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Movado Group Inc. Reports Operating Results (10-Q)

September 02, 2010 | About:
10qk

10qk

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Movado Group Inc. (MOV) filed Quarterly Report for the period ended 2010-07-31.

Movado Group Inc. has a market cap of $194.6 million; its shares were traded at around $10.78 with and P/S ratio of 0.5. MOV is in the portfolios of Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Net sales for the three months ended July 31, 2010 in the U.S. wholesale segment were $30.0 million, below the prior year period by $3.1 million or 9.5%. Excluding $1.0 million of liquidation of excess discontinued inventory in the prior year period, net sales in the U.S. wholesale segment for the current period were below the prior year period by $2.1 million or 6.7%. (The remaining discussion in this paragraph excludes the impact of the liquidation sales of excess discontinued inventory.) The decrease in U.S. wholesale net sales of $2.1 million was driven by decreases in both the luxury and accessible luxury categories. Net sales in the luxury category were below the prior year period by $0.4 million or 39.0% as the relatively high priced watch offerings of the category continued to be negatively affected by the difficult U.S. economic environment. Net sales in the accessible luxury category were below the prior year period by $1.6 million or 8.7%, primarily the result of the Company s decision to tighten control of distribution in the current year period, as well as the timing of customer orders that the Company believes will be pushed into the second half of fiscal 2011. Net sales in the licensed brand category were relatively flat year-over-year.

Wholesale Operating (Loss) / Income. Operating loss of $3.5 million was recorded in the wholesale segment for the three months ended July 31, 2010, compared to operating income of $1.3 million for the three months ended July 31, 2009. The $4.8 million decrease in profit was the result of a decrease in gross profit of $1.4 million and an increase in SG&A expenses of $3.4 million. The decrease in gross profit of $1.4 million was primarily attributed to the decrease in gross margin percentage achieved year-over-year. The increase in SG&A expenses of $3.4 million was driven by higher marketing expenses of $2.1 million and the unfavorable impact of foreign currency of $2.2 million when compared to the prior year period. These increases were partially offset by a reduction in consulting and professional fees of $1.4 million.

Net sales for the six months ended July 31, 2010 in the U.S. wholesale segment were $60.0 million, above the prior year period by $4.2 million or 7.4%. Excluding $5.3 million of liquidation of excess discontinued inventory in the prior year period, net sales in the U.S. wholesale segment for the current period were above the prior year period by $9.5 million or 18.6%. (The remaining discussion in this paragraph excludes the impact of the liquidation sales of excess discontinued inventory.) The increase in U.S. wholesale net sales of $9.5 million was driven by increases in both the accessible luxury and licensed brands categories. Net sales in the accessible luxury category were above the prior year period by $5.2 million or 18.4% as customers began to replenish their inventories after significant destocking in the prior year when they slowed replenishment and reduced open-to-buy levels as a result of the unfavorable economic conditions. Net sales in the licensed brands category were above the prior year period by $3.7 million or 23.0%, primarily due to better performance resulting from improved economic conditions when compared to prior year period. Net sales in the luxury category were relatively flat year-over-year.

Selling, General and Administrative (“SG&A”). SG&A expenses for the six months ended July 31, 2010 were $90.2 million as compared to $83.5 million for the six months ended July 31, 2009, representing an increase of $6.7 million or 8.0%. The increase in SG&A expenses included higher marketing expense of $5.5 million resulting from the Company s decision to increase investment in this area to elevate its brands connection with consumers and to drive sales growth. Additionally, fluctuations in foreign currency exchange rates unfavorably impacted SG&A for the six months ended July 31, 2010 by $4.6 million, primarily due to the transactional effect of foreign denominated assets held in weakening currencies. These expense increases were partially offset by a reduction in payroll and related expenses of $1.1 million, primarily a result of management reorganizations, and a reduction in consulting and professional fees of $1.1 million, primarily as a result of reduced outside services related to the implementation of SAP in the prior year, as well as higher legal fees in the prior year. The Company also recorded lower equity compensation expense of $0.6 million.

Wholesale Operating Loss. Operating losses of $7.5 million and $8.4 million were recorded in the wholesale segment for the six months ended July 31, 2010 and 2009, respectively. The $0.9 million decrease in loss was the net result of an increase in gross profit of $7.4 million, partially offset by an increase in SG&A expenses of $6.5 million. The increase in gross profit of $7.4 million was primarily attributed to the increase in sales volume. The increase in SG&A expenses of $6.5 million was driven by higher marketing expenses of $5.4 million and the unfavorable impact of foreign currency of $4.6 million when compared to the prior year period. These increases were partially offset by reductions in payroll and related costs of $1.0 million, consulting and professional fees of $1.1 million and equity compensation expense of $0.6 million.

Cash used in operating activities was $12.7 million for the six months ended July 31, 2010, of which $10.8 million was attributed to discontinued operations related to the closing of the Movado boutiques. Cash used in operating activities for the six months ended July 31, 2009 was $18.6 million, of which $2.9 million was attributed to discontinued operations. The cash used in continuing operating activities of $1.9 million for the six months ended July 31, 2010 was primarily the result of an increase in inventory of $9.5 million, partially offset by a reduction in accounts receivable of $6.1 million. The increase in inventory in the current period reflects an inventory build due to the seasonal nature of the Company s business. The cash used in continuing operating activities of $15.7 million for the six months ended July 31, 2009 was primarily the result of the net loss for the period and an inventory build of $11.4 million. The increase in inventory in the prior year period resulted from unanticipated sales declines as a result of the difficult global economic environment at that time. Due to required lead times, orders were placed well in advance of the economic downturn. The $7.9 million increase year-over-year in cash used in discontinued operating activities was primarily the result of expenses related to the closing of the Movado boutique division.

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