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

December 02, 2010 | About:
10qk

10qk

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Movado Group Inc. (MOV) filed Quarterly Report for the period ended 2010-10-31.

Movado Group Inc. has a market cap of $225.3 million; its shares were traded at around $12.46 with and P/S ratio of 0.6. MOV is in the portfolios of Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors.

Highlight of Business Operations:

Wholesale Operating Income. Operating income of $16.5 million and $4.2 million was recorded in the wholesale segment for the three months ended October 31, 2010 and 2009, respectively. The $12.3 million increase in profit was the result of an increase in gross profit of $11.7 million, and a decrease in SG&A expenses of $0.6 million. The increase in gross profit of $11.7 million was primarily attributed to the increase in gross margin percentage achieved year-over-year. The decrease in SG&A expenses of $0.6 million was driven by a reduction in expenses associated with tradeshows of $1.0 million, the $4.3 million benefit recorded in the current period resulting from the reversal of a previously recorded liability for a retirement agreement, as well as the favorable impact of foreign currency fluctuations of $0.6 million when compared to the prior year period. These decreases were partially offset by higher marketing expenses of $2.6 million and higher performance based compensation of $3.4 million.

Retail Operating Income. Operating income of $1.7 million and $2.1 million was recorded in the retail segment for the three months ended October 31, 2010 and 2009, respectively. The $0.4 million decrease in profit was primarily the result of an increase in SG&A expenses of $0.6 million, partially offset by an increase in gross profit of $0.2 million. The increase in gross profit of $0.2 million was primarily attributed to the increase in sales volume year-over-year. The increase in SG&A expenses of $0.6 million was primarily due to higher occupancy and payroll related expenses in the current year period.

Selling, General and Administrative (“SG&A”). SG&A expenses for the nine months ended October 31, 2010 were $140.6 million as compared to $133.9 million for the nine months ended October 31, 2009, representing an increase of $6.7 million or 5.0%. The increase in SG&A expenses included higher marketing expense of $8.1 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. Also contributing to the increase, performance based compensation was higher by $3.0 million year-over-year, resulting from expense recorded for the current period due to the expected achievement of performance goals, as well as the reversal of previously recorded expenses in the prior year due to goals not being met in light of the challenging global economy at that time. Additionally, fluctuations in foreign currency exchange rates unfavorably impacted SG&A for the nine months ended October 31, 2010 by $4.0 million, primarily due to the transactional effect of foreign denominated assets held in weakening currencies during the first half of the current fiscal year. These expense increases were partially offset by a reduction in consulting and professional fees of $1.4 million, primarily as a result of reduced outside services related to the implementation of SAP in the prior year, and a reduction in expenses of $0.6 million associated with tradeshows as the Company reduced participation in these events. In the current

Wholesale Operating Income / (Loss). Operating income of $9.0 million was recorded in the wholesale segment for the nine months ended October 31, 2010, compared to an operating loss of $4.2 million for the nine months ended October 31, 2009. The $13.2 million increase in profit was the net result of an increase in gross profit of $19.1 million, partially offset by an increase in SG&A expenses of $5.9 million. The increase in gross profit of $19.1 million was primarily attributed to the increase in sales volume, as well as an increase in gross margin percentage. The increase in SG&A expenses of $5.9 million was driven by higher marketing expenses of $8.0 million, the unfavorable impact of foreign currency of $4.0 million when compared to the prior year period and higher performance based compensation of $3.0 million. These increases were partially offset by reductions in consulting and professional fees of $1.4 million, lower depreciation expense of $1.1 million, reduced spending related to tradeshows of $0.6 million, and lower bad debt expense of $0.5 million. Additionally, the Company recorded a benefit of $4.3 million in the current year period resulting from the reversal of a previously recorded liability for a retirement agreement.

Retail Operating Income. Operating income of $4.7 million and $6.1 million was recorded in the retail segment for the nine months ended October 31, 2010 and 2009, respectively. The $1.4 million decrease in profit was primarily the result of a decrease in gross profit of $0.6 million and an increase in SG&A expenses of $0.8 million. The decrease in gross profit of $0.6 million was primarily attributed to the decrease in gross margin percentage achieved year-over-year. The increase in SG&A expenses of $0.8 million was primarily due to higher occupancy and payroll related expenses in the current period.

Cash provided by operating activities was $4.9 million for the nine months ended October 31, 2010, resulting from cash provided by continuing operations of $17.8 million, partially offset by $12.9 million of cash used in discontinued operations related to the Movado boutiques. Cash used in operating activities for the nine months ended October 31, 2009 was $1.8 million, resulting from cash used of $6.1 million attributed to discontinued operations, partially offset by cash provided by continuing operations of $4.3 million. The cash provided by continuing operating activities of $17.8 million for the nine months ended October 31, 2010 was primarily the result of the income for the period of $10.5 million, favorable non-cash items of $13.1 million, partially offset by unfavorable changes in working capital of $7.0 million. The cash provided by continuing operating activities of $4.3 million for the nine months ended October 31, 2009 was the result of the net loss for the period of $24.6 million, offset by favorable non-cash items of $35.5 million and unfavorable changes in working capital of $6.6 million.

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