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

September 03, 2009 | About:
10qk

Movado Group Inc. (MOV) filed Quarterly Report for the period ended 2009-07-31.

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 $204.3 million; its shares were traded at around $11.47 with a P/E ratio of 95.6 and P/S ratio of 0.5. 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 July 31, 2009 were $49.5 million as compared to $72.0 million for the three months ended July 31, 2008, representing a decrease of $22.5 million or 31.2%. 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 July 31, 2009 of $7.5 million, lower payroll and related expenses of $5.3 million which were primarily the result of headcount reductions, lower expenses in the retail segment of $2.1 million due in part to the closing of three stores, lower travel and related expenses of $1.1 million and reduced expenses on tradeshows and conventions of $1.0 million. As a result of the challenging global economy, the Company recorded lower performance based compensation of $1.8 million when compared to the prior year period. Additionally, as a result of the stronger U.S. dollar 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 July 31, 2009 by $0.8 million. SG&A expenses in the prior year period included $2.2 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses.

Wholesale Operating Income. Operating income of $2.3 million and $10.9 million was recorded in the wholesale segment for the three months ended July 31, 2009 and 2008, respectively. The $8.6 million decrease in profit was the net result of a decrease in gross profit of $28.3 million partially offset by a decrease in SG&A expenses of $19.7 million. The decrease in gross profit of $28.3 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 $19.7 million was driven by lower marketing expenses of $6.8 million, lower payroll and related expenses of $5.3 million which were primarily the result of headcount reductions, lower travel and related expenses of $1.1 million and reduced expenses on tradeshows and conventions of $1.0 million. As a result of the challenging global economy, the Company recorded lower performance based compensation of $1.8 million when compared to the prior year period. 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 July 31, 2009 by $0.8 million. SG&A expenses in the prior year period included $2.2 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses.

Selling, General and Administrative (“SG&A”). SG&A expenses for the six months ended July 31, 2009 were $97.7 million as compared to $134.8 million for the six months ended July 31, 2008, representing a decrease of $37.1 million or 27.5%. The decrease in SG&A expenses was a result of the Company s initiatives to streamline operations and reduce expenses, which included lower marketing expenses for the six months ended July 31, 2009 of $13.7 million, lower payroll and related expenses of $10.7 million which were primarily the result of headcount reductions, lower expenses in the retail segment of $3.1 million due in part to the closing of three stores and lower travel and related expenses of $2.3 million. As a result of the challenging global economy, the Company recorded lower performance based compensation of $2.3 million when compared to the prior year period. Additionally, as a result of the stronger U.S. dollar 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 six months ended July 31, 2009 by $2.1 million. SG&A expenses in the prior year period included $2.2 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses.

Wholesale Operating Income / (Loss). Operating loss of $6.0 million was recorded in the wholesale segment for the six months ended July 31, 2009 compared to operating income of $15.5 million recorded for the six months ended July 31, 2008. The $21.5 million decrease in profit was the net result of a decrease in gross profit of $54.3 million partially offset by a decrease in SG&A expenses of $32.8 million. The decrease in gross profit of $54.3 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 $32.8 million was driven by lower marketing expenses of $12.6 million, lower payroll and related expenses of $10.7 million which were primarily the result of headcount reductions and lower travel and related expenses of $2.3 million. As a result of the challenging global economy, the Company recorded lower performance based compensation of $2.3 million when compared to the prior year period. Additionally, as a result of the stronger U.S. dollar 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 six months ended July 31, 2009 by $2.1 million. SG&A expenses in the prior year period included $2.2 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses.

Interest Expense. Interest expense for the six months ended July 31, 2009 and 2008 was $2.8 million and $1.5 million, respectively. Interest expense in the current period includes expenses and fees associated with the refinancing and repayment of the Company s former credit and note agreements which included a non-cash pre-tax charge of $0.2 million related to the accelerated recognition of deferred financing costs and a pre-tax charge of $1.1 million for fees due to the former lenders. Excluding these expenses and fees, interest expense for the six months ended July 31, 2009 was $1.5 million or flat to the prior year.

Cash used in operating activities was $18.6 million and $33.9 million for the six months ended July 31, 2009 and 2008, respectively. The cash used in operating activities for the six months ended July 31, 2009 was primarily the result of the net loss of $8.4 million for the period and an inventory build of $11.4 million. The cash used in operating activities for the six months ended July 31, 2008 was primarily the result of an inventory build of $31.0 million. The increase in inventory in the current period is primarily due to the decrease in sales volume as a result of the economic downturn. The increase in inventory in the prior year period reflected the seasonal nature of the business with the Company building inventory for the upcoming holiday season.

Read the The complete ReportMOV is in the portfolios of Charles Brandes of Brandes Investment.

Rating: 2.5/5 (2 votes)

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