MOV - NYSE

Good day, everybody, and welcome to the Movado Group Third Quarter Fiscal twenty twenty six Earnings Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Alison Melkin of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call today are Efraim Grinberg, Chairman and Chief Executive Officer and Sally DeMarcellus, Executive Vice President and Chief Financial Officer. Before we get started, I would like to remind you of the company's Safe Harbor language. Which I'm sure you're all familiar with. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC which includes today's press release. If any non GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non GAAP financial measure will be provided as supplemental financial information in our press release. Now, I would like to turn the call over to Efraim Grinberg Chairman and Chief Executive Officer of Movado Group.

Thank you, Allison. Good morning, and welcome to Movado Group's third quarter conference call. Joining me today is our Executive Vice President and CFO, Sally DeMarcellus. After I review the highlights of our quarterly results, and the progress we're making against our strategic initiatives, Sally will discuss our financial results for the quarter and year to date in greater detail. We'll then be glad to take your questions. We're pleased with our results for the third quarter. And more importantly with the progress we're making in building our brands and business in a sustainable way. In a globally challenging retail environment, we delivered revenue growth of 3.1% to $186,100,000 Excluding The Middle East, where we have rebuilt our team and are refining our strategy, growth was 5.9%. We plan to return to growth in that region next year. For the quarter, gross margin improved by 80 basis points to 54.3% compared to 53.5% last year. Despite a $4,500,000 and two thirty basis point impact from incremental U. S. Tariffs. After quarter end, The US and Switzerland announced a framework agreement that we expect will lower our overall US tariff rate on Swiss watches to 15%. Roughly one third of the rate we've paid since August. This positive development will allow us to plan effectively for next year and reduce the level of price based mitigation. Benefiting both American consumers and the company. Adjusted operating income grew more than 40% to $12,600,000 For the first nine months, we generated positive operating cash flow of $1,300,000 versus a use of cash of $40,600,000 last year. We ended the quarter with a strong balance sheet dollars 183,900,000.0 in cash and no debt. And our board has approved a quarterly dividend of 35¢ per share. This quarter reflects continued progress on our strategic priorities. Strengthening our brands driving innovation, delivering improving financial results. Our results are a direct reflection of our team's effort, dedication, and commitment. Despite ongoing global economic and political uncertainty, we're increasingly optimistic about the improving dynamics in the fashion and accessible luxury watch categories. Driven by innovation in new shapes, and sizes and growing interest from women and younger consumers. We're also seeing a strong momentum in fashion jewelry. Supported by the growing adoption of jewelry for men. Regionally, we're pleased that The United States returned to 6.9% growth, led by our fashion brand business and our direct to consumer business. 11.9% growth in Movado Company stores, and 12.4% growth on movado.com. Internationally, our business in Europe and Latin America continue to perform strongly partially offset by softer results in The Middle East. From a branding standpoint, we're very pleased with the progress we're making on the Movado brand. Our product innovation this year has resonated strongly. The museum collection performed well, particularly our new BANGL collection. And we're introducing a new style that would allow lab grown diamonds for the holiday season. This collection will be featured prominently in holiday marketing with Jessica Alba and Julianne Moore. For men, we launched the Automatic Museum Imperial, a new hero collection inspired by an iconic design from the late nineteen seventies. Holiday marketing will feature the collection in videos with star running back Christian McCaffrey. In bold, our limited edition collaboration with brand ambassador Ludacris celebrating the twenty fifth anniversary of his debut album, has been a standout. The MVP collection is already sold out. We're also seeing strong growth in Movado Heritage. Inspired by our rich archives. The new 1917 collection based on a square vintage design from that year has launched successfully. Supported by a digital campaign featuring basketball superstar Tyrese Halliburton who is an avid vintage watch collector. Sell through is strong across both men's and women's styles. Our holiday campaign is designed to deepen engagement between our products, ambassadors, and consumers while driving performance at the point of sale through enhanced displays, training, and retail partner support to ensure an elevated in store experience. The Movado brand helped drive double digit growth in both sales and contribution margin in our company stores. Overall, sales in Movado company stores grew 9.4% on a comparable store basis. With Movado brand sales up 17.7%. Over the past year, we've refreshed all Movato display displays and visuals in our stores. Improved assortments, leading to a strong strong results from these initiatives. Among our licensed brands, we saw strong performance in both jewelry and watches, delivering a 6.4% growth overall and a 2.9% on a constant currency basis. Leading the way to Gen

Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the third quarter and year to date period of fiscal twenty twenty six. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the third quarter and first nine months of fiscal twenty twenty six and fiscal twenty twenty five in our press release issued earlier today. Which also includes a reconciliation table of GAAP and non GAAP measures. Turning to a review of the quarter. Overall, we were pleased with our performance for the 2026. Sales were $186,100,000 as compared to $180,500,000 last year. An increase of 3.1%. In constant dollars, the increase in net sales was 1.2%. Net sales increased across licensed brands and company stores, partially offset by a decrease in net sales in owned brands. By geography, US net sales increased nine I'm sorry, U. S. Net sales increased 6.9% as compared to the third quarter of last year. International net sales increased 0.6% with strong performances in certain markets such as Europe, and Latin America, offset by a weaker performance in The Middle East. Which is where we are making progress rebuilding this important market. On a constant currency basis, international net sales decreased 2.5%. Gross profit as a percent of sales was 54.3% compared to 53.5% in the third quarter of last year. The increase in gross margin rate as compared to the same period last year was primarily driven by favorable channel and product mix and the increased leverage driven by certain reduced costs and higher sales. This was partially offset by increased tariffs. Operating expenses were $88,500,000 as compared to $87,900,000 for the third quarter of last year. The $600,000 increase was driven by an increase in performance based compensation partially offset by a planned reduction in marketing expenses. The combination of higher revenue and gross profit more than offset a relatively small increase in operating expenses to deliver a 43.5% increase in operating income. To $12,600,000 This is a $3,800,000 improvement from the $8,800,000 spent in the 2025. We recorded approximately $1,200,000 of other nonoperating income in the 2026 as compared $1,400,000 in the same period of last year. Other nonoperating income is comprised of interest earned on our global cash position. We recorded income tax expense of $3,500,000 in the third quarter fiscal twenty twenty six as compared to $1,500,000 in the third quarter fiscal twenty twenty five. Net income in the third quarter was $10,200,000 or $0.45 per diluted share as compared to $8,500,000 or $0.37 per diluted share in the year ago period. Now turning to our year to date results. Sales for the nine month period ended 10/31/2025 were $479,700,000 as compared to $471,900,000 last year. Total net sales increased 1.7% as compared to the nine month period of fiscal two thousand twenty five. In constant dollars, the increase in net sales for the year to date period was point 6%. U. S. Net sales increased by 1.5% and international net sales increased 1.8%. Gross profit was $260,000,000 or 54.2% of sales. As compared to $254,800,000 or 54% of sales last year. The increase in the gross margin rate for the first nine months was primarily due to favorable channel and product mix partially offset by increased tariff costs, and the unfavorable foreign currency exchange. Operating expenses were $239,500,000 as compared to $241,300,000 for the same period of last year. The decrease was driven by a reduction in marketing expenses partially offset by an increase in performance based compensation. For the nine months ended 10/31/2025, operating income was $20,500,000 compared to $13,500,000 in fiscal twenty twenty five. We reported approximately $4,000,000 of other nonoperating income in the nine month period of fiscal two thousand twenty is primarily comprised of interest earned on our global cash position as compared to $5,200,000 in the same period of last year. Net income was $17,400,000 or $0.77 per diluted share as compared to $13,900,000 or $0.62 per diluted share in the year ago period. Now turning to our balance sheet. Cash at the end of the third quarter was $183,900,000 as compared to $181,500,000 in the same period of last year. Accounts receivable was $118,300,000 up $4,500,000 from the same period of last year, primarily due to foreign currency. Inventory at the end of the quarter was up $20,800,000 or 11.8% above the same period of last year. $5,400,000 of the increase was due to foreign currency. And $6,400,000 of IEPA reciprocal tariffs is included in the inventory on hand at the end of the third quarter. We are comfortable with the composition and balance of our inventory at quarter end. In the first nine months of fiscal twenty twenty six, capital expenditures were $3,500,000 and we repurchased approximately 100,000 shares under our share repurchase program. Of 10/31/2025, we had $48,400,000 remaining under our authorized share repurchase program. Subject to prevailing market conditions and the business environment, we plan to utilize our share repurchase program to offset dilution. As Efra mentioned, there has been a recent trade agreement impacting future Swiss tariff rates, we will adjust our mitigation strategy accordingly. Given the current economic uncertainty and the unpredictable impact of tariff developments, the company is not providing fiscal twenty twenty six outlook. I would now like to open the call up for questions. Thank you. The floor is now open for questions.

Once again, that's star one if you'd like to register a question at this time. Our first question today is coming from Hamed Khorsand of BWS Financial. Please go ahead.

Hi. Good morning. So first, I just wanted to ask you, the success you're seeing with many of your watches and brands, is that coming from your, you know, influencers, your, you know, the spokespeople that you have, or is that because of the design and it's just trending well with with Gen z?

Well, I think it's a combination of both, Amit. Thank you. A good question. And so what you're seeing is is an increased coverage of of these products on social media and obviously, the bulk of our campaigns are also on digital media, and and and so that resonates they're resonating, with with younger, consumers across the spectrum. I think it's also the combination of innovation of new shapes and sizes. And the embrace of younger consumers to the the watch category. And and that's occurring pretty much on a global basis. So it's it's nice to see.

Okay. And then as far as the commentary you made about many of your brands being selling well or being sold out, Do you want the sold out conditions? I mean, would that that impair your sales?

So, I think it's really on some select product families across, I think I mentioned Tommy Hilfiger in some markets and some of our other brands. And and and and I think that that that what you know, this is not a in some cases, we also in the case of the ludicrous watch and Movado, it was a limited edition. So it was planned to be sold out. We still have one model available. Which we expect to sell out in the next few weeks. So I think it's always good to have a balance of supply and demand, and we'll be able to replenish most of the styles into the first early first quarter or the end of the fourth quarter of this year. So I think it's a good balance to have. And part of it is as the category comes back and the innovation has has increased and consumers are drawn back into the category. Obviously, the levels of demand change. And that's also very good to see.

And the success you're seeing in sales, does that change your commentary coming into the calendar year about you know, what your spending levels would be for the the fiscal year?

I think it's really a balance. And our focus has been on improving profitability. And you saw that through the first nine months of this year and particularly in quarter. So it's really we will continue to invest in in in our brand building efforts. But at the same time, we have made it a goal and we're very serious about it. Of of driving improved profitability at the company.

Okay. Thank you.

Once again, that's star one if you'd like to register a question at this time. We're showing no additional questions in queue at this time. I'd like to turn the floor back over to Mr. Grinberg for closing comments.

Well, thank very much all for participating today. I'd like to wish everybody a great Thanksgiving holiday. And, of course, it's the really formal beginning of the holiday shopping period. We'll all be in stores looking to see how how businesses out there, and I'm sure many of you will be as well as, beginning your holiday shopping. So, again, enjoy the holiday, and and thank you very much for being here today.