mov-10q_20180731.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission File Number: 1-16497

 

MOVADO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

New York

 

13-2595932

(State or Other Jurisdiction

of Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

650 From Road, Ste. 375

Paramus, New Jersey

 

07652-3556

(Address of Principal Executive Offices)

 

(Zip Code)

(201) 267-8000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’’ “accelerated filer,’’ “smaller reporting company,’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer         

Accelerated filer                  

Non-accelerated filer (Do not check if a smaller reporting company)  

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of August 21, 2018 were 16,526,932 and 6,623,030, respectively.

 

 

 


MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

July 31, 2018

 

 

 

 

 

Page

Part I

 

Financial Information (Unaudited)

 

3

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at July 31, 2018, January 31, 2018 and July 31, 2017

 

3

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended July 31, 2018 and July 31, 2017

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended July 31, 2018 and July 31, 2017

 

5

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended July 31, 2018 and July 31, 2017

 

6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

Item 4.

 

 

Controls and Procedures

 

33

 

Part II

 

 

Other Information

 

34

 

 

 

Item 1.

 

 

Legal Proceedings

 

34

 

 

 

Item 1A.

 

 

Risk Factors

 

34

 

 

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

Item 6.

 

 

Exhibits

 

36

 

Signature

 

37

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

July 31,

 

 

January 31,

 

 

July 31,

 

 

2018

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

175,583

 

 

$

214,811

 

 

$

162,417

 

Trade receivables, net

 

83,818

 

 

 

83,098

 

 

 

81,513

 

Inventories

 

171,417

 

 

 

151,676

 

 

 

176,967

 

Other current assets

 

37,852

 

 

 

32,015

 

 

 

31,825

 

Total current assets

 

468,670

 

 

 

481,600

 

 

 

452,722

 

Property, plant and equipment, net

 

24,533

 

 

 

24,671

 

 

 

31,412

 

Deferred and non-current income taxes

 

8,074

 

 

 

6,443

 

 

 

24,924

 

Goodwill

 

55,744

 

 

 

60,269

 

 

 

56,116

 

Other intangibles, net

 

19,976

 

 

 

23,124

 

 

 

23,184

 

Other non-current assets

 

50,251

 

 

 

49,273

 

 

 

45,715

 

Total assets

$

627,248

 

 

$

645,380

 

 

$

634,073

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Loans payable to bank, current

$

 

 

$

25,000

 

 

$

5,000

 

Accounts payable

 

34,578

 

 

 

24,364

 

 

 

35,174

 

Accrued liabilities

 

50,054

 

 

 

47,943

 

 

 

44,192

 

Income taxes payable

 

5,996

 

 

 

2,989

 

 

 

1,730

 

Total current liabilities

 

90,628

 

 

 

100,296

 

 

 

86,096

 

Loans payable to bank

 

 

 

 

 

 

 

25,000

 

Deferred and non-current income taxes payable

 

29,718

 

 

 

33,063

 

 

 

7,759

 

Other non-current liabilities

 

43,548

 

 

 

41,686

 

 

 

37,060

 

Total liabilities

 

163,894

 

 

 

175,045

 

 

 

155,915

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares

   issued

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 100,000,000 shares authorized;

   27,643,809, 27,342,802 and 27,291,230 shares issued and outstanding,

   respectively

 

276

 

 

 

273

 

 

 

273

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;

   6,623,030,  6,641,950 and 6,651,950 shares issued and outstanding,

   respectively

 

66

 

 

 

66

 

 

 

67

 

Capital in excess of par value

 

198,246

 

 

 

189,808

 

 

 

187,852

 

Retained earnings

 

396,041

 

 

 

388,739

 

 

 

411,275

 

Accumulated other comprehensive income

 

80,402

 

 

 

100,343

 

 

 

85,478

 

Treasury Stock, 11,117,050, 11,046,671 and 10,972,873 shares,

   respectively, at cost

 

(211,677

)

 

 

(208,894

)

 

 

(206,787

)

Total Movado Group, Inc. shareholders' equity

 

463,354

 

 

 

470,335

 

 

 

478,158

 

Total liabilities and equity

$

627,248

 

 

$

645,380

 

 

$

634,073

 

 

See Notes to Consolidated Financial Statements

 

3


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended July 31,

 

 

Six Months Ended July 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net sales

$

144,093

 

 

$

128,781

 

 

$

271,242

 

 

$

228,046

 

Cost of sales

 

66,259

 

 

 

62,655

 

 

 

125,884

 

 

 

112,783

 

Gross profit

 

77,834

 

 

 

66,126

 

 

 

145,358

 

 

 

115,263

 

Selling, general, and administrative

 

64,974

 

 

 

57,809

 

 

 

124,359

 

 

 

110,594

 

Operating income

 

12,860

 

 

 

8,317

 

 

 

20,999

 

 

 

4,669

 

Interest expense

 

(162

)

 

 

(390

)

 

 

(384

)

 

 

(746

)

Interest income

 

57

 

 

 

129

 

 

 

114

 

 

 

251

 

Income before income taxes

 

12,755

 

 

 

8,056

 

 

 

20,729

 

 

 

4,174

 

Provision for income taxes (Note 10)

 

3,615

 

 

 

2,574

 

 

 

3,474

 

 

 

2,851

 

Net income attributed to Movado Group, Inc.

$

9,140

 

 

$

5,482

 

 

$

17,255

 

 

$

1,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted basic average shares outstanding

 

23,245

 

 

 

23,085

 

 

 

23,172

 

 

 

23,080

 

Net income per share attributed to Movado Group, Inc.

$

0.39

 

 

$

0.24

 

 

$

0.74

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted diluted average shares outstanding

 

23,712

 

 

 

23,218

 

 

 

23,585

 

 

 

23,253

 

Net income per share attributed to Movado Group, Inc.

$

0.39

 

 

$

0.24

 

 

$

0.73

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.20

 

 

$

0.13

 

 

$

0.40

 

 

$

0.26

 

 

See Notes to Consolidated Financial Statements

 

 

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended July 31,

 

 

Six Months Ended July 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Comprehensive income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

9,140

 

 

$

5,482

 

 

$

17,255

 

 

$

1,323

 

Net unrealized gain on investments, net of tax (benefit) of $14,

   $6, $19 and $0, respectively

 

50

 

 

 

13

 

 

 

64

 

 

 

1

 

Net change in effective portion of hedging contracts, net of tax

   (benefit) of $(5), $(53), $(20) and $(79), respectively

 

23

 

 

 

(266

)

 

 

(104

)

 

 

(411

)

Foreign currency translation adjustments

 

(4,675

)

 

 

10,838

 

 

 

(19,901

)

 

 

9,108

 

Total other comprehensive (loss) / income, net of taxes

 

(4,602

)

 

 

10,585

 

 

 

(19,941

)

 

 

8,698

 

Total comprehensive income / (loss) attributed to

   Movado Group, Inc.

$

4,538

 

 

$

16,067

 

 

$

(2,686

)

 

$

10,021

 

 

See Notes to Consolidated Financial Statements

 

 

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended July 31,

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

17,255

 

 

$

1,323

 

Adjustments to reconcile net income to net cash (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

6,495

 

 

 

6,009

 

Transactional losses / (gains)

 

287

 

 

 

(444

)

Write-down of inventories

 

1,113

 

 

 

886

 

Deferred income taxes

 

(2,363

)

 

 

9

 

Stock-based compensation

 

2,823

 

 

 

2,433

 

Cost savings initiative

 

 

 

 

6,419

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

(4,253

)

 

 

(10,267

)

Inventories

 

(25,415

)

 

 

(18,774

)

Other current assets

 

(9,558

)

 

 

(2,237

)

Accounts payable

 

10,955

 

 

 

7,102

 

Accrued liabilities

 

2,134

 

 

 

911

 

Income taxes payable

 

4,074

 

 

 

(3,090

)

Other non-current assets

 

(1,319

)

 

 

(3,250

)

Other non-current liabilities

 

1,903

 

 

 

2,948

 

Net cash provided by / (used in) operating activities

 

4,131

 

 

 

(10,022

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(5,060

)

 

 

(2,005

)

Restricted cash deposits

 

 

 

 

1,018

 

Trademarks and other intangibles

 

(217

)

 

 

(463

)

Acquisition, net of cash acquired

 

 

 

 

(78,991

)

Net cash (used in) investing activities

 

(5,277

)

 

 

(80,441

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Repayments of bank borrowings

 

(25,000

)

 

 

 

Stock options exercised and other changes

 

4,825

 

 

 

(733

)

Dividends paid

 

(9,229

)

 

 

(5,967

)

Stock repurchase

 

(2,057

)

 

 

(1,655

)

Net cash (used in) financing activities

 

(31,461

)

 

 

(8,355

)

Effect of exchange rate changes on cash , cash equivalents, and restricted cash

 

(6,621

)

 

 

4,956

 

Net (decrease) in cash, cash equivalents and restricted cash

 

(39,228

)

 

 

(93,862

)

Cash, cash equivalents, and restricted cash  at beginning of period

 

215,411

 

 

 

256,879

 

Cash, cash equivalents, and restricted cash at end of period

$

176,183

 

 

$

163,017

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

 

 

Cash and cash equivalents

 

175,583

 

 

$

162,417

 

Restricted cash included in other non-current assets

 

600

 

 

 

600

 

Cash, cash equivalents, and restricted cash

$

176,183

 

 

$

163,017

 

 

 

See Notes to Consolidated Financial Statements

 

 

6


 

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (the “2018 Annual Report on Form 10-K”). The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2018 is derived from the audited annual financial statements, which are included in the Company’s 2018 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

 

 

NOTE 1 – RECLASSIFICATIONS

As discussed below in Note 2 Accounting Pronouncements Recently Adopted, certain reclassifications were made to prior years’ financial statement amounts and related note disclosures to conform to fiscal 2019 presentation.

 

 

NOTE 2 – ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several Accounting Standard Updates; hereinafter the collection of revenue guidance is referred to as “ASC 606”.

 

On February 1, 2018, the Company adopted ASC 606 using the modified retrospective method and the Company recognized a reduction of $0.7 million to opening retained earnings as the cumulative effect of adopting the new revenue standard. This adjustment did not have a material impact on the Company’s Consolidated Financial Statements. (See Note 17 - Revenue for additional disclosures required by ASC 606).

Statement of Cash Flows

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) — Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. With this standard, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The Company adopted this guidance on February 1, 2018, and the guidance has been retrospectively applied to all periods presented. The changes to the beginning of period balances presented in the consolidated statement of cash flows are as follows (in thousands): 

 

 

 

January 31, 2018

 

January 31, 2017

 

 

 

 

 

 

 

As previously

 

 

 

 

 

As previously

 

 

 

 

As adjusted

 

 

reported

 

 

As adjusted

 

 

reported

 

Cash and cash equivalents

 

$

214,811

 

$

214,811

 

$

256,279

 

$

256,279

 

Restricted funds included in other non-current

   assets

 

 

600

 

 

 

 

600

 

 

 

Beginning of period balance presented in the

   statement of cash flows

 

$

215,411

 

$

214,811

 

$

256,879

 

$

256,279

 

 

 

 

7


 

NOTE 3 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

 

Level 3 – Unobservable inputs based on the Company’s assumptions.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands) as of July 31, 2018 and 2017 and January 31, 2018:

 

 

 

 

 

Fair Value at July 31, 2018

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

187

 

 

$

 

 

$

 

 

$

187

 

Short-term investment

 

Other current assets

 

 

156

 

 

 

 

 

 

 

 

 

156

 

SERP assets - employer

 

Other non-current assets

 

 

1,262

 

 

 

 

 

 

 

 

 

1,262

 

SERP assets - employee

 

Other non-current assets

 

 

38,970

 

 

 

 

 

 

 

 

 

38,970

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Total

 

 

 

$

40,575

 

 

$

161

 

 

$

 

 

$

40,736

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

38,970

 

 

$

 

 

$

 

 

$

38,970

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

481

 

 

 

 

 

 

481

 

Total

 

 

 

$

38,970

 

 

$

481

 

 

$

 

 

$

39,451

 

 

 

 

 

 

Fair Value at January 31, 2018

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

275

 

 

$

 

 

$

 

 

$

275

 

Short-term investment

 

Other current assets

 

 

164

 

 

 

 

 

 

 

 

 

164

 

SERP assets - employer

 

Other non-current assets

 

 

994

 

 

 

 

 

 

 

 

 

994

 

SERP assets - employee

 

Other non-current assets

 

 

38,577

 

 

 

 

 

 

 

 

 

38,577

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

544

 

 

 

 

 

 

544

 

Total

 

 

 

$

40,010

 

 

$

544

 

 

$

 

 

$

40,554

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

38,577

 

 

$

 

 

$

 

 

$

38,577

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

46

 

 

 

 

 

 

46

 

Total

 

 

 

$

38,577

 

 

$

46

 

 

$

 

 

$

38,623

 

 

 

 

 

 

Fair Value at July 31, 2017

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

313

 

 

$

 

 

$

 

 

$

313

 

Short-term investment

 

Other current assets

 

 

161

 

 

 

 

 

 

 

 

 

161

 

SERP assets - employer

 

Other non-current assets

 

 

1,394

 

 

 

 

 

 

 

 

 

1,394

 

SERP assets - employee

 

Other non-current assets

 

 

34,007

 

 

 

 

 

 

 

 

 

34,007

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

402

 

 

 

 

 

 

402

 

Total

 

 

 

$

35,875

 

 

$

402

 

 

$

 

 

$

36,277

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

34,007

 

 

$

 

 

$

 

 

$

34,007

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

489

 

 

 

 

 

 

489

 

Total

 

 

 

$

34,007

 

 

$

489

 

 

$

 

 

$

34,496

 

 

8


 

The fair values of the Company’s available-for-sale securities are based on quoted prices. The fair value of the short-term investment, which is a guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss franc and Euro exchange rate risks. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates and quoted interest rates.

 

 

NOTE 4 – EQUITY

The components of equity for the six months ended July 31, 2018 and 2017 are as follows (in thousands):

 

 

 

Movado Group, Inc. Shareholders' Equity

 

 

 

 

 

 

 

Common

Stock (1)

 

 

Class A

Common

Stock (2)

 

 

Capital in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balance, January 31, 2018

 

$

273

 

 

$

66

 

 

$

189,808

 

 

$

388,739

 

 

$

(208,894

)

 

$

100,343

 

 

$

470,335

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,255

 

 

 

 

 

 

 

 

 

 

 

17,255

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,229

)

 

 

 

 

 

 

 

 

 

 

(9,229

)

Adoption of new revenue recognition

   Standard ( Topic 606)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(724

)

 

 

 

 

 

 

 

 

 

 

(724

)

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,057

)

 

 

 

 

 

 

(2,057

)

Stock options exercised

 

 

3

 

 

 

 

 

 

 

5,548

 

 

 

 

 

 

 

(726

)

 

 

 

 

 

 

4,825

 

Supplemental executive

   retirement plan

 

 

 

 

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

2,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,823

 

Net unrealized gain on

   investments, net of tax

   of $19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

Net change in effective

   portion of hedging contracts,

   net of tax benefit of $20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104

)

 

 

(104

)

Foreign currency translation

   adjustment (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(19,901

)

 

$

(19,901

)

Balance, July 31, 2018

 

$

276

 

 

$

66

 

 

$

198,246

 

 

$

396,041

 

 

$

(211,677

)

 

$

80,402

 

 

$

463,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock (1)

 

 

Class A

Common

Stock (2)

 

 

Capital in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balance, January 31, 2017

 

$

272

 

 

$

66

 

 

$

185,354

 

 

$

415,919

 

 

$

(204,398

)

 

$

76,780

 

 

$

473,993

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,323

 

 

 

 

 

 

 

 

 

 

 

1,323

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,967

)

 

 

 

 

 

 

 

 

 

 

(5,967

)

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,655

)

 

 

 

 

 

 

(1,655

)

Stock options exercised

 

 

1

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

(734

)

 

 

 

 

 

 

(733

)

Supplemental executive

   retirement plan

 

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

2,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,433

 

Net unrealized gain on

   investments, net of

   tax benefit of $0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Net change in effective

   portion of hedging contracts,

   net of tax of $79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(411

)

 

 

(411

)

Foreign currency translation

   adjustment (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,108

 

 

 

9,108

 

Balance, July 31, 2017

 

$

273

 

 

$

67

 

 

$

187,852

 

 

$

411,275

 

 

$

(206,787

)

 

$

85,478

 

 

$

478,158

 

 

(1)

Each share of common stock is entitled to one vote per share on all matters submitted to a vote of the shareholders.

9


 

(2)

Each share of class A common stock is entitled to 10 votes per share on all matters submitted to a vote of the shareholders. Each holder of class A common stock is entitled to convert, at any time, any and all of such shares into the same number of shares of common stock. Each share of class A common stock is converted automatically into common stock in the event that the beneficial or record ownership of such shares of class A common stock is transferred to any person, except to certain family members or affiliated persons deemed “permitted transferees” pursuant to the Company’s Restated Certificate of Incorporation as amended. The class A common stock is not publicly traded, and consequently, there is currently no established public trading market for these shares.

(3)

The currency translation adjustment is not adjusted for income taxes to the extent that it relates to permanent investments of earnings in international subsidiaries.

 

 

NOTE 5 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company follows accounting guidance which requires disclosure of segment data based on how management makes decisions about allocating resources to segments and measuring their performance.

The Company conducts its business in two operating segments: Wholesale and Retail. The Company’s Wholesale segment includes the designing, manufacturing and distribution of watches of quality owned brands and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Retail segment includes the Company’s retail outlet locations.

The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all non-U.S. Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 32.1%, 11.2%, 8.8% and 6.9%, respectively, of the Company’s total net sales for the three months ended July 31, 2018. For the three months ended July 31, 2017, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 26.4%, 10.2%, 9.3% and 6.1%, respectively, of the Company’s total net sales. 

The Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 32.3%, 11.0%, 9.6% and 7.4%, respectively, of the Company’s total net sales for the six months ended July 31, 2018. For the six months ended July 31, 2017, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 27.8%, 10.4%, 8.9% and 6.1%, respectively, of the Company’s total net sales.

Operating Segment Data for the Three Months Ended July 31, 2018 and 2017 (in thousands):

 

 

 

Net Sales

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

Owned brands category

 

$

51,533

 

 

$

46,339

 

Licensed brands category

 

 

69,722

 

 

 

62,529

 

After-sales service and all other

 

 

1,827

 

 

 

2,150

 

Total Wholesale

 

 

123,082

 

 

 

111,018

 

Retail

 

 

21,011

 

 

 

17,763

 

Consolidated total

 

$

144,093

 

 

$

128,781

 

 

 

 

Operating Income (3) (4)

 

 

 

2018

 

 

2017

 

Wholesale

 

$

8,202

 

 

$

4,797

 

Retail

 

 

4,658

 

 

 

3,520

 

Consolidated total

 

$

12,860

 

 

$

8,317

 

 

Operating Segment Data for the Six Months Ended July 31, 2018 and 2017 (in thousands):

 

 

 

Net Sales

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

Owned brands category

 

$

93,116

 

 

$

79,481

 

Licensed brands category

 

 

135,573

 

 

 

113,899

 

After-sales service and all other

 

 

6,493

 

 

 

4,798

 

Total Wholesale

 

 

235,182

 

 

 

198,178

 

Retail

 

 

36,060

 

 

 

29,868

 

Consolidated total

 

$

271,242

 

 

$

228,046

 

10


 

 

 

 

Operating Income (3) (4)

 

 

 

2018

 

 

2017

 

Wholesale

 

$

14,569

 

 

$

309

 

Retail

 

 

6,430

 

 

 

4,360

 

Consolidated total

 

$

20,999

 

 

$

4,669

 

 

 

 

Total Assets

 

 

 

July 31,

2018

 

 

January 31,

2018

 

 

July 31,

2017

 

Wholesale

 

$

601,788

 

 

$

621,965

 

 

$

609,893

 

Retail

 

 

25,460

 

 

 

23,415

 

 

 

24,180

 

Consolidated total

 

$

627,248

 

 

$

645,380

 

 

$

634,073

 

 

Geographic Location Data for the Three Months Ended July 31, 2018 and 2017 (in thousands):

 

 

 

Net Sales

 

 

Operating Income / (Loss) (3) (4)

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

United States (1)

 

$

59,020

 

 

$

61,845

 

 

$

(2,209

)

 

$

1,401

 

International (2)

 

 

85,073

 

 

 

66,936

 

 

 

15,069

 

 

 

6,916

 

Consolidated total

 

$

144,093

 

 

$

128,781

 

 

$

12,860

 

 

$

8,317

 

 

United States and International net sales are net of intercompany sales of $76.5 million and $62.3 million for the three months ended July 31, 2018 and 2017, respectively.

Geographic Location Data for the Six Months Ended July 31, 2018 and 2017 (in thousands):

 

 

 

Net Sales

 

 

Operating Income / (Loss) (3) (4)

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

United States (1)

 

$

107,862

 

 

$

106,640

 

 

$

(8,191

)

 

$

(8,380

)

International (2)

 

 

163,380

 

 

 

121,406

 

 

 

29,190

 

 

 

13,049

 

Consolidated total

 

$

271,242

 

 

$

228,046

 

 

$

20,999

 

 

$

4,669

 

 

United States and International net sales are net of intercompany sales of $141.1 million and $124.6 million for the six months ended July 31, 2018 and 2017, respectively.

 

(1)

The United States operating (loss) included $10.6 million and $7.2 million of unallocated corporate expenses for the three months ended July 31, 2018 and 2017, respectively. The United States operating loss included $20.7 million and $13.4 million of unallocated corporate expenses for the six months ended July 31, 2018 and 2017, respectively.

(2)

The International operating income included $11.3 million and $7.9 million of certain intercompany profits related to the Company’s supply chain operations for the three months ended July 31, 2018 and 2017, respectively. The International operating income included $22.3 million and $15.5 million of certain intercompany profits related to the Company’s supply chain operations for the six months ended July 31, 2018 and 2017, respectively.

(3)

In the International location of the Wholesale segment, for the three months ended July 31,2017, operating income included a pre-tax charge of $0.1 million, as a result of the Company’s cost savings initiatives. In the United States and International locations of the Wholesale segment, for the six months ended July 31, 2017, operating (loss) / income included a pre-tax charge of $3.8 million and $2.6 million, respectively, as a result of the Company’s cost savings initiatives.

(4)

In the International locations of the Wholesale segment, for the three months and six months ended July 31, 2018, operating income included $0.7 and $1.5 million, of expenses primarily related to the amortization of acquired intangible assets, as a result of the Company’s acquisition of the Olivia Burton brand. In addition, in the United Sates locations of the Wholesale segment, for the three months and six months ended July 31, 2018, operating income included $1.0 million, of expenses primarily associated with the pending acquisition of MVMT. In the United States and International locations of the Wholesale segment, for the three months and the six months ended July 31, 2017, operating income / (loss) included a pre-tax charge of $0.2 and $4.3 million, respectively, of expenses related to transaction costs and adjustments in acquisition accounting, as a result of the Company’s acquisition of the Olivia Burton brand.     

11


 

 

 

 

Total Assets

 

 

 

July 31,

2018

 

 

January 31,

2018

 

 

July 31,

2017

 

United States

 

$

206,346

 

 

$

188,346

 

 

$

216,929

 

International

 

 

420,902

 

 

 

457,034

 

 

 

417,144

 

Consolidated total

 

$

627,248

 

 

$

645,380

 

 

$

634,073

 

 

 

 

Property, Plant and Equipment, Net

 

 

 

July 31,

2018

 

 

January 31,

2018

 

 

July 31,

2017

 

United States

 

$

16,771

 

 

$

16,570

 

 

$

17,521

 

International

 

 

7,762

 

 

 

8,101

 

 

 

13,891

 

Consolidated total

 

$

24,533

 

 

$

24,671

 

 

$

31,412

 

 

 

NOTE 6 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

July 31,

2018

 

 

January 31,

2018

 

 

July 31,

2017

 

Finished goods

 

$

129,587

 

 

$

112,712

 

 

$

132,659

 

Component parts

 

 

39,880

 

 

 

37,404

 

 

 

41,932

 

Work-in-process

 

 

1,950

 

 

 

1,560

 

 

 

2,376

 

 

 

$

171,417

 

 

$

151,676

 

 

$

176,967

 

 

 

NOTE 7 – DEBT AND LINES OF CREDIT

On January 30, 2015, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (collectively, the “Borrowers”), each a wholly-owned domestic subsidiary of the Company, entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) including a $15.0 million letter of credit sub-facility that matures on January 30, 2020, with provisions for uncommitted increases of up to $50.0 million in the aggregate, subject to customary terms and conditions. In connection with the Credit Agreement, the Borrowers also entered into a Security and Pledge Agreement dated as of January 30, 2015 in favor of the Agent (the “Security Agreement”).

As of July 31, 2018, there were no loans drawn under the Facility. Additionally, approximately $0.3 million in letters of credit, which were outstanding under the Borrower’s pre-existing asset-based revolving credit facility that was concurrently terminated when the Credit Agreement became effective, are deemed to be issued and outstanding under the Facility. As of July 31, 2018, availability under the Facility was approximately $99.7 million.

Borrowings under the Facility bear interest at rates selected periodically by the Company at LIBOR plus a spread ranging from 1.25% to 1.75% per annum, based on the Company’s consolidated leverage ratio, or at a base rate plus a spread ranging from 0.25% to 0.75% per annum based on the Company’s consolidated leverage ratio (as defined in the Credit Agreement). The Company has also agreed to pay certain fees and expenses and to provide certain indemnities, all of which are customary for such financings.

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower. In addition, pursuant to the Security Agreement, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the Borrowers’ assets other than certain excluded assets. The Security Agreement contains representations, warranties and covenants, which are customary for pledge and security agreements of this type, relating to the creation and perfection of security interests in favor of the Agent over various categories of the Borrowers’ assets.

12


 

The Credit Agreement contains affirmative and negative covenants binding on the Borrowers and their subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions).

The Borrowers are also subject to a minimum consolidated EBITDA (as defined in the Credit Agreement) test of $50.0 million, measured at the end of each fiscal quarter based on the four most recent fiscal quarters and a consolidated leverage ratio (as defined in the Credit Agreement) covenant not to exceed 2.50 to 1.00, measured as of the last day of each fiscal quarter. As of July 31, 2018, the Company was in compliance with its covenants under the Credit Agreement.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, failure of any representation or warranty to be true in any material respect when made or deemed made, violation of covenants, cross default with material indebtedness, material judgments, material ERISA liability, bankruptcy events, asserted or actual revocation or invalidity of the loan documents, and change of control.

As of July 31, 2018, Bank of America, N.A. issued two irrevocable standby letters of credit in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada. As of July 31, 2018, the Company had outstanding letters of credit totaling $0.3 million with expiration dates through May 31, 2019.

A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of July 31, 2018, and 2017, these lines of credit totaled 6.5 million Swiss francs for both periods, with a dollar equivalent of $6.6 million and $6.7 million, respectively. As of July 31, 2018, and 2017, there were no borrowings against these lines. As of July 31, 2018, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million, in various foreign currencies, of which $0.6 million is a restricted deposit as it relates to lease agreements. As of July 31, 2017, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million in various foreign currencies, of which $0.6 million is a restricted deposit as it relates to lease agreements.

 

 

NOTE 8 – EARNINGS PER SHARE

The Company presents net income per share on a basic and diluted basis. Basic earnings per share are computed using weighted-average shares outstanding during the period. Diluted earnings per share are computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.

The weighted-average number of shares outstanding for basic earnings per share was approximately 23,245,000 and 23,085,000 for the three months ended July 31, 2018 and 2017, respectively. For the three months ended July 31, 2018 and 2017, the number of shares outstanding for diluted earnings per share increased by approximately 467,000 and 133,000, respectively, due to potentially dilutive common stock equivalents issuable under the Company’s stock compensation plans and SERP.

For the three months ended July 31, 2018 and 2017, approximately nil and 810,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

The weighted-average number of shares outstanding for basic earnings per share was approximately 23,172,000 and 23,080,000 for the six months ended July 31, 2018 and 2017, respectively. For the six months ended July 31, 2018 and 2017, the number of shares outstanding for diluted earnings per share increased by approximately 413,000 and 173,000, respectively, due to potentially dilutive common stock equivalents issuable under the Company’s stock compensation plans and SERP.

For the six months ended July 31, 2018 and 2017, approximately 92,000 and 807,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

 

 

13


 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company has minimum commitments related to the Company’s license agreements and endorsement agreements with brand ambassadors. The Company sources, distributes, advertises and sells watches pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under the license agreements are generally based on a stipulated percentage of revenues, although most of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms and some have additional renewal options, provided that minimum sales levels are achieved. Additionally, the license agreements require the Company to pay minimum annual advertising amounts.

Due to the enactment of the Tax Cuts and Jobs Act (“2017 Tax Act”), the Company estimated a provisional obligation associated with the Transition Tax to be $28.2 million, which will be paid in installments over eight years. This provisional amount, as well as the current estimated timing of payments, is subject to change based on additional guidance from and interpretations by U.S. regulatory and standard-setting bodies and changes in assumptions.

The Company believes that income tax reserves are adequate; however, amounts asserted by taxing authorities could be greater or less than amounts accrued and reflected in the consolidated balance sheet. Accordingly, the Company could record adjustments to the amounts for federal, state, and foreign liabilities in the future as the Company revises estimates or settles or otherwise resolves the underlying matters. In the ordinary course of business, the Company may take new positions that could increase or decrease unrecognized tax benefits in future periods.

During the three months ended July 31, 2017, the Company released to cash $1.0 million in restricted cash deposits that were previously recorded in other current assets on the Company’s Consolidated Balance Sheet, related to a certain vendor agreement.

In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply approximately $5.1 million in underpaid duties over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. On February 24, 2017, the Company provided U.S. Customs with supplemental analyses and information supporting the Company’s historical allocation formulas and is in the process of providing additional information for U.S. Customs’ review. Although the Company disagrees with U.S. Customs’ position, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S. Customs to reach a mutually-satisfactory resolution.

The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a statement that such an estimate cannot be made. As of July 31, 2018, the Company is party to legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition, future results of operations beyond the amounts accrued, or cash flows.

 

 

 

NOTE 10 – INCOME TAXES

On December 22, 2017, the 2017 Tax Act was signed into law, which significantly changed U.S. corporate income tax laws by, among other things, lowering the corporate tax rate from 35% to 21%, limiting the deductibility of interest expense and executive compensation, establishing a territorial tax system, and imposing a one-time mandatory deemed Transition Tax on undistributed foreign earnings which have not been previously taxed.

14


 

As of July 31, 2018, the amounts recorded in fiscal year 2018 related to the 2017 Tax Act are unchanged and remain provisional for the Transition Tax, the remeasurement of deferred taxes, and our assessment of permanently reinvested earnings. These estimates are subject to revision due to changes in the Company’s analysis and assumptions related to certain matters, such as updates to estimates and amounts related to the earnings and profits and tax pools of certain subsidiaries and the Company’s indefinite reinvestment assertion, including the measurement of deferred taxes on foreign unremitted earnings. The estimated impact of the 2017 Tax Act is also subject to change as a result of additional guidance from, and interpretations by, U.S. regulatory and standard-setting bodies, as well as state tax conformity to federal tax law. The Company expects to complete its assessment of these items within the measurement period, and any adjustments to the provisional amounts initially recorded will be included as an adjustment to income tax expense or benefit in the period in which the amounts are determined.

The Company continues to evaluate the impact of the global intangible low-tax income (“GILTI”) provision within the 2017 Tax Act which would require the current inclusion in federal taxable income, earnings of certain foreign controlled corporations. GILTI is subject to continuing regulatory interpretation by the U.S. Internal Revenue Service (“IRS”) and while the Company has included an estimate of GILTI in its estimated effective tax rate for fiscal year 2019, it has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to reverse as GILTI or whether the Company will account for GILTI as period costs if and when incurred. Adjustments related to the amount of GILTI recorded in its consolidated financial statements may be required based on the outcome of this election. The Company will continue to evaluate these provisions and elect an accounting policy within the measurement period.

The Company recorded income tax expense of $3.6 million and $2.6 million for the three months ended July 31, 2018 and 2017, respectively.

The effective tax rate was 28.3% and 32.0% for the three months ended July 31, 2018 and 2017, respectively. The change in the effective tax rate was primarily due to changes in jurisdictional earnings, partially offset by no tax benefit being recognized on losses incurred by certain foreign operations.       

The Company recorded income tax expense of $3.5 million and $2.9 million for the six months ended July 31, 2018 and 2017, respectively.

The effective tax rate was 16.8% and 68.3% for the six months ended July 31, 2018 and 2017, respectively. The change in the effective tax rate was primarily due to excess tax benefits related to stock-based compensation being recognized in the current period as compared to excess tax deficiencies recognized in the first quarter of last year, the release of a valuation allowance against certain foreign deferred tax assets, and changes in jurisdictional earnings.

The effective tax rate for the three months ended July 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to no tax benefit being recognized on losses incurred by certain foreign operations, partially offset by foreign profits being taxed in lower taxing jurisdictions.  The effective tax rate for the six months ended July 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to the release of a valuation allowance against certain foreign deferred tax assets and foreign profits being taxed in lower taxing jurisdictions.

The effective tax rate for the three and six months ended July 31, 2017 differs from the U.S. statutory tax rate of 35.0% primarily due to foreign profits being taxed in lower taxing jurisdictions and acquisition costs related to the acquisition of the Olivia Burton brand (see Note 16 – Acquisitions for additional disclosures). The effective tax rate for the six months ended July 31, 2017 also includes an increase primarily due to the adoption of ASU 2016-09 and no tax benefit being recognized on losses incurred by certain foreign operations.

 

 

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS

As of July 31, 2018, the Company’s entire net forward contracts hedging portfolio consisted of 30.0 million Swiss francs equivalent, 11.5 million Euros equivalent and 0.8 million British Pounds equivalent, with various expiry dates ranging through January 1, 2019.  

15


 

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivatives (in thousands):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance

Sheet

Location

 

July 31,

2018

Fair

Value

 

 

January 31,

2018

Fair

Value

 

 

July 31,

2017

Fair

Value

 

 

Balance

Sheet

Location

 

July 31,

2018

Fair

Value

 

 

January 31,

2018

Fair

Value

 

 

July 31,

2017

Fair

Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current

Assets

 

$

 

 

$

544

 

 

$

402

 

 

Accrued

Liabilities

 

$

481

 

 

$

2

 

 

$

25

 

Total Derivative Instruments

 

 

 

$

 

 

$

544

 

 

$

402

 

 

 

 

$

481

 

 

$

2

 

 

$

25

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance

Sheet

Location

 

July 31,

2018

Fair

Value

 

 

January 31,

2018

Fair

Value

 

 

July 31,

2017

Fair

Value

 

 

Balance

Sheet

Location

 

July 31,

2018

Fair

Value

 

 

January 31,

2018

Fair

Value

 

 

July 31,

2017

Fair

Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current

Assets

 

$

161

 

 

$

 

 

$

 

 

Accrued

Liabilities

 

$

 

 

$

44

 

 

$

464

 

Total Derivative Instruments

 

 

 

$

161

 

 

$

 

 

$

 

 

 

 

$

 

 

$

44

 

 

$

464

 

 

As of July 31, 2018 and 2017, the balance of deferred net gains on derivative financial instruments documented as cash flow hedges included in accumulated other comprehensive income (“AOCI”) was $0.1 and $0.4 million, net of tax benefit of an immaterial amount and $0.1 million, respectively. The maximum length of time the Company hedges its exposure to the fluctuation in future cash flows for forecasted transactions is 24 months. For the three and six months ended July 31, 2018, the Company reclassified from AOCI to earnings $0.3 million of net gain, net of tax benefit of $0.1 for both periods, respectively. For the three and six months ended July 31, 2017, the Company reclassified from AOCI to earnings $0.4 million of net loss, net of tax benefit of $0.1 million, for both periods, respectively.  

  

 

NOTE 12- ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income consisted of the following (in thousands):

 

 

 

Currency

Translation

Adjustments

 

 

Available-for-sale securities

 

 

Hedging

Contracts

 

 

Total

 

Balance, January 31, 2018

 

$

100,190

 

 

$

191

 

 

$

(38

)

 

$

100,343

 

Other comprehensive (loss) / income before

   reclassifications

 

 

(19,901

)

 

 

64

 

 

 

(380

)

 

$

(20,217

)

Amounts reclassified from accumulated other

   comprehensive income (1)

 

 

 

 

 

 

 

 

 

 

276

 

 

$

276

 

Net current-period other comprehensive (loss) / income

 

 

(19,901

)

 

 

64

 

 

 

(104

)

 

 

(19,941

)

Balance, July 31, 2018

 

$

80,289

 

 

$

255

 

 

$

(142

)

 

$

80,402

 

 

 

 

Currency

Translation

Adjustments

 

 

Available-for-sale securities

 

 

Hedging

Contracts

 

 

Total

 

Balance, January 31, 2017

 

$

76,569

 

 

$

197

 

 

$

14

 

 

$

76,780

 

Other comprehensive income before

   reclassifications

 

 

9,108

 

 

 

1

 

 

 

31

 

 

$

9,140

 

Amounts reclassified from accumulated other

   comprehensive income (1)

 

 

 

 

 

 

 

 

(442

)

 

$

(442

)

Net current-period other comprehensive income

 

 

9,108

 

 

 

1

 

 

 

(411

)

 

 

8,698

 

Balance, July 31, 2017

 

$

85,677

 

 

$

198

 

 

$

(397

)

 

$

85,478

 

 

(1)

Amounts reclassified to earnings in the Consolidated Statements of Operations.

 

 

16


 

NOTE 13 – TREASURY STOCK

On August 29, 2017, the Board approved a share repurchase program under which the Company is authorized to purchase up to $50.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. The Company may purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. This authorization expires on August 29, 2020, and replaced a prior share repurchase program approved by the Board on March 31, 2016 under which the Company was authorized to purchase up to $50.0 million of its outstanding common stock from time to time and under which approximately $5.5 million had been repurchased. During the six months ended July 31, 2018, under the new share repurchase program, the Company repurchased a total of 52,400 shares of its common stock at a total cost of approximately $2.1 million, or an average of $39.25 per share. During the six months ended July 31, 2017, under the previous share repurchase program, the Company repurchased a total of 71,507 shares of its common stock at a total cost of approximately $1.7 million or an average cost of $23.15 per share, which included 20,000 shares repurchased from the Movado Group Foundation at a total cost of approximately $0.5 million or an average of $22.90 per share.

There were 17,979 and 32,045 shares of common stock repurchased during the six months ended July 31, 2018 and 2017, respectively, as a result of the surrender of shares in connection with the vesting of certain stock awards. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company to fund the payment of such taxes.

 

 

NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS

On August 28, 2017, FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” which expands an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allows for a simplified approach for fair value hedging of interest rate risk. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The new guidance also simplifies the hedge documentation and effectiveness assessment requirements. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, with early adoption permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The Company is evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

On February 25, 2016, FASB issued ASU 2016-02, “Leases,” which requires lessees to recognize most leases on the balance sheet. This change is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures and will result in a material increase to the Company’s total assets and liabilities through recognition of right-of-use assets and related lease liabilities. The Company is analyzing the impact of the adoption of this guidance on the Company’s consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting.

On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.  For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, with early adoption permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date.  The Company is evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

 

 

17


 

NOTE 15 – COST SAVINGS INITIATIVES

As a result of actions taken by the Company in fiscal 2018 to better align its global infrastructure with the current business environment by consolidating certain operations and streamlining functions to reduce costs and improve profitability, the Company recorded $13.6 million of pre-tax expenses primarily for severance and payroll related, other and occupancy charges, predominantly impacting the Company’s North American and Swiss operations.  

A summary roll-forward of costs related to the cost savings initiatives is as follows (in thousands):

 

 

 

Balance at

January 31, 2018

 

 

Cash

payments

 

 

Foreign

exchange

 

 

Balance in

Accrued Liabilities at

July 31, 2018

 

Severance and payroll related

 

$

931

 

 

$

(601

)

 

$

 

 

$

330

 

Other

 

 

919

 

 

 

(181

)

 

 

(50

)

 

 

688

 

Occupancy charges

 

 

74

 

 

 

(22

)

 

 

(4

)

 

 

48

 

Total

 

$

1,924

 

 

$

(804

)

 

$

(54

)

 

$

1,066

 

 

NOTE 16 – ACQUISITIONS

On July 3, 2017, the Company, through a wholly-owned U.K. subsidiary, acquired JLB Brands Ltd., the owner of the Olivia Burton brand, one of the United Kingdom’s fastest growing fashion watch and jewelry brands, for $78.2 million, or £60.0 million in cash, subject to working capital and other closing adjustments. After giving effect to the closing adjustments, the purchase price was $79.0 million, or £60.7 million, net of cash acquired of approximately $5.9 million, or £4.5 million. The acquisition was funded with cash on hand of the Company’s non-U.S. subsidiaries, and no debt was assumed in the acquisition. The acquisition adds a new brand with significant global growth potential to the Company’s portfolio.

The results of the JLB Brands Ltd.’s operations have been included in the consolidated financial statements since the date of acquisition within the International location of the Wholesale segment. In the International locations of the Wholesale segment, for the three and six months ended July 31, 2018, operating income included $0.7 million and $1.5 million, respectively, of expenses primarily related to the amortization of acquired intangible assets, as a result of the Company’s acquisition of the Olivia Burton brand.

The acquisition was accounted for in accordance with FASB Topic ASC 805 (“Business Combinations”), which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

The operating results of the Olivia Burton brand have been included in the Company’s Consolidated Financial Statements beginning July 3, 2017.

The following table provides the Company’s unaudited pro forma net sales, net income and net income per basic and diluted common share as if the results of operations of the Olivia Burton brand had been included in the Company’s operations commencing on February 1, 2017, based on available information relating to operations of the Olivia Burton brand. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by the Company had the Olivia Burton brand acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.

 

 

 

Three Months Ended July 31,

 

 

Six Months Ended July 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

(In thousands, except per share data)

 

(Unaudited)

 

 

(Unaudited)

 

Net sales

 

$

144,093

 

 

$

136,026

 

 

$

271,242

 

 

$

239,309

 

Net income

 

$

9,140

 

 

$

9,957

 

 

$

17,255

 

 

$

6,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributed to Movado Group, Inc.

 

$

0.39

 

 

$

0.43

 

 

$

0.74

 

 

$

0.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributed to Movado Group, Inc.

 

$

0.39

 

 

$

0.43

 

 

$

0.73

 

 

$

0.27

 

18


 

 

The change in the carrying amount of the Company’s goodwill, which is included in the International location of the Wholesale segment, is as follows (in thousands):

 

 

 

Total

 

Balance, January 31, 2018

 

$

60,269

 

Foreign exchange impact

 

 

(4,525

)

Balance, July 31, 2018

 

$

55,744

 

 

Trade name and other intangible assets consist of the following (in thousands):

 

 

 

As of

 

 

 

July 31, 2018

 

 

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Foreign

exchange

 

 

Net

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade name

 

$

12,766

 

 

$

(1,428

)

 

$

132

 

 

$

11,470

 

Customer relationships

 

 

8,598

 

 

 

(1,603

)

 

 

104

 

 

 

7,099

 

Total intangible assets

 

$

21,364

 

 

$

(3,031

)

 

$

236

 

 

$

18,569

 

 

Estimated amortization expense for the next five years is: $1.4 million for the remaining six months of fiscal 2019, $12.8 million in fiscal years 2020 through 2024 and $4.4 million in total in the years thereafter at prevailing foreign exchange rates.    

 

 

NOTE 17 – REVENUE

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several Accounting Standard Updates; hereinafter the collection of revenue guidance is referred to as “ASC 606”.

On February 1, 2018, the Company adopted ASC 606 using the modified retrospective method and recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening retained earnings.

Under the modified retrospective method, the Company recognized a reduction of $0.7 million to opening retained earnings as the cumulative effect of adopting the new revenue standard. This adjustment did not have a material impact on the Company’s Consolidated Financial Statements. Results for reporting periods beginning after February 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted.  

The impact of the adoption of the standard on the Company’s July 31, 2018 Consolidated Balance Sheet and for the three and six months ended July 31, 2018 Consolidated Statement of Operations were as follows (in thousands):

 

 

 

As of July 31, 2018

 

 

 

As reported

 

 

Balances Without

Adoption

 

 

Impact of

Adoption

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade Receivables, net

 

$

83,818

 

 

$

82,760

 

 

$

1,058

 

Inventories

 

$

171,417

 

 

$

171,965

 

 

$

(548

)

Deferred and non-current income taxes

 

$

8,074

 

 

$

8,099

 

 

$

(25

)

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

$

50,054

 

 

$

49,893

 

 

$

161

 

Income taxes payable

 

$

5,996

 

 

$

5,957

 

 

$

39

 

Deferred and non-current income taxes

 

$

29,718

 

 

$

29,706

 

 

$

12

 

19


 

 

 

 

Three months ended July 31, 2018

 

 

 

As reported

 

 

Amounts Without

Adoption

 

 

Impact of

Adoption

 

Net sales

 

$

144,093

 

 

$

145,210

 

 

$

(1,117

)

Gross profit

 

$

77,834

 

 

$

78,323

 

 

$

(488

)

Net income

 

$

9,140

 

 

$

9,384

 

 

$

(244

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended July 31, 2018

 

 

 

As reported

 

 

Amounts Without

Adoption

 

 

Impact of

Adoption

 

Net sales

 

$

271,242

 

 

$

270,184

 

 

$

1,058

 

Gross profit

 

$

145,358

 

 

$

144,848

 

 

$

510

 

Net income

 

$

17,255

 

 

$

16,982

 

 

$

273

 

 

The above adoption impact relates principally to timing of the recognition of markdowns and returns in the wholesale segment.

Revenue Recognition

As presented in the disaggregated revenue table below, wholesale revenue is recognized and recorded when a contract is in place, obligations under the terms of a contract with the customer are satisfied, control is transferred to the customer and is measured as the ultimate amount of consideration the Company expects to receive in exchange for transferring goods including variable consideration.  Direct to consumer and after-sales service revenue is recognized at time of register receipt or delivery to customer. The Company records estimates of variable consideration, which includes sales returns, markdowns, volume-based programs and sales and cash discount allowances as a reduction of revenue in the same period that the sales are recorded. These estimates are based upon the expected value method considering all reasonably available information including historical analysis, customer agreements and/or currently known factors that arise in the normal course of business. Returns, discounts and allowances have historically been within the Company’s expectations and the provisions established. The future provisional rates may differ from those experienced in the past. The Company considers transfer of control to take place either when the goods ship or when goods are delivered depending on the shipping terms in the contract. Factors considered in the transfer of control include the right to payment, transfer of legal title, physical possession and customer acceptance of the goods and whether the significant risks and rewards for the goods belong with the customer.  Taxes imposed by governmental authorities on the Company's revenue-producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.

The Company’s sale of smart watches contains multiple performance obligations. The Company allocates revenue to each performance obligation using the relative standalone selling price method. The Company determines the standalone selling prices based on the prices charged to customers. Amounts allocated to the delivered smart watch collections and the related essential software are recognized at the time of sale. Amounts allocated to the cloud service and app updates are deferred and recognized on a straight-line basis over the estimated two-year period the updates are expected to be provided. The Company’s smart watch collections were available in limited quantities and in limited distribution, and, as a result, these deferred amounts were immaterial to all periods presented.

The Company has considered each transaction to sell goods as separate and distinct, with no additional promises made.  The Company uses the understanding of what the customer expects to receive as the final product to determine whether goods or services should be combined and accounted for as a single performance obligation.  The Company does not incur significant costs to obtain or fulfill its contracts.

Practical Expedients and Exemptions

The Company does not consider the effects of a financing component for contracts because the length of time is one year or less, between when the Company transfers goods and when the customer is expected to pay.

The Company’s shipping costs are sometimes paid by the customer, while other times, the shipping costs are included in the sales price for the watches. The Company does not deem shipping as a promised service to the customer because shipping is a fulfillment activity as part of the sale of goods.

20


 

Revenue

The following table presents the Company’s net sales disaggregated by customer type. Sales and usage-based taxes are excluded from net sales (in thousands).

 

 

 

Three months ended

 

 

Six months ended

 

 

 

July 31, 2018

 

 

July 31, 2018

 

Customer Type

 

 

 

 

 

 

 

 

Wholesale

 

$

117,735

 

 

$

223,709

 

Direct to consumer

 

 

25,329

 

 

 

45,111

 

After-sales service

 

 

1,029

 

 

 

2,422

 

Consolidated

 

$

144,093

 

 

$

271,242

 

 

The Company’s revenue from contracts with customers is recognized at a point in time. The Company’s net sales disaggregated by geography are based on the location of the Company’s customer, (see Note 5 Segment and Geographic Information).

Wholesale Revenue

The Company’s wholesale revenue consists primarily of revenues from independent distributors, and department, chain and independent jewelry stores. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied, and control is transferred to the customer. Wholesale revenue is measured as the amount of consideration the Company ultimately expects to receive in exchange for transferring goods. Wholesale revenue is included entirely within the Wholesale Segment (see Note 5 Segment and Geographic Information), consistent with how management makes decisions regarding the allocation of resources and performance measurement.

Direct to Consumer Revenue

The Company’s direct to consumer revenue primarily consists of revenues from the Company’s outlet stores, concession stores, ecommerce, and consumer repairs. Revenue is recognized as the end consumer obtains delivery of the merchandise. Direct to Consumer revenue derived from concession stores and ecommerce is included within the Wholesale Segment; revenue derived from outlet stores is included within the Retail Segment (see Note 5 Segment and Geographic Information). Direct to Consumer revenue is determined based on the type of customer and may be included in either the Wholesale or Retail Segments based on how the Company makes decisions about the allocation of resources and performance measurement.

After-sales service

All watches sold by the Company come with limited warranties covering the movement against defects in material workmanship. The Company does not sell warranties separately.

The Company’s after-sales service revenues consists of out of warranty service provided to wholesale customers and authorized third party repair centers, and sale of watch parts. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied, control is transferred to the customer and is measured as the amount of consideration the Company ultimately expects to receive in exchange for transferring goods. Revenue from after sales service, including consumer repairs are included entirely within the Wholesale Segment, consistent with how management makes decisions about the allocation of resources and performance measurement.

 

 

NOTE 18 – SUBSEQUENT EVENT

 

On August 15, 2018, the Company announced that it has entered into a definitive agreement to acquire MVMT Watches Inc., the owner of MVMT ("MVMT"), a global aspirational lifestyle brand. The purchase price is comprised of an initial payment of approximately $100 million, or approximately $85 million net of tax benefits that are anticipated to be generated from the acquisition, and two future contingent payments that combined could total up to an additional $100 million before tax benefits. The exact amount of the future payments will be determined by MVMT's future financial performance with no minimum required future payment. The acquisition will be funded through cash and borrowings under the Company's revolving credit facility. The purchase price will be subject to working capital and other closing adjustments. The closing of the acquisition is subject to customary closing conditions, and is expected to close on or about October 1, 2018.  

 

21


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q, including, without limitation, statements under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as statements in future filings by the Company with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases and oral statements made by or with the approval of an authorized executive officer of the Company, which are not historical in nature, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, forecasts and projections about the Company, its future performance, the industry in which the Company operates and management’s assumptions. Words such as “expects”, “anticipates”, “targets”, “goals”, “projects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “should” and variations of such words and similar expressions are also intended to identify such forward-looking statements. The Company cautions readers that forward-looking statements include, without limitation, those relating to the Company’s future business prospects, projected operating or financial results, revenues, working capital, liquidity, capital needs, plans for future operations, expectations regarding capital expenditures, operating efficiency initiatives and other items, cost savings initiatives, and operating expenses, effective tax rates, margins, interest costs, and income as well as assumptions relating to the foregoing. Forward-looking statements are subject to certain risks and uncertainties, some of which cannot be predicted or quantified. Actual results and future events could differ materially from those indicated in the forward-looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company’s reports filed with the SEC, including, without limitation, the following: the satisfaction of the conditions to the closing of the Company’s pending acquisition of MVMT Watches Inc., general economic and business conditions, which may impact disposable income of consumers in the United States and the other significant markets (including Europe) where the Company’s products are sold, uncertainty regarding such economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible terrorist attacks, natural disasters, the stability of the European Union (including the impact of the June 23, 2016 referendum advising that the United Kingdom exit from the European Union) and defaults on or downgrades of sovereign debt and the impact of any of those events on consumer spending, changes in consumer preferences and popularity of particular designs, new product development and introduction, the ability of the Company to successfully implement its business strategies, competitive products and pricing, the impact of “smart” watches and other wearable tech products on the traditional watch market, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier’s inability to fulfill the Company’s orders, the loss of or curtailed sales to significant customers, the Company’s dependence on key employees and officers, the ability to successfully integrate the operations of acquired businesses (including the Olivia Burton and MVMT brands) without disruption to other business activities, the possible impairment of acquired intangible assets including goodwill if the carrying value of any reporting unit were to exceed its fair value, the continuation of the company’s major warehouse and distribution centers, the continuation of licensing arrangements with third parties, losses possible from pending or future litigation, the ability to secure and protect trademarks, patents and other intellectual property rights, the ability to lease new stores on suitable terms in desired markets and to complete construction on a timely basis, the ability of the Company to successfully manage its expenses on a continuing basis, information systems failure or breaches of network security, the continued availability to the Company of financing and credit on favorable terms, business disruptions, disease, general risks associated with doing business outside the United States including, without limitation, import duties, tariffs, quotas, political and economic stability, changes to existing laws or regulations, and success of hedging strategies with respect to currency exchange rate fluctuations.

These risks and uncertainties, along with the risk factors discussed under Item 1A. “Risk Factors” in the Company’s 2018 Annual Report on Form 10-K, should be considered in evaluating any forward-looking statements contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements in this section. The Company undertakes no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses. Estimates by their nature are based on judgments and available information. Therefore, actual results could materially differ from those estimates under different assumptions and conditions.

22


 

Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and the results of operations and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s most critical accounting policies have been discussed in the Company’s 2018 Annual Report on Form 10-K and are incorporated by reference herein.

See Note 2 – Accounting Pronouncements Recently Adopted for updates to the critical accounting policies disclosed in the Company’s 2018 Annual Report on Form 10-K.

Recent Developments

On August 15, 2018, the Company announced that on that date it entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which it expects to acquire all of the outstanding equity interests of MVMT Watches Inc. (“MVMT”) upon the terms and subject to the conditions contained therein. The purchase price is comprised of an initial payment of $100 million, subject to adjustments for cash, debt and working capital, and up to an additional $100 million in earnout payments. The acquisition will be funded through cash and borrowings under the Company’s revolving credit facility. The Purchase Agreement contains customary representations, warranties and covenants of the Company, MVMT and the selling shareholders, as well as an agreement by MVMT’s founders not to compete with MVMT in certain lines of business or solicit MVMT’s employees or customers, in each case for a period of five years following the closing date.  The acquisition is expected to close on or about October 1, 2018, subject to customary closing conditions, and there can be no assurance that the acquisition will close on the terms anticipated or at all.  The Purchase Agreement contains customary termination provisions, including provisions giving the Company and the sellers the right to terminate the Purchase Agreement if the transaction has not been consummated by November 1, 2018.  The foregoing description of the Purchase Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the disclosure in the Company’s Form 8-K filed on August 15, 2018 and the full text of the Purchase Agreement, which will be attached as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending October 31, 2018.

On August 29, 2018, the Board of Directors approved the payment of a cash dividend in the amount of $0.20 for each share of the Company’s outstanding common stock and class A common stock. The dividend will be paid on September 25, 2018 to all shareholders of record as of the close of business on September 11, 2018. The decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board, in its sole discretion.

Overview

The Company conducts its business primarily in two operating segments: Wholesale and Retail. The Company’s Wholesale segment includes the designing, manufacturing and distribution of watches of quality owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Retail segment includes the Company’s retail outlet locations. The Company also operates in two major geographic locations: United States operations and International, the latter of which includes the results of all non-U.S. Company operations.

The Company divides its watch business into two principal categories: the owned brands category and the licensed brands category. The owned brands category consists of the Movado®, Olivia Burton®, Ebel®, and Concord® brands. Watches in the licensed brands category include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, HUGO BOSS®, Lacoste®, Tommy Hilfiger®, SCUDERIA FERRARI® and Rebecca Minkoff® and Uri Minkoff®.

Gross margins vary among the brands included in the Company’s portfolio and also among watch models within each brand. Watches in the Company’s owned brands category generally earn higher gross margin percentages than watches in the licensed brands category. The difference in gross margin percentages within the licensed brands category is primarily the impact of royalty payments made on the licensed brands. Gross margins in the Company’s outlet business are affected by the mix of product sold and may exceed those of the wholesale business since the Company earns margins on its outlet store sales from manufacture to point of sale to the consumer.

23


 

Results of operations for the three months ended July 31, 2018 as compared to the three months ended July 31, 2017

Net Sales: Comparative net sales by business segment were as follows (in thousands):

 

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

United States

 

$

38,218

 

 

$

44,082

 

International

 

 

84,864

 

 

 

66,936

 

Total Wholesale

 

 

123,082

 

 

 

111,018

 

Retail

 

 

21,011

 

 

 

17,763

 

Net Sales

 

$

144,093

 

 

$

128,781

 

 

Comparative net sales by categories were as follows (in thousands):

 

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

Owned brands category

 

$

51,533

 

 

$

46,339

 

Licensed brands category

 

 

69,722

 

 

 

62,529

 

After-sales service and all other

 

 

1,827

 

 

 

2,150

 

Total Wholesale

 

 

123,082

 

 

 

111,018

 

Retail

 

 

21,011

 

 

 

17,763

 

Consolidated total

 

$

144,093

 

 

$

128,781

 

 

Net sales for the three months ended July 31, 2018 were $144.1 million, above the prior year period by $15.3 million or 11.9% which included an unfavorable impact of $1.1 million, as a result of adoption of ASC 606. For the three months ended July 31, 2018, fluctuations in foreign currency exchange rates favorably impacted net sales by $1.8 million when compared to the prior year period.

Net sales for the three months ended July 31, 2018 in the Wholesale segment were $123.1 million, above the prior year period by $12.1 million or 10.9 %. The increase in net sales was primarily the result of an increase in net sales in the International Wholesale segment partially offset by a decrease in the United States Wholesale segment.

Net sales for the three months ended July 31, 2018 in the United States location of the Wholesale segment were $38.2 million, below the prior year period by $5.9 million or 13.3%, resulting principally from a net sales decrease in the licensed brands category. The net sales decrease recorded in the licensed brands category was $4.7 million, or 44.1% as the U.S. fashion watch market continues to be challenging. The net sales recorded in the owned brands category were lower than the comparable period by $0.3 million or 0.8%.

Net sales for the three months ended July 31, 2018 in the International location of the Wholesale segment were $84.9 million, above the prior year by $17.9 million or 26.8%, which included fluctuations in foreign currency exchange rates which favorably impacted net sales by $1.8 million when compared to the prior year period. This increase was driven by net sales increases in both the licensed brands and owned brands categories. The net sales increase in the licensed brands category was $11.9 million, or 23.1%, primarily due to net sales increases in Europe and Latin America. The net sales increase recorded in the owned brands category was $5.5 million, or 37.0%, primarily due to sales increases in Europe. The net sales increase in the owned brands category included sales attributable to the addition of the Olivia Burton brand.

Net sales for the three months ended July 31, 2018 in the Retail segment were $21.0 million, above the prior year period by $3.2 million, or 18.3%, driven by higher sales in both comparable stores, the addition of new store openings, and a favorable product mix. The Retail segment experienced higher conversion rates as products resonated well with customers. As of July 31, 2018 and 2017, the Company operated 43 and 40 retail outlet locations, respectively.

24


 

Gross Profit.  Gross profit for the three months ended July 31, 2018 was $77.8 million or 54.0% of net sales as compared to $66.1 million or 51.4% of net sales in the prior year period. The increase in gross profit of $11.7 million was primarily due to higher net sales and a higher gross margin percentage. The increase in the gross margin percentage of approximately 270 basis points for the three months ended July 31, 2018, resulted primarily from the favorable impact of sales mix of approximately 200 basis points, the impact of fluctuations in foreign currency exchange rates of approximately 30 basis points, the increased leveraging of certain fixed costs as a result of higher sales of approximately 20 basis points and the non-recurrence of the amortization of the inventory step-up adjustment related to the acquisition of the Olivia Burton brand of approximately 20 basis points.

Selling, General and Administrative (“SG&A”).  SG&A expenses for the three months ended July 31, 2018 were $65.0 million, representing an increase from the prior year period of $7.2 million or 12.4%. The increase in SG&A expenses was attributable to higher marketing expenses of $4.6 million, consulting and legal costs of $1.7 million principally associated with the pending acquisition of the MVMT brand, higher distribution costs of $1.2 million, payroll and performance based compensation of $2.4 million, $0.8 million of payroll and occupancy costs associated with the opening of new retail outlet locations and $0.8 million of bad debt expense principally due to the non-recurrence of a $0.8 million customer recovery in the comparable period in the prior year. SG&A expenses also included the unfavorable effect of foreign currency translation and transaction losses of $1.4 principally related to the non-recurrence of $0.9 million of transactional gains in the comparable period in the prior year. These increases were partially offset by a $2.8 million reduction in selling expenses due principally to the Company’s decision to not participate in the Basel Fair in the current year and the non-recurrence of $4.2 million of expenses related to the acquisition of the Olivia Burton brand in the prior year, partially offset by $0.7 million of intangible amortization incurred in the three months ended July 31, 2018.

Wholesale Operating Income.  In the three months ended July 31, 2018 and 2017, respectively, the Company recorded Wholesale segment operating income of $8.2 million and $4.8 million, which includes $10.6 million and $7.2 million of unallocated corporate expenses as well as $11.3 million and $7.9 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. The $3.4 million increase in operating income was the net result of a higher gross profit of $9.5 million when compared to the prior year period, partially offset by higher SG&A expenses of $6.1 million, as detailed above. The increase in SG&A expenses was attributable to higher marketing expenses of $4.6 million, consulting and legal costs of $1.7 million principally associated with the pending acquisition of the MVMT brand, higher distribution costs of $1.2 million, payroll, and performance based compensation of $2.4 million and $0.8 million of bad debt expense principally due to the non-recurrence of a customer recovery in the comparable period in the prior year. SG&A expenses also included the unfavorable effect of foreign currency translation and transaction losses of $1.4 principally related to the non-recurrence of $0.9 million of transactional gains in the comparable period in the prior year. These increases were partially offset by a $2.8 million reduction in selling expenses due principally to the Company’s decision to not participate in the Basel Fair in the current year and the non-recurrence of $4.2 million of expenses related to the acquisition of the Olivia Burton brand in the prior year, partially offset  by $0.7 million  of intangible amortization incurred in the three months ended July 31, 2018.

U.S. Wholesale Operating Loss.  In the United States location of the Wholesale segment, during the three months ended July 31, 2018 and 2017, respectively, the Company recorded an operating loss of $6.8 million and $2.1 million, which included unallocated corporate expenses of $10.6 million and $7.2 million. The increase in operating loss of $4.7 million was the net result of lower gross profit of $1.0 million and higher SG&A expenses of $3.7 million. The decrease in gross profit of $1.0 million was due to lower net sales partially offset by a higher gross margin percentage. The increase in SG&A expenses of $3.7 million was attributable to increased consulting and legal costs of $2.1 million principally associated with the pending acquisition of the MVMT brand, higher distribution costs of $0.5 million, and higher marketing costs of $0.6 million.

International Wholesale Operating Income.  In the International location of the Wholesale segment, during the three months ended July 31, 2018 and 2017, respectively, the Company recorded operating income of $15.0 million and $6.9 million, which included $11.3 million and $7.9 million of certain intercompany profits related to the Company’s International supply chain operations. The increase in operating income of $8.1 million was primarily due to higher gross profit of $10.5 million, partially offset by higher SG&A expenses of $2.4 million. The increase in gross profit of $10.5 million was primarily due to higher net sales and a higher gross margin percentage. The increase in SG&A expenses of $2.4 million was attributable to higher marketing expenses of $4.0 million, higher distribution costs of $0.8 million, higher payroll related compensation of $1.4 million, bad debt expense of $0.3 million and higher rent of $0.2 million. SG&A expenses also included the unfavorable effect of foreign currency translation and transaction losses of $1.4 principally related to the non-recurrence of $0.9 million of transactional gains in the comparable period in the prior. These increases were partially offset by the non-recurrence of $4.2 million of expenses related to the acquisition of the Olivia Burton brand in the prior year, partially offset by $0.7 million of intangible amortization incurred in the three months ended July 31, 2018.

25


 

Retail Operating Income.  Operating income of $4.7 million and $3.5 million was recorded in the Retail segment for the three months ended July 31, 2018 and 2017, respectively. The increase in operating income of $1.2 million was the result a higher gross profit of $2.2 million partially offset by higher SG&A expenses of $1.0 million. The higher gross profit was the result of higher net sales and a higher gross margin percentage. The increase in SG&A expenses of $1.0 million was primarily due to rent and payroll related costs associated with the opening of new outlet locations.

Income Taxes. On December 22, 2017, the 2017 Tax Act was signed into law, which significantly changed U.S. corporate income tax laws by, among other things, lowering the corporate tax rate from 35% to 21%, limiting the deductibility of interest expense and executive compensation, establishing a territorial tax system, and imposing a one-time mandatory deemed Transition Tax on undistributed foreign earnings which have not been previously taxed.

As of July 31, 2018, the amounts recorded in fiscal year 2018 related to the 2017 Tax Act are unchanged and remain provisional for the Transition Tax, the remeasurement of deferred taxes, and our assessment of permanently reinvested earnings. These estimates are subject to revision due to changes in the Company’s analysis and assumptions related to certain matters, such as updates to estimates and amounts related to the earnings and profits and tax pools of certain subsidiaries and the Company’s indefinite reinvestment assertion, including the measurement of deferred taxes on foreign unremitted earnings. The estimated impact of the 2017 Tax Act is also subject to change as a result of additional guidance from, and interpretations by, U.S. regulatory and standard-setting bodies, as well as state tax conformity to federal tax law. The Company expects to complete its assessment of these items within the measurement period, and any adjustments to the provisional amounts initially recorded will be included as an adjustment to income tax expense or benefit in the period in which the amounts are determined.

 

The Company continues to evaluate the impact of the global intangible low-tax income GILTI provision within the 2017 Tax Act which would require the current inclusion in federal taxable income, earnings of certain foreign controlled corporations. GILTI is subject to continuing regulatory interpretation by the IRS and while the Company has included an estimate of GILTI in its estimated effective tax rate for fiscal year 2019, it has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to reverse or whether the Company will account for GILTI as period costs when and if incurred. Adjustments related to the amount of GILTI recorded in its consolidated financial statements may be required based on the outcome of this election. The Company will continue to evaluate these provisions and elect an accounting policy within the measurement period.

The Company recorded income tax expense of $3.6 million and $2.6 million for the three months ended July 31, 2018 and 2017, respectively.

The effective tax rate was 28.3% and 32.0% for the three months ended July 31, 2018 and 2017, respectively. The change in the effective tax rate was primarily due to changes in jurisdictional earnings, partially offset by no tax benefit being recognized on losses incurred by certain foreign operations.

The effective tax rate for the three months ended July 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to no tax benefit being recognized on losses incurred by certain foreign operations, partially offset by foreign profits being taxed in lower taxing jurisdictions.  

The effective tax rate for the three months ended July 31, 2017 differs from the U.S. statutory tax rate of 35.0% primarily due to foreign profits being taxed in lower taxing jurisdictions and acquisition costs related to the acquisition of the Olivia Burton brand (see Note 16 – Acquisitions for additional disclosures).      

Net Income Attributed to Movado Group, Inc. The Company recorded net income attributed to Movado Group, Inc. of $9.1 million and $5.5 million, for the three months ended July 31, 2018 and 2017, respectively.

26


 

Results of operations for the six months ended July 31, 2018 as compared to the six months ended July 31, 2017

Net Sales: Comparative net sales by business segment were as follows (in thousands):

 

 

 

Six Months Ended

July 31,

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

United States

 

$

72,011

 

 

$

76,772

 

International

 

 

163,171

 

 

 

121,406

 

Total Wholesale

 

 

235,182

 

 

 

198,178

 

Retail

 

 

36,060

 

 

 

29,868

 

Net Sales

 

$

271,242

 

 

$

228,046

 

 

Comparative net sales by categories were as follows (in thousands):

 

 

 

Six Months Ended

July 31,

 

 

 

2018

 

 

2017

 

Wholesale:

 

 

 

 

 

 

 

 

Owned brands category

 

$

93,116

 

 

$

79,481

 

Licensed brands category

 

 

135,573

 

 

 

113,899

 

After-sales service and all other

 

 

6,493

 

 

 

4,798

 

Total Wholesale

 

 

235,182

 

 

 

198,178

 

Retail

 

 

36,060

 

 

 

29,868

 

Consolidated total

 

$

271,242

 

 

$

228,046

 

 

Net sales for the six months ended July 31, 2018 were $271.2 million, above the prior year period by $43.2 million or 18.9%, which included a favorable impact of $1.1 million as a result of the adoption of ASC 606.  For the six months ended July 31, 2018, fluctuations in foreign currency exchange rates favorably impacted net sales by $7.6 million when compared to the prior year period.

Net sales for the six months ended July 31, 2018 in the Wholesale segment were $235.2 million, above the prior year period by $37.0 million or 18.7%. The increase in net sales was the result of an increase in net sales in the International location partially offset by a decrease in net sales in the United States location of the Wholesale segment.

Net sales for the six months ended July 31, 2018 in the United States location of the Wholesale segment were $72.0 million, below the prior year period by $4.7 million or 6.2%, resulting from the net sales decrease in the licensed brands category, partially offset by an increase in the owned brands category. The net sales increase recorded in the owned brands category was $1.6 million, or 3.0%, primarily due to increased sales in chain and department store customers and sales attributable to the addition of the Olivia Burton brand. The decrease in net sales in the licensed brands category was $6.6 million or 34.7%, as the U.S. fashion watch market continues to be challenging.

Net sales for the six months ended July 31, 2018 in the International location of the Wholesale segment were $163.2 million, above the prior year by $41.8 million or 34.4%, which included fluctuations in foreign currency exchange rates which favorably impacted net sales by $7.6 million when compared to the prior year period. This increase was primarily driven by net sales increases in both the licensed brands and owned brands categories. The net sales increase in the licensed brands category was $28.3 million, or 29.9%, primarily due to net sales increases in Europe, and Latin America. The net sales increase recorded in the owned brands category was $12.0 million, or 47.6%, primarily due to sales increases in Europe. The net sales increase in the owned brands category included sales attributable to the addition of the Olivia Burton brand.

Net sales for the six months ended July 31, 2018 in the Retail segment were $36.1 million, above the prior year period by $6.2 million, or 20.7%, driven by higher sales in comparable stores, the addition of new store openings and a better product mix combined with higher conversion rates as products resonated well with customers. As of July 31, 2018, and 2017, the Company operated 43 and 40 retail outlet locations, respectively.

27


 

Gross Profit.  Gross profit for the six months ended July 31, 2018 was $145.4 million or 53.6% of net sales as compared to $115.3 million or 50.5% of net sales in the prior year period. The increase in gross profit of $30.1 million was primarily due to higher net sales and a higher gross margin percentage. The increase in the gross margin percentage of approximately 310 basis points for the six months ended July 31, 2018, resulted primarily from the favorable impact of sales mix  of approximately 120 basis points,  the impact of fluctuations in foreign currency exchange rates of approximately 60 basis points, the non-recurrence of costs incurred from the Company’s prior year cost savings initiative of approximately 60 basis points, the increased leveraging of certain fixed costs as a result of higher sales of approximately 60 basis points and 10 basis points from the non-recurrence of the amortization of the inventory step-up adjustment related to the acquisition of the Olivia Burton brand.

Selling, General and Administrative (“SG&A”).  SG&A expenses for the six months ended July 31, 2018 were $124.4 million, representing an increase from the prior year period of $13.8 million or 12.4%. The increase in SG&A expenses was attributable to higher marketing expenses of $10.7 million, higher distribution costs of $2.4 million, payroll, and performance based compensation of $2.1 million, consulting and legal costs of $1.8 million principally associated with the pending acquisition of the MVMT brand, $1.4 million of payroll and occupancy costs associated with the opening of new retail locations, $1.1 million higher bad debt expense, principally due to the non-recurrence of a $0.8 million customer recovery in the prior year and higher rent expenses of $0.4 million. SG&A expenses also included the unfavorable effect of foreign currency translation and transaction losses of $2.9 principally related to the non-recurrence of $1.1 million of transactional gains in the comparable period in the prior year. These increases were partially offset by the  reduction of $1.6 million of selling expenses, due principally to the Company’s decision to not participate in the Basel Fair in the current year, the non-recurrence of $5.0 million of expenses related to the Company’s cost savings initiative in the prior year, and the non-recurrence of $4.2 million of expenses related to the acquisition of the Olivia Burton brand in the prior year, partially offset by $1.5 million of intangible amortization incurred in the six months ended July 31, 2018.

Wholesale Operating Income.  In the six months ended July 31, 2018 and 2017, respectively, the Company recorded Wholesale segment operating income of $14.6 million and $0.3 million, which includes $20.7 million and $13.4 million of unallocated corporate expenses as well as $22.3 million and $15.5 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. The $14.3 million increase in operating income was the net result of a higher gross profit of $26.3 million when compared to the prior year period, partially offset by higher SG&A expenses of $12.0 million. The increase in SG&A expenses was attributable to higher marketing expenses of $10.7 million, higher distribution costs of $2.4 million, payroll, and performance based compensation of $2.1 million, consulting and legal costs of $1.8 million principally associated with the pending acquisition of the MVMT brand, $1.1 million higher bad debt expense, principally due to the non-recurrence of a $0.8 million customer recovery in the prior year and higher rent expenses of $0.4 million. SG&A expenses also included the unfavorable effect of foreign currency translation and transaction losses of $2.9 principally related to the non-recurrence of $1.1 million of transactional gains in the comparable period in the prior year. These increases were partially offset by the reduction of $1.6 million of selling expenses, due principally to the Company’s decision to not participate in the Basel Fair in the current year, the non-recurrence of $5.0 million of expenses related to the Company’s cost savings initiative in the prior year,  and the non-recurrence of $4.2 million of expenses  related to the acquisition of the Olivia Burton brand in the prior year, partially offset by $1.5 million of intangible amortization incurred in the six months ended July 31, 2018..

U.S. Wholesale Operating Loss.  In the United States location of the Wholesale segment, during the six months ended July 31, 2018 and 2017, respectively, the Company recorded an operating loss of $14.6 million and $12.7 million, which included unallocated corporate expenses of $20.7 million and $13.4 million. The increase in operating loss of $1.9 million was the net result of higher gross profit of $1.3 million offset by higher SG&A expenses of $3.2 million. The increase in gross profit of $1.3 million was due to a higher gross margin percentage on slightly lower sales. The increase in SG&A expenses of $3.2 million was attributable to higher marketing costs of $4.1 million, higher consulting and legal costs of $2.1 million principally associated with the pending acquisition of the MVMT brand and higher payroll, and performance based compensation of $1.0 million. These costs were partially offset by the non-recurrence of $3.6 million in charges related the Company’s cost savings initiative incurred during the six months ended July 31, 2017.

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International Wholesale Operating Income.  In the International location of the Wholesale segment, during the six months ended July 31, 2018 and 2017, respectively, the Company recorded operating income of $29.1 million and $13.0 million, which included $22.3 million and $15.5 million of certain intercompany profits related to the Company’s International supply chain operations. The increase in operating income of $16.1 million was primarily due to higher gross profit of $25.0 million, partially offset by higher SG&A expenses of $8.9 million. The increase in gross profit of $25.0 million was primarily due to higher net sales and a higher gross margin percentage. The increase in SG&A expenses of $8.9 million was attributable to higher marketing expenses of $6.5 million, higher distribution costs of $1.8 million, higher payroll related expenses of $1.5 million, the unfavorable effect of foreign currency translation and transaction losses of $2.9 principally related to the non-recurrence of $1.1 million of transactional gains in the comparable period in the prior year, higher bad debt expenses of $0.4 million and. higher rent costs of $0.2 million. These increases were partially offset by the reduction of $1.3 million of selling expenses, due principally to the Company’s decision to not participate in the Basel Fair in the current year, lower consulting and legal expenses of $0.4 million and the  non-recurrence of $4.2 million of expenses  related to the acquisition of the Olivia Burton brand in the prior year, partially offset by $1.5 million  of intangible amortization incurred in the six months ended July 31, 2018.

Retail Operating Income.  Operating income of $6.4 million and $4.4 million was recorded in the Retail segment for the six months ended July 31, 2018 and 2017, respectively. The increase in operating income of $2.0 million was the result a higher gross profit of $3.8 million partially offset by higher SG&A expenses of $1.8 million. The higher gross profit was the result of higher net sales and a higher gross margin percentage. The increase in SG&A expenses of $1.8 million was primarily due to rent and payroll related costs associated with the opening of new outlet locations.

Income Taxes. On December 22, 2017, the 2017 Tax Act was signed into law, which significantly changed U.S. corporate income tax laws by, among other things, lowering the corporate tax rate from 35% to 21%, limiting the deductibility of interest expense and executive compensation, establishing a territorial tax system, and imposing a one-time mandatory deemed Transition Tax on undistributed foreign earnings which have not been previously taxed.

As of July 31, 2018, the amounts recorded in fiscal year 2018 related to the 2017 Tax Act are unchanged and remain provisional for the Transition Tax, the remeasurement of deferred taxes, and our assessment of permanently reinvested earnings. These estimates are subject to revision due to changes in the Company’s analysis and assumptions related to certain matters, such as updates to estimates and amounts related to the earnings and profits and tax pools of certain subsidiaries and the Company’s indefinite reinvestment assertion, including the measurement of deferred taxes on foreign unremitted earnings. The estimated impact of the 2017 Tax Act is also subject to change as a result of additional guidance from, and interpretations by, U.S. regulatory and standard-setting bodies, as well as state tax conformity to federal tax law. The Company expects to complete its assessment of these items within the measurement period, and any adjustments to the provisional amounts initially recorded will be included as an adjustment to income tax expense or benefit in the period in which the amounts are determined.

 

The Company continues to evaluate the impact of the global intangible low-tax income GILTI provision within the 2017 Tax Act which would require the current inclusion in federal taxable income, earnings of certain foreign controlled corporations. GILTI is subject to continuing regulatory interpretation by the IRS and while the Company has included an estimate of GILTI in its estimated effective tax rate for fiscal year 2019, it has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to reverse or whether the Company will account for GILTI as period costs when and if incurred. Adjustments related to the amount of GILTI recorded in its consolidated financial statements may be required based on the outcome of this election. The Company will continue to evaluate these provisions and elect an accounting policy within the measurement period.

The Company recorded income tax expense of 3.5 million and $2.9 million for the six months ended July 31, 2018 and 2017, respectively.

The effective tax rate was 16.8% and 68.3% for the six months ended July 31, 2018 and 2017, respectively. The change in the effective tax rate was primarily due to excess tax benefits related to stock-based compensation being recognized in the current period as compared to excess tax deficiencies recognized in the first quarter of last year, the release of a valuation allowance against certain foreign deferred tax assets, and changes in jurisdictional earnings.

The effective tax rate for the six months ended July 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to the release of a valuation allowance against certain foreign deferred tax assets and foreign profits being taxed in lower taxing jurisdictions.

The effective tax rate for the six months ended July 31, 2017 differs from the U.S. statutory tax rate of 35.0% primarily due to foreign profits being taxed in lower taxing jurisdictions and acquisition costs related to the acquisition of the Olivia Burton brand (see Note 16 – Acquisitions for additional disclosures). The effective tax rate for the six months ended July 31, 2017 also includes an increase primarily due to the adoption of ASU 2016-09 and no tax benefit being recognized on losses incurred by certain foreign operations.  

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Net Income / (Loss) Attributed to Movado Group, Inc. The Company recorded net income attributed to Movado Group, Inc. of $17.3 million and $1.3 million, for the six months ended July 31, 2018 and 2017, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2018 and July 31, 2017, respectively, the Company had $175.6 million and $162.4 million of cash and cash equivalents, of which, $143.9 million and $150.9 million consisted of cash and cash equivalents at the Company’s foreign subsidiaries. The Company has recorded a provisional deferred tax liability for foreign withholding and U.S. state income taxes of $10.7 million related to $217.1 million of foreign earnings. A deferred tax liability has not been recorded for the remaining undistributed foreign earnings of approximately $107.9 million. In light of the 2017 Tax Act, the Company continues to evaluate its assertion related to the indefinite reinvestment of earnings in its foreign operations. In accordance with Staff Accounting Bulletin 118, if the Company revises its assertion during the measurement period, the change, and any corresponding adjustment, would be recorded as part of the 2017 Tax Act enactment in the period in which the revision is determined.

Cash provided by operating activities was $4.1 million as compared to $10.0 million used in operating activities for the six months ended July 31, 2018 and 2017, respectively. The $4.1 million of cash provided by operating activities for the six months ended July 31, 2018, was primarily due to net income for the period of $17.3 million and favorable non-cash items of $8.4 million, partially offset by the change in working capital of $22.1 million. The change in working capital of $22.1 million was primarily due to the timing of building inventory in anticipation of the holiday selling season in the second half of the fiscal year, increases in accounts receivables primarily due to increased sales, and higher other current assets primarily due to prepayments made to suppliers, partially offset by higher accounts payable and accrued liabilities. The $10.0 million of cash used in operating activities for the six months ended July 31, 2017, was primarily due to an unfavorable change in working capital as presented on the consolidated statements of cash flows of $26.4 million, partially offset by favorable non-cash items of $15.3 million, which included a $6.4 million charge related to the Company’s cost savings initiatives. The unfavorable change in working capital of $26.4 million was primarily due to the ordinary course building of inventory to meet anticipated future demand, higher trade receivables and higher other current assets primarily due to prepayments made to suppliers, partially offset by higher accounts payable. Included in the change in working capital was $4.3 million of payments related to the Company’s cost savings initiatives.

Cash used in investing activities was $5.3 million and $80.4 million for the six months ended July 31, 2018 and 2017, respectively. The cash used in investing activities for the six months ended July 31, 2018 was primarily for capital expenditures related to the opening and renovations of the Company’s retail outlet locations and capital expenditures related to office improvements. The cash used in investing activities for the six months ended July 31, 2017 was primarily for the acquisition, net of cash acquired, of the Olivia Burton brand.

Cash used in financing activities was $31.5 million and $8.4 million for the six months ended July 31, 2018 and 2017, respectively. Cash used in financing activities for the six months ended July 31, 2018 included the repayment of bank borrowings, the payment of dividends and the repurchase of shares of the Company’s common stock, partially offset by the exercise of certain stock awards. Cash used in financing activities for the six months ended July 31, 2017 included the payment of dividends, the repurchase of shares of the Company’s common stock, and the surrender of shares in connection with the vesting of certain stock awards.

On January 30, 2015, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (collectively, the “Borrowers”), each a wholly-owned domestic subsidiary of the Company, entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) including a $15.0 million letter of credit sub-facility that matures on January 30, 2020, with provisions for uncommitted increases of up to $50.0 million in the aggregate, subject to customary terms and conditions. In connection with the Credit Agreement, the Borrowers also entered into a Security and Pledge Agreement dated as of January 30, 2015 in favor of the Agent (the “Security Agreement”).

As of July 31, 2018, there were no loans drawn under the Facility. Additionally, approximately $0.3 million in letters of credit, which were outstanding under the Borrower’s pre-existing asset-based revolving credit facility that was concurrently terminated when the Credit Agreement became effective, are deemed to be issued and outstanding under the Facility. As of July 31, 2018, availability under the Facility was approximately $99.7 million.

Borrowings under the Facility bear interest at rates selected periodically by the Company at LIBOR plus a spread ranging from 1.25% to 1.75% per annum, based on the Company’s consolidated leverage ratio, or at a base rate plus a spread ranging from 0.25% to 0.75% per annum based on the Company’s consolidated leverage ratio (as defined in the Credit Agreement). The Company has also agreed to pay certain fees and expenses and to provide certain indemnities, all of which are customary for such financings.

30


 

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower. In addition, pursuant to the Security Agreement, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the Borrowers’ assets other than certain excluded assets. The Security Agreement contains representations, warranties and covenants, which are customary for pledge and security agreements of this type, relating to the creation and perfection of security interests in favor of the Agent over various categories of the Borrowers’ assets.

The Credit Agreement contains affirmative and negative covenants binding on the Borrowers and their subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions).

The Borrowers are also subject to a minimum consolidated EBITDA (as defined in the Credit Agreement) test of $50.0 million, measured at the end of each fiscal quarter based on the four most recent fiscal quarters and a consolidated leverage ratio (as defined in the Credit Agreement) covenant not to exceed 2.50 to 1.00, measured as of the last day of each fiscal quarter. As of July 31, 2018, the Company was in compliance with its covenants under the Credit Agreement.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, failure of any representation or warranty to be true in any material respect when made or deemed made, violation of covenants, cross default with material indebtedness, material judgments, material ERISA liability, bankruptcy events, asserted or actual revocation or invalidity of the loan documents, and change of control.

As of July 31, 2018, Bank of America, N.A. issued two irrevocable standby letters of credit in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada. As of July 31, 2018, the Company had outstanding letters of credit totaling $0.3 million with expiration dates through May 31, 2019.

A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of July 31, 2018 and 2017, these lines of credit totaled 6.5 million Swiss francs for both periods with a dollar equivalent of $6.6 million and $6.7 million, respectively. As of July 31, 2018 and 2017, there were no borrowings against these lines. As of July 31, 2018, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million, in various foreign currencies, of which $0.6 million is a restricted deposit as it relates to lease agreements. As of July 31, 2017, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million, in various foreign currencies, of which $0.6 million is a restricted deposit as it relates to lease agreements.

The Company paid dividends of $0.40 per share or approximately $9.2 million for the six months ended July 31, 2018 and paid dividends of $0.26 per share or approximately $6.0 million for the six months ended July 31, 2017.

On August 29, 2018, the Board of Directors approved the payment of a cash dividend in the amount of $0.20 for each share of the Company’s outstanding common stock and class A common stock. The dividend will be paid on September 25, 2018 to all shareholders of record as of the close of business on September 11, 2018. The decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board, in its sole discretion.

 

On August 15, 2018, the Company announced that it has entered into a definitive agreement to acquire MVMT Watches Inc., the owner of MVMT ("MVMT"), a global aspirational lifestyle brand. The purchase price is comprised of an initial payment of approximately $100 million, or approximately $85 million net of tax benefits, and two future contingent payments that combined could total up to an additional $100 million before taxes.

Management believes that the cash on hand, availability under its credit facility and the expected cash flow from operations and the Company’s short-term borrowing capacity will be sufficient to meet its working capital needs for at least the next twelve months.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet financing or unconsolidated special-purpose entities.

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Accounting Changes and Recent Accounting Pronouncements

See Note 2 and 14 to the accompanying unaudited consolidated financial statements for a description of certain accounting changes and recent accounting pronouncements, which may impact our consolidated financial statements in future reporting periods.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

The Company’s primary market risk exposure relates to foreign currency exchange risk. A significant portion of the Company’s purchases are denominated in Swiss francs and, to a lesser extent, the Japanese Yen. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro and the British Pound. The Company reduces its exposure to the Swiss franc, Euro, British Pound and Japanese Yen exchange rate risk through a hedging program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural offsets. In the event these exposures do not offset, from time to time the Company uses various derivative financial instruments to further reduce the net exposures to currency fluctuations, predominately forward and option contracts. Certain of these contracts meet the requirements of qualified hedges. In these circumstances, the Company designates and documents these derivative instruments as a cash flow hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. Changes in the fair value of hedges designated and documented as a cash flow hedge and which are highly effective, are recorded in other comprehensive income until the underlying transaction affects earnings, and then are later reclassified into earnings in the same account as the hedged transaction. The earnings impact is mostly offset by the effects of currency movements on the underlying hedged transactions.

From time to time the Company uses forward exchange contracts, which do not meet the requirements of qualified hedges, to offset its exposure to certain foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these derivatives are recognized in earnings in the period they arise, thereby offsetting the current earnings effect resulting from the revaluation of the related foreign currency receivables and liabilities. To the extent that the Company does not engage in a hedging program, any change in the Swiss franc, Euro, British Pound and Japanese Yen exchange rates to local currency have an equal effect on the Company’s earnings.

As of July 31, 2018, the Company’s entire net forward contracts hedging portfolio consisted of 30.0 million Swiss francs equivalent, 11.5 million Euros equivalent and 0.8 million British Pounds equivalent, with various expiry dates ranging through January 1,2019 compared to a portfolio of 22.0 million Swiss francs equivalent, 11.0 million Euros equivalent and 4.0 million British Pounds equivalent, with various expiry dates ranging through January 10, 2018. If the Company were to settle its Swiss franc forward contracts at July 31, 2018 and 2017, the net result would be a loss of $0.3 million, net of tax benefit of $0.1 million and a gain of $0.2 million, net of tax of $0.2 million, respectively. If the Company were to settle its Euro forward contracts at July 31, 2018 and 2017, the net result would be a gain of $0.1 million, net of tax of $0.0 million and a loss of $0.4 million, net of tax benefit of $0.1 million, respectively. As of July 31, 2018, and 2017, the Company’s British Pound forward contracts had no value. The Company had no Swiss franc, Euro or British Pound option contracts related to cash flow hedges as of July 31, 2018 and 2017, respectively.

Commodity Risk

The Company considers its exposure to fluctuations in commodity prices to be primarily related to gold used in the manufacturing of the Company’s watches. Under its hedging program, the Company can purchase various commodity derivative instruments, primarily futures contracts. Contracts that meet the requirements of qualified hedges are documented as qualified cash flow hedges, and the resulting gains and losses on these derivative instruments are first reflected in other comprehensive income, and later reclassified into earnings, partially offset by the effects of gold market price changes on the underlying actual gold purchases. Changes in the fair value of contracts that are not qualified hedges are recognized in the period they arise. The Company did not hold any future contracts in its gold hedge portfolio as of July 31, 2018 and 2017; thus, any changes in the gold purchase price will have an equal effect on the Company’s cost of sales.

Debt and Interest Rate Risk

The Company has certain debt obligations with variable interest rates, which are based on LIBOR plus a spread ranging from 1.25% to 1.75% or on a base rate plus a spread ranging from 0.25% to 0.75% per annum. The Company does not hedge these interest rate risks. As of July 31, 2018, the Company had no debt outstanding. For additional information concerning potential changes to future interest obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, it should be noted that a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that its objectives will be met and may not prevent all errors or instances of fraud.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

As of February 1, 2018, the Company implemented ASC 606, Revenue form Contracts and Customers and the Company designed and implemented new internal controls related to the recognition, measurement and disclosure of the Company’s revenues under ASC 606.  There have been no other changes in the Company’s internal control over financial reporting during the three months ended July 31, 2018 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

33


 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a statement that such an estimate cannot be made. As of July 31, 2018, the Company is party to legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition, future results of operations beyond the amounts accrued, or cash flows.

In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply approximately $5.1 million in underpaid duties over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. On February 24, 2017, the Company provided U.S. Customs with supplemental analyses and information supporting the Company’s historical allocation formulas and is in the process of providing additional information for U.S. Customs’ review. Although the Company disagrees with U.S. Customs’ position, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S. Customs to reach a mutually-satisfactory resolution.

Item 1A. Risk Factors

As of July 31, 2018, there have been no material changes to any of the risk factors previously reported in the Company’s 2018 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 29, 2017, the Board of Directors approved a share repurchase program under which the Company is authorized to purchase up to $50.0 million of its outstanding common stock from time to time, depending on market conditions, share price and other factors. Under the program the Company is authorized to purchase shares of its common stock through open market purchases, repurchase programs, block trades or otherwise. This authorization expires on August 29, 2020. During the three months ended July 31, 2018, the Company repurchased a total of 21,900 shares of its common stock in the open market at a total cost of approximately $0.9 million or an average cost of $39.72 per share.

There were 1,868 shares of common stock repurchased during the three months ended July 31, 2018 as a result of the surrender of shares in connection with the vesting of certain stock awards. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company to fund the payment of such taxes.

34


 

The following table summarizes information about the Company’s purchases for the three months ended July 31, 2018 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Issuer Repurchase of Equity Securities

 

Period

 

Total

Number of

Shares

Purchased

 

 

Average

Price Paid

Per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs

 

 

Maximum

Amount

that May

Yet Be

Purchased

Under the

Plans or

Programs

 

May 1, 2018 – May 31, 2018

 

 

21,900

 

 

$

39.72

 

 

 

21,900

 

 

$

45,967,702

 

June 1, 2018 – June 30, 2018

 

 

167

 

 

 

48.25

 

 

 

 

 

 

45,967,702

 

July 1, 2018 – July 31, 2018

 

 

1,701

 

 

 

48.30

 

 

 

 

 

 

45,967,702

 

Total

 

 

23,768

 

 

$

40.39

 

 

 

21,900

 

 

$

45,967,702

 

 

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Item 6. Exhibits

 

  31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following financial information from Movado Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 filed with the SEC, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

 

36


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

MOVADO GROUP, INC.

 

 

 

 

(Registrant)

Dated: August 29, 2018

 

By:

 

 

/s/ Sallie A. DeMarsilis

 

 

 

 

Sallie A. DeMarsilis

Senior Vice President,

Chief Financial Officer and

Principal Accounting Officer

 

37