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

June 09, 2009 | About:

Movado Group Inc. (MOV) filed Quarterly Report for the period ended 2009-04-30.

Movado Group Inc. is a designer manufacturer and distributor of quality watches with prominent brands sold in almost every price category comprising the watch industry. The company's watch brands include Movado Concord and ESQ. Movado Group Inc. has a market cap of $181.9 million; its shares were traded at around $10.24 with a P/E ratio of 19 and P/S ratio of 0.4. Movado Group Inc. had an annual average earning growth of 12.9% over the past 10 years. GuruFocus rated Movado Group Inc. the business predictability rank of 4.5-star.

Highlight of Business Operations:

Selling, General and Administrative (“SG&A”). SG&A expenses for the three months ended April 30, 2009 were $48.1 million as compared to $63.4 million for the three months ended April 30, 2008, representing a decrease of $15.3 million or 24.1%. The decrease in SG&A expenses was as a result of the Company s initiatives to streamline operations and reduce expenses, which included lower marketing expenses for the three months ended April 30, 2009 of $6.2 million, lower payroll and related expenses of $4.8 million which were primarily the result of headcount reductions and lower travel and related expenses of $1.2 million. Additionally, as a result of the stronger U.S. dollar when compared to the prior year period and the translation of the Company s foreign subsidiaries results, the effect of foreign currency favorably impacted SG&A expenses for the three months ended April 30, 2009 by $1.3 million.

Wholesale Operating Income / (Loss). Operating loss of $7.5 million was recorded in the wholesale segment for the three months ended April 30, 2009 compared to operating income of $4.6 million recorded for the three months ended April 30, 2008. The $12.1 million decrease in profit was the net result of a decrease in gross profit of $26.4 million partially offset by a decrease in SG&A expenses of $14.3 million. The decrease in gross profit of $26.4 million was primarily attributed to the decrease in sales year-over-year resulting from the ongoing difficult global economic environment. The decrease in SG&A expenses of $14.3 million was driven by lower marketing expenses of $5.8 million, lower payroll and related expenses of $4.5 million and lower travel and related expenses of $1.2 million. Additionally, as a result of the stronger U.S. dollar when compared to the prior year period and the translation of the Company s foreign subsidiaries results, the effect of foreign currency favorably impacted SG&A expenses for the three months ended April 30, 2009 by $1.3 million.

Retail Operating Loss. Operating losses of $3.6 million and $3.0 million were recorded in the retail segment for the three months ended April 30, 2009 and 2008, respectively. The $0.6 million increase in the loss was the net result of a decrease in gross profit of $1.6 million, partially offset by a decrease in SG&A expenses of $1.0 million. The decrease in gross profit was primarily attributable to the decrease in gross profit percentage year-over-year resulting from in-store promotions in effect during the current year period. The decrease in SG&A expenses was primarily the result of the Company s initiatives to streamline operations and reduce expenses, resulting in lower marketing expenses of $0.4 million and lower payroll and related expenses of $0.3 million when compared to the prior year.

Cash used in operating activities was $11.4 million and $25.1 million for the three months ended April 30, 2009 and 2008, respectively. The cash used in operating activities for the three months ended April 30, 2009 was primarily the result of the net loss for the period and an inventory build of $10.6 million. This was partially offset by a reduction in accounts receivable of $10.7 million. The cash used in operating activities for the three months ended April 30, 2008 was primarily the result of an inventory build of $21.6 million. The increase in inventory in the current period reflects the unanticipated sales decline during the second half of fiscal 2009 as retailers continue to tighten their inventory controls as a result of the difficult global economic environment. Due to the lead times required when purchasing inventory, orders were placed well in advance of the downturn in the economy that began during the third fiscal quarter in the prior year. The decrease in sales volumes that resulted from the economic downturn caused these purchased goods to remain in inventory. The increase in

As of June 5, 2009, $40.0 million in loans were drawn under the Facility, which were used, in part, to repay amounts outstanding under the Company s former U.S. credit facility with JPMorgan Chase Bank, N.A. (“JPM Chase”) (the “Former US Facility”), which was terminated. In addition, approximately $1.5 million in letters of credit were issued, which were used to backstop letters of credit and other obligations outstanding in connection with the Former US Facility. As of June 5, 2009, total availability under the Facility, giving effect to the availability block, the $40.0 million borrowing and the letters of credit, was $6.0 million.

As of March 21, 2004, the Company amended its Note Purchase and Private Shelf Agreement, originally dated March 21, 2001 (as amended, the “First Amended 2001 Note Purchase Agreement”), among the Company, Prudential and certain affiliates of Prudential (together, the “Purchasers”). This agreement allowed for the issuance of senior promissory notes in the aggregate principal amount of up to $40.0 million with maturities up to 12 years from their original date of issuance. On October 8, 2004, the Company issued, pursuant to the First Amended 2001 Note Purchase Agreement, 4.79% Senior Series A-2004 Notes due 2011 (the "Senior Series A-2004 Notes") in an aggregate principal amount of $20.0 million, which were to mature on October 8, 2011 and were subject to annual repayments of $5.0 million commencing on October 8, 2008. Proceeds of the Senior Series A-2004 Notes have been used by the Company for capital expenditures, repayment of certain of its debt obligations and general corporate purposes. These notes contained certain financial covenants, including an interest coverage ratio and maintenance of consolidated net worth and certain non-financial covenants that restricted the Company s activities regarding investments and acquisitions, mergers, certain transactions with affiliates, creation of liens, asset transfers, payment of dividends and limitation of the amount of debt outstanding. On June 5, 2008, the Company amended the First Amended 2001 Note Purchase Agreement (as amended, the “Second Amended 2001 Note Purchase Agreement”), with Prudential and the Purchasers. As of April 30, 2009, $15.0 million of the Senior Series A-2004 Notes were issued and outstanding. Upon entering the Loan Agreement on June 5, 2009, all outstanding amounts and related fees due under the Senior Series A-2004 Notes were paid in full, and the Second Amended 2001 Note Purchase Agreement was terminated.

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Rating: 2.7/5 (3 votes)

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