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

December 09, 2009 | About:
10qk

10qk

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Movado Group Inc. (MOV) filed Quarterly Report for the period ended 2009-10-31.

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 $193.5 million; its shares were traded at around $10.85 with and P/S ratio of 0.4. Movado Group Inc. had an annual average earning growth of 12.9% over the past 10 years.

Highlight of Business Operations:

Selling, General and Administrative (“SG&A”). SG&A expenses for the three months ended October 31, 2009 were $57.4 million as compared to $70.8 million for the three months ended October 31, 2008, representing a decrease of $13.4 million or 18.9%. 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 October 31, 2009 of $9.9 million, lower payroll and related expenses of $3.9 million which were primarily the result of headcount reductions and lower expenses in the retail segment of $1.5 million due in part to the closing of three stores. SG&A expenses in the prior year period included $3.4 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses. The expense savings were partially offset by a lower benefit recorded for performance based compensation of $4.5 million when compared to the prior year period. Due to the challenging global economy, the benefits recorded in both periods are primarily the result of the reversal of previously recorded compensation expense. Additionally, as a result of the weaker U.S. dollar compared to the prior year period and the translation of the Company s foreign subsidiaries results, the effect of foreign currency unfavorably impacted SG&A expenses for the three months ended October 31, 2009 by $0.6 million.

Wholesale Operating Income. Operating income of $4.2 million and $16.2 million was recorded in the wholesale segment for the three months ended October 31, 2009 and 2008, respectively. The $12.0 million decrease in profit was the net result of a decrease in gross profit of $23.8 million partially offset by a decrease in SG&A expenses of $11.8 million. The decrease in gross profit of $23.8 million was primarily attributed to the decrease in sales year-over-year resulting from the ongoing difficult global economic environment as well as the decrease in gross margin percentage year-over-year. The decrease in SG&A expenses of $11.8 million was driven by lower marketing expenses of $9.8 million and lower payroll and related expenses of $3.9 million which were primarily the result of headcount reductions. SG&A expenses in the prior year period included $3.4 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses. The expense savings were partially offset by a lower benefit recorded for performance based compensation of $4.5 million when compared to the prior year period. Due to the challenging global economy, the benefits recorded in both periods are primarily the result of the reversal of previously recorded compensation expense. Additionally, as a result of the weaker U.S. dollar compared to the prior year period and the translation of the Company s foreign subsidiaries results, the effect of foreign currency unfavorably impacted SG&A expenses for the three months ended October 31, 2009 by $0.6 million.

Selling, General and Administrative (“SG&A”). SG&A expenses for the nine months ended October 31, 2009 were $155.1 million as compared to $205.6 million for the nine months ended October 31, 2008, representing a decrease of $50.5 million or 24.6%. 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 nine months ended October 31, 2009 of $23.6 million, lower payroll and related expenses of $14.6 million which were primarily the result of headcount reductions, lower expenses in the retail segment of $4.7 million due in part to the closing of three stores and lower travel and related expenses of $2.7 million. SG&A expenses in the prior year period included $5.6 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses. The expense savings were partially offset by a net benefit recorded for performance based compensation of $2.2 million when compared to the prior year period. Due to the challenging global economy, the benefit recorded in the prior year period was primarily the result of the reversal of previously recorded compensation expense. 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 nine months ended October 31, 2009 by $1.5 million.

Wholesale Operating Income / (Loss). Operating loss of $4.2 million was recorded in the wholesale segment for the nine months ended October 31, 2009 compared to operating income of $31.6 million recorded for the nine months ended October 31, 2008. The $35.8 million decrease in profit was the net result of a decrease in gross profit of $80.4 million partially offset by a decrease in SG&A expenses of $44.6 million. The decrease in gross profit of $80.4 million was primarily attributed to the decrease in sales year-over-year resulting from the ongoing difficult global economic environment as well as the decrease in gross margin percentage year-over-year. The decrease in SG&A expenses of $44.6 million was driven by lower marketing expenses of $22.4 million, lower payroll and related expenses of $14.6 million which were primarily the result of headcount reductions and lower travel and related expenses of $2.7 million. SG&A expenses in the prior year period included $5.6 million of severance related costs associated with the implementation of the Company s initiatives to streamline operations and reduce expenses. The expense savings were partially offset by a net benefit recorded for performance based compensation of $2.2 million when compared to the prior year period. Due to the challenging global economy, the benefit recorded in the prior year period was primarily the result of the reversal of previously recorded compensation expense. 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 nine months ended October 31, 2009 by $1.5 million.

Interest Expense. Interest expense for the nine months ended October 31, 2009 and 2008 was $3.8 million and $2.2 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 nine months ended October 31, 2009 was $2.5 million, or $0.3 million above the prior year. The increase in interest expense is primarily due to an increase in recognized deferred financing costs associated with the Company s new line of credit.

Cash used in operating activities was $1.8 million and $33.2 million for the nine months ended October 31, 2009 and 2008, respectively. The cash used in operating activities for the nine months ended October 31, 2009 was primarily the result of the net loss of $30.8 million offset by non-cash charges of $38.2 million. Additionally, cash used in operating activities included increases in accounts receivables of $25.8 million due to the seasonality of the business, offset by a planned reduction of inventory of $16.0 million. The cash used in operating activities for the nine months ended October 31, 2008 was primarily the result of an inventory build of $43.4 million.

Read the The complete ReportMOV is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES, Charles Brandes of Brandes Investment.

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