driven by growth in licensed brands and company stores, partially offset by a decrease in owned brands.
Adjusted Operating Profit Adjusted operating profit more than doubled to $7 million from $2.6 million last year, despite a $2.2 million impact from unmitigated U.S. tariff expenses. The improvement was due to higher revenue and gross profit, along with a decline in operating expenses.
Gross Margins Gross margins were 54.1% compared to 54.3% in Q2 of last year, a slight decline due to increased tariffs and unfavorable foreign exchange, partially offset by favorable channel and product mix.
International Business International business grew by 6.9% or 3.9% on a constant currency basis, led by strong performance in Europe, Latin America, and India. This was offset by weaker performance in the Middle East due to team rebuilding.
U.S. Business U.S. business declined by 1.6% year-over-year as the company focused on rebalancing chain jewelry store distribution. However, there was improved performance in domestic department stores and e-commerce channels.
Outlet Storage Segment The outlet storage segment grew by 2.4% for the quarter, driven by recent initiatives and accelerating trends in that channel.
Net Income Net income increased to $5.3 million or $0.23 per diluted share, compared to $3.5 million or $0.15 per diluted share in the year-ago period. The increase was driven by higher operating income and other non-operating income.
Cash Position The company maintained a strong balance sheet with over $180 million in cash and no debt, although cash decreased from $198.3 million in the same period last year.
Inventory Inventory increased by $28.3 million or 15.5% year-over-year, with $5.1 million of the increase due to foreign currency and $4.6 million due to reciprocal tariffs. The company built a strong inventory position of Swiss-made watches in the U.S. to cover a substantial portion of the year's needs.
Movado Women's Watches: Increased penetration and success, including new iconic bangle watches and Mini Quest in BOLD.
Movado Men's Watches: Strong performance in BOLD collection, including Verso Automatic and Quest Automatic.
Heritage Collection: Continues to perform well with limited distribution.
Licensed Brands: Growth in HUGO BOSS, Tommy Hilfiger, Lacoste, Calvin Klein, and Coach with new product launches and strong reception.
International Business: Grew by 6.9% (3.9% in constant currency), led by Europe, Latin America, and India.
U.S. Business: Declined by 1.6% due to rebalancing chain jewelry store distribution but improved in department stores and e-commerce.
Tariff Mitigation: Built strong inventory of Swiss-made watches in the U.S. to offset 39% tariff rate.
Cost Savings: Achieved $10 million in annualized savings from reduced operating expenses.
Gross Margin: Maintained at 54.1% despite tariff impacts.
Fashion Watch Market: Resurgence driven by Gen Z interest on platforms like TikTok and YouTube.
Marketing Campaigns: Digital-first campaigns featuring celebrities and new product launches.
Tariff Impact: The company faced a $2.2 million impact from unmitigated U.S. tariff expenses in Q2. Additionally, a new 39% tariff rate on Swiss imports was implemented, creating uncertainty and potential cost pressures. While mitigation plans are being developed, the situation remains unresolved.
Sales Decline in U.S. Market: U.S. net sales decreased by 1.6% in Q2, attributed to rebalancing efforts in chain jewelry store distribution. This decline could impact overall revenue growth if not addressed effectively.
Movado Brand Sales Decline: Sales for the Movado brand declined by 5.6% in Q2, despite progress in strategic initiatives. This poses a challenge to the brand's recovery and growth trajectory.
Inventory Management: Inventory levels increased by 15.5% year-over-year, partly due to foreign currency effects and reciprocal tariffs. While the company has built a strong inventory position, excess inventory could lead to inefficiencies or financial strain if demand does not meet expectations.
Macroeconomic and Retail Environment Uncertainty: The company acknowledged broader uncertainty in the retail environment and macroeconomic conditions, which could impact consumer spending and overall business performance.
Foreign Exchange Impact: Unfavorable foreign exchange rates negatively affected gross margins, adding to cost pressures.
Marketing Expense Reduction: A strategic reduction in marketing expenses was implemented, which, while reducing costs, could potentially impact brand visibility and sales performance in competitive markets.
Tariff Mitigation: The company has taken actions to partially offset tariffs, which will predominantly impact future periods. They are hopeful for a reduction in U.S. tariffs on Swiss imports and are monitoring the situation closely.
Cost Savings: The company expects approximately $10 million of annualized savings spread evenly throughout the year due to actions taken to reduce operating expenses.
Product Launches: Movado plans to debut new products in the fall, including the Museum Imperio and Heritage 1917 collections, with marketing campaigns featuring prominent icons.
Licensed Brands Growth: The company anticipates continued growth in licensed brands, driven by new product introductions and increased interest from Gen Z consumers on digital platforms.
Fashion Watch Market: The company is encouraged by the resurgence in the fashion watch market and plans to capitalize on this trend with new product launches and marketing initiatives.
Profitability and Growth: The leadership team is focused on driving profitability and delivering consistent growth in both sales and operating margin while maintaining a strong balance sheet.
Share Repurchase Program: Movado Group repurchased approximately 100,000 shares under its share repurchase program during the second quarter of fiscal 2026. As of July 31, 2025, the company had $48.4 million remaining under its authorized share repurchase program. The company plans to utilize this program to offset dilution in fiscal 2026, subject to prevailing market conditions and the business environment.
The earnings call reveals strong financial performance with revenue and net income growth, improved gross margin, and cash flow. The company is optimistic about product launches and market strategy, especially targeting Gen Z. While there are challenges like tariffs and Middle East performance, the optimistic guidance, shareholder returns, and Q&A insights suggest a positive sentiment. The market strategy and shareholder return plan are particularly strong, indicating a likely positive stock price movement.
Despite macroeconomic uncertainties and a slight decline in gross margins, the company reported a 3% increase in sales and a significant rise in adjusted operating profit. The strong international performance, strategic inventory management, and a share repurchase program further contribute to a positive outlook. The Q&A section highlighted effective management strategies and a focus on market trends, with no unclear responses. These factors suggest a positive stock price movement over the next two weeks.
The earnings call summary reveals several concerns: missed earnings expectations, declining sales, and lack of fiscal outlook due to economic uncertainties. Despite cost-saving measures and strong cash position, the negative impact of currency fluctuations and tariffs, coupled with declining margins, overshadow positive developments like new partnerships and product launches. The Q&A section highlights uncertainties, particularly regarding tariffs and foreign exchange losses. The lack of share repurchases and unclear management responses further contribute to a negative sentiment, leading to a predicted stock price movement of -2% to -8%.
The earnings call reveals several concerns: declining sales and operating income, currency fluctuations, and tariff uncertainties. The lack of fiscal guidance further adds to investor uncertainty. Although there are positive aspects like a strong cash position and a dividend, these are overshadowed by the negative financial performance and unclear future outlook. The Q&A session didn't alleviate concerns, as management failed to provide a clear strategy to address challenges. These factors are likely to lead to a negative stock price reaction in the short term.
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