Movado Group Inc. (MOV, Financial) filed Quarterly Report for the period ended 2010-04-30.
Movado Group Inc. has a market cap of $199.2 million; its shares were traded at around $11.08 with and P/S ratio of 0.5. MOV is in the portfolios of Chuck Royce of Royce& Associates.
Net sales for the three months ended April 30, 2010 in the U.S. wholesale segment were $30.0 million, above prior year by $7.3 million or 32.1%. Excluding $4.3 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 $11.6 million or 62.7%. (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 $11.6 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 $6.8 million or 74.1%. Net sales in the licensed brands category were above the prior year period by $3.5 million or 57.6%. Net sales in both the accessible luxury and licensed brands categories were favorably impacted 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 then deteriorating economy. Net sales in the luxury category were above the prior year period by $0.5 million.
Selling, General and Administrative (“SG&A”). SG&A expenses for the three months ended April 30, 2010 were $53.6 million as compared to $48.1 million for the three months ended April 30, 2009, representing an increase of $5.5 million or 11.4%. The increase in SG&A expenses included higher marketing expense of $3.4 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. The Company decided that it will be closing its Movado boutique division effective June 30, 2010. As a result of this decision, it was determined that the carrying value of the long-lived assets with respect to this division were not recoverable, resulting in a $3.4 million non-cash impairment charge recorded in SG&A expenses for the three months ended April 30, 2010. Additionally, as a result of the weaker average 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 unfavorably impacted SG&A expenses for the three months ended April 30, 2010 by $2.3 million. These expense increases were partially offset by a reduction in payroll and related expenses of $2.0 million, primarily as a result of management reorganizations, and lower depreciation expense of $1.1 million, primarily resulting from the write-down of long-lived assets at the end of the 2010 fiscal year related to certain Movado boutiques and trade booths for the Basel fair.
Wholesale Operating Loss. Operating losses of $4.0 million and $9.5 million were recorded in the wholesale segment for the three months ended April 30, 2010 and April 30, 2009, respectively. The $5.5 million decrease in losses was the net result of an increase in gross profit of $8.6 million, which was partially offset by an increase in SG&A expenses of $3.1 million. The increase in gross profit of $8.6 million was primarily attributed to the increase in sales year-over-year. The increase in SG&A expenses of $3.1 million was driven by higher marketing expenses of $3.3 million and the unfavorable impact of foreign currency of $2.3 million when compared to the prior year period. These increases were partially offset by a decrease in payroll and related expenses of $1.8 million primarily resulting from management reorganizations and lower depreciation expense of $0.3 million primarily resulting from the write-down of long-lived assets in the 2010 fiscal year related to trade booths for the Basel fair.
Cash used in operating activities was $5.9 million and $11.4 million for the three months ended April 30, 2010 and 2009, respectively. The cash used in operating activities for the three months ended April 30, 2010 was primarily the result of a net loss for the period and an inventory build of $4.4 million, which was partially offset by a reduction in accounts receivable of $7.9 million. The cash used in operating activities for the three months ended April 30, 2009 was primarily the result of a net loss for the period and an inventory build of $9.3 million, which was partially offset by a reduction in accounts receivable of $10.7 million. The inventory build in the current year period reflects the historical pattern of the Company funding its working capital needs based on the seasonal nature of the business. The increase in inventory in the prior 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.
Availability under the Facility is determined by reference to a borrowing base which is based on the sum of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. $10.0 million in availability is blocked until the date (the “Block Release Date”) on which the Borrowers have achieved for a four fiscal quarter period a consolidated fixed charge coverage ratio of at least 1.25 to 1.0 and have domestic EBITDA greater than $10.0 million. The availability block must remain in place for at least one year. The amount of the availability block will be reduced by the amount by which the borrowing base exceeds $55.0 million, up to a maximum reduction of $5.0 million. Availability under the Facility may be further reduced by certain reserves established by the Agent in its good faith credit judgment. As of April 30, 2010, total availability under the Facility, giving effect to the availability block and the $10.0 million outstanding under the Facility and the letters of credit, was $32.1 million.
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Movado Group Inc. has a market cap of $199.2 million; its shares were traded at around $11.08 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 April 30, 2010 were $78.9 million, above prior year by $11.3 million or 16.7%. Net sales for the three months ended April 30, 2009 included $4.3 million of liquidation of excess discontinued inventory. Excluding the liquidation of excess discontinued inventory in the prior year period, net sales for the three months ended April 30, 2010 were above prior year by $15.6 million or 24.6%. The Company is presenting net sales excluding sales of excess discontinued inventory because the Company believes that it is useful to eliminate the effect of this item in order to improve the comparability of the Company s results for the periods presented. As a result of the weaker average U.S. dollar during the three months ended April 30, 2010 when compared to the prior year period, and the resulting translation from the international subsidiaries financial results, the effect of foreign currency favorably impacted net sales in the three months ended April 30, 2010 by $1.4 million.Net sales for the three months ended April 30, 2010 in the U.S. wholesale segment were $30.0 million, above prior year by $7.3 million or 32.1%. Excluding $4.3 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 $11.6 million or 62.7%. (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 $11.6 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 $6.8 million or 74.1%. Net sales in the licensed brands category were above the prior year period by $3.5 million or 57.6%. Net sales in both the accessible luxury and licensed brands categories were favorably impacted 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 then deteriorating economy. Net sales in the luxury category were above the prior year period by $0.5 million.
Selling, General and Administrative (“SG&A”). SG&A expenses for the three months ended April 30, 2010 were $53.6 million as compared to $48.1 million for the three months ended April 30, 2009, representing an increase of $5.5 million or 11.4%. The increase in SG&A expenses included higher marketing expense of $3.4 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. The Company decided that it will be closing its Movado boutique division effective June 30, 2010. As a result of this decision, it was determined that the carrying value of the long-lived assets with respect to this division were not recoverable, resulting in a $3.4 million non-cash impairment charge recorded in SG&A expenses for the three months ended April 30, 2010. Additionally, as a result of the weaker average 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 unfavorably impacted SG&A expenses for the three months ended April 30, 2010 by $2.3 million. These expense increases were partially offset by a reduction in payroll and related expenses of $2.0 million, primarily as a result of management reorganizations, and lower depreciation expense of $1.1 million, primarily resulting from the write-down of long-lived assets at the end of the 2010 fiscal year related to certain Movado boutiques and trade booths for the Basel fair.
Wholesale Operating Loss. Operating losses of $4.0 million and $9.5 million were recorded in the wholesale segment for the three months ended April 30, 2010 and April 30, 2009, respectively. The $5.5 million decrease in losses was the net result of an increase in gross profit of $8.6 million, which was partially offset by an increase in SG&A expenses of $3.1 million. The increase in gross profit of $8.6 million was primarily attributed to the increase in sales year-over-year. The increase in SG&A expenses of $3.1 million was driven by higher marketing expenses of $3.3 million and the unfavorable impact of foreign currency of $2.3 million when compared to the prior year period. These increases were partially offset by a decrease in payroll and related expenses of $1.8 million primarily resulting from management reorganizations and lower depreciation expense of $0.3 million primarily resulting from the write-down of long-lived assets in the 2010 fiscal year related to trade booths for the Basel fair.
Cash used in operating activities was $5.9 million and $11.4 million for the three months ended April 30, 2010 and 2009, respectively. The cash used in operating activities for the three months ended April 30, 2010 was primarily the result of a net loss for the period and an inventory build of $4.4 million, which was partially offset by a reduction in accounts receivable of $7.9 million. The cash used in operating activities for the three months ended April 30, 2009 was primarily the result of a net loss for the period and an inventory build of $9.3 million, which was partially offset by a reduction in accounts receivable of $10.7 million. The inventory build in the current year period reflects the historical pattern of the Company funding its working capital needs based on the seasonal nature of the business. The increase in inventory in the prior 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.
Availability under the Facility is determined by reference to a borrowing base which is based on the sum of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. $10.0 million in availability is blocked until the date (the “Block Release Date”) on which the Borrowers have achieved for a four fiscal quarter period a consolidated fixed charge coverage ratio of at least 1.25 to 1.0 and have domestic EBITDA greater than $10.0 million. The availability block must remain in place for at least one year. The amount of the availability block will be reduced by the amount by which the borrowing base exceeds $55.0 million, up to a maximum reduction of $5.0 million. Availability under the Facility may be further reduced by certain reserves established by the Agent in its good faith credit judgment. As of April 30, 2010, total availability under the Facility, giving effect to the availability block and the $10.0 million outstanding under the Facility and the letters of credit, was $32.1 million.
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