Movado Lowers Guidance Again After Q3 Sales Dip

Paramus, N.J.—Movado Group had a rough third quarter, with sales falling double digits as it continues to struggle in the United States and Europe.
 
The New Jersey-based company described the retail environment as “challenging” and said it expects that to continue into the fourth quarter, leading the company to lower its full-year outlook once again. 

Despite the challenges, Movado “continued to report strong profitability, maintain a durable balance sheet and generate strong cash flow while investing behind our brands, people and product innovation to position the company to accelerate growth in the future,” CEO Efraim Grinberg said the company’s earnings call Thursday morning.
 
In the third quarter ending Oct. 31, Movado’s net sales fell 11 percent year-over-year to $187.7 million.

For the first nine months of the year, sales were down 12 percent to $493 million.

Movado said sales fell across all points of distribution—at wholesale customers’ brick-and-mortar stores, online, and at Movado-owned stores.

Its stores saw a 6 percent decline in sales in the third quarter and the first nine months, though sales have been improving in the fourth quarter, said Grinberg on the call.

In the U.S., sales were down 12 percent in the quarter and 13 percent for the first nine months of the year.

International sales fell 10 percent in the quarter and in the first nine months.

Gross profit in the third quarter was $102.3 million, or 55 percent of net sales, compared with $121 million, or 57 percent of net sales, in the previous third quarter.

The decline in gross margin was due primarily to unfavorable changes in channel and product mix and the decreased leverage of certain fixed costs on lower sales, said Movado, though it was partially offset by reduced shipping costs and favorable foreign currency exchange rates.

For the first nine months of the year, gross profit was $273.6 million, or 56 percent of net sales, compared with $324.6 million, or 58 percent of net sales in the previous period.

The decline in this period was attributed to similar reasons, as well as the unfavorable impact of foreign currency exchange rates.

Movado’s brand portfolio includes its eponymous brand as well as in-house and licensed brands, like Calvin Klein, Coach and Tommy Hilfiger.

Its licensed brands saw sales sink 13 percent in the quarter, said Grinberg on the call, which the company attributed to increasing inflation pressure on middle-class customers.

The Tommy Hilfiger brand is introducing the new “TH 85” automatic watch.

Automatic watch sales from all brands were popular in the quarter, Movado noted, with sales up 65 percent year-over-year.

Hugo Boss is introducing a new range of watches, including sport watches and the new “Candor” collection, which includes automatic and quartz watches. British actress Suki Waterhouse is starring in the brand’s “Olympia” jewelry collection ads.

For Coach, the new “Elliot” collection is performing well, said the company. It also introduced small, square-shaped watches, which it notes as a trend.

Lacoste’s “12.12” collection is expanding into automatics and introducing a new diver-inspired collection.

The Calvin Klein brand, launched under Movado last year, is featuring model Lila Moss in its advertising campaign. 

The brand has seen success with its “Twisted Bezel” and bangle watch collections, with new bangles being added for the holidays.

For Olivia Burton, its “Grosvenor” collection, new “boyfriend”-size watches, and new “Honeycomb” jewelry collection are doing well.

As for the holiday season, Grinberg said the company is “taking a cautious view” while continuing to bolster its marketing initiatives amid the uncertain retail environment. It will avoid marking down its watches too much. 

Its Movado brand revamp debuted in the fall with a new advertising campaign, which received encouraging feedback. The company said it expects to see a return on its investment this holiday season.

Looking to the year ahead, Movado is lowering its fiscal outlook.

“While we have seen some trend improvement in recent weeks and are beginning to see the impact of our new Movado marketing initiatives, we felt that it was prudent to modify our outlook given the uncertain retail environment and the challenges that retailers are experiencing in the U.S. and even to a greater extent in Europe, our two largest markets,” said Grinberg.

Net sales are forecast to total $665 million to $675 million, down from its prior guidance of $690 million to $700 million.

Gross profit is forecast to be unchanged at 55 percent of net sales, while operating income is expected to be in the range of $51 million to $55 million, down from $62.5 million to $65 million.