MOV
#Thank you.
Good morning, everyone.
With me on the call is <UNK> <UNK>, Chairman and Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with.
The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.
If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release.
Now I would like to turn the call over to <UNK> <UNK>, Chairman and Chief Executive Officer of Movado Group.
Good morning, and welcome to Movado Group\
Thank you, <UNK>, and good morning, everyone.
For today's call, I will first review our financial results, and then discuss our outlook for fiscal 2019.
Before I begin, I would like to point out the special items included in our fourth quarter and full year results for fiscal 2018 and the full year results for fiscal 2017.
Please refer to our press release for a description of these items as well as a table of GAAP and non-GAAP measures.
Our GAAP tax provisions for fiscal 2018, included charges recorded in the fourth quarter totaling $45 million, or $1.95 per diluted share.
This is related to the enactment of the Tax Cuts and Jobs Act.
This charge includes $28.2 million for the one-time tax on unremitted foreign earnings; $8.3 million for the impact of the reduction in the U.S. tax rate to 21% on our deferred tax assets; and $8.5 million related to deferred withholding and state income taxes.
The $28.2 million will be repaid in installments over 8 years.
As you are aware, Movado Group acquired Olivia Burton on July 3, 2017.
Included in the year-to-date consolidated results for fiscal 2018 was $6.8 million of pretax charges, primarily connected to the acquisition, of which $900,000 was recorded in the fourth quarter.
After-tax, the charge related to the acquisition equates to $6.2 million or $0.27 per diluted share for the year.
Our GAAP results for fiscal 2018 include a $13.6 million pretax charge, which equates to $10.5 million after-tax or $0.45 per diluted share in connection with our cost-savings initiative.
Approximately $150,000 of this pretax charge was in the fourth quarter.
Fiscal year 2017 GAAP results included charge recorded in the third quarter of $1.3 million, which equates to $900,000 after-tax or $0.03 per diluted share for an impairment of a long-term investment in a privately held company.
Fiscal year 2017 GAAP results also include a $1.8 million pretax charge, which equates to $1.1 million after-tax or $0.05 per diluted share, in connection with the vesting of stock awards and certain other compensation in the first quarter related to the announcement of our former COO's retirement.
The balance of my remarks will exclude the special items just discussed.
For the fourth quarter of fiscal 2018, sales increased 14.1% to $149.2 million.
In constant dollars, sales increased 10.2%.
We saw increased sales across each of our categories, owned brands, licensed brands, retail.
The fourth quarter results for fiscal 2018 include the addition of Olivia Burton.
This brand is performing in line with the company's expectations.
In constant dollars, total sales increased 20.1% internationally and increased 1% in the U.S. Wholesale segment sales were $121.6 million, increasing 13.4% from $107.2 million in last year's fourth quarter.
In constant dollars, Wholesale segment sales increased 8.8%.
By geography, U.S. Wholesale sales decreased 7.5% to $40.7 million compared to $44 million last year.
International wholesale sales increased 28% to $80.9 million compared to $63.2 million in the prior year, an increase of 20.1% in constant dollars.
Sales were strongest in Europe, the Middle East and Asia.
The company's Retail business was a positive contributor, with sales up 17% from last year.
At the end of the period, we operated 40 outlet locations.
Gross profit was $78.6 million or 52.7% of sales compared to $64.7 million or 49.5% in the fourth quarter of last year.
The 320 basis point increase in gross margin was primarily driven by the favorable change in foreign currency exchange rates, the favorable impact of channel and product mix and leverage on fixed costs.
Operating expenses were $64.2 million, an increase of 12.1% year-over-year.
The increase was primarily the result of the following: a $5.8 million increase in performance-based compensation and payroll related expenses; a $1.7 million increase in other expenses; and an increase of $1 million resulting from the unfavorable impact of foreign currency exchange rates.
These were partially offset by a $1.5 million decrease in marketing expense.
Strong sales growth and expansion in gross profit more than offset the increased operating expenses, leading to a better-than-expected operating income in the fourth quarter.
To this end, operating income was $14.4 million or 9.6% of sales compared to $7.4 million or 5.7% of sales in the same year-ago period.
Income tax expense was $2.1 million compared to income tax expense of $1.9 million in the same period of last year.
The effective tax rate for the fourth quarter of 15.1% was lower than expected, primarily due to changes in jurisdictional earnings.
Net income in the fourth quarter was $12 million or $0.52 per diluted share versus net income of $5.2 million or $0.22 per diluted share in the fourth quarter of fiscal 2017.
Looking at the results for the full year ended January 31, 2018, sales were $568 million, an increase of 2.8% from fiscal 2017.
In constant dollars, sales increased 2.2%.
Sales increased in both our licensed brand and retail category and were slightly down in our owned-brand category.
U.S. sales decreased 12%, International sales increased 19.9% and on a constant dollar basis, International sales increased 18.7%.
Gross profit was $300.2 million or 52.9% of sales as compared to $294.8 million or 53.3% of sales last year.
Operating income was $63.6 million or 11.2% of sales compared to $55.8 million or 10.1% of sales in fiscal 2017.
Income tax expense was $16.1 million compared to an income tax expense of $17.4 million for last year.
And our effective tax rate was 25.7% for fiscal 2018 compared to a 31.9% effective tax rate last year.
Net income was $46.5 million compared to net income of $37.1 million in the prior year.
Diluted earnings per share increased to $2 per share in the current fiscal year compared to $1.59 per share last year.
Now turning to our balance sheet.
Cash at year-end was $214.8 million as compared to $256.3 million last year.
In the second quarter of fiscal 2018, we used cash held outside of the U.S. for the acquisition of Olivia Burton.
At the end of January 2018, we had $25 million outstanding on our revolver, down $5 million from a year ago.
By the end of February 2018, we had repaid the remaining $25 million outstanding.
Accounts receivable were up $16.3 million as compared to the same period of last year, primarily due to the increase in sales.
And while sales were up $18.4 million or 14.1% for the quarter, combined with the Olivia Burton acquisition, inventory decreased by $1.5 million as compared to the same period of last year.
Year-to-date, we repurchased approximately $3.6 million of stock under our share repurchase program, primarily to offset the dilution from stock awards.
Capital expenditures for the year were $5.8 million and depreciation and amortization expense was $13.5 million.
This included $1.7 million related to the amortization of acquired intangible assets of Olivia Burton.
I will now discuss our outlook for fiscal 2019.
Our outlook assumes currency rates consistent with recent level.
Our results may be materially affected by many factors such as changes in global economic risk and customer (inaudible), fluctuations in foreign currency exchange rates and various other clauses referenced in our 10-K filing.
As <UNK> mentioned, we have a solid foundation on which we plan to drive growth in revenue and profit for the year ahead.
In light of the foregoing for fiscal 2019, we anticipate our sales will be in a range of approximately $605 million to $615 million.
We expect our gross margin percent to be flat to slightly improved from fiscal 2018.
Our outlook estimates gross margin to be approximately 53% for the full fiscal year.
We have a track record of disciplined control of our operating expenses.
We are reinvesting resources into the Movado Group Summit and the establishment of the digital center of excellence as well as making investments in our international teams to support our growth.
And with that, operating income is projected to be in a range of approximately $68 million to $71 million.
Based on the lower U.S. corporate tax rate, coupled with our jurisdictional earnings, the company anticipates a 25% effective tax rate.
And net income is expected to be in a range of approximately $50.5 million to $52.8 million.
We expect diluted earnings per share in fiscal 2019 to be in a range of approximately $2.15 to $2.25.
Capital expenditures for fiscal 2019 are estimated to be approximately $12 million.
The outlook we have provided assumes no unusual items for fiscal 2019, and excludes the noncash amortization of acquired intangible assets related to the Olivia Burton brand.
I'd now like to open the call up for questions.
So multiple questions.
I don't know if we'll reach that growth rate.
We are expecting growth this year in our movado.com website, and I would expect it to continue to grow.
But I don't think at that accelerated level.
Still nice growth, double-digit growth would be our expectations for that.
I think on the digital center of excellence is really ---+ we're building the capability on a global basis to be able to support our subsidiaries, our website and as importantly, our Wholesale customers online, and a lot of our initiatives with our partners, whether they be our licensing partners or are ---+ or are Wholesale customers that moved into a digital format.
And so, we felt we needed to really build that infrastructure to be able to support our company on a global basis.
So a good ---+ a meaningful part of our business today is done online with our Wholesale customers as well.
So people who have adapted to the omni-channel platform, whether they be department stores, specialty stores, dedicated websites as well.
So we're really pleased with the direction we're heading in that arena as well.
Yes, so I'm not really calling out anything unusual related to that, but if you noticed in the fourth quarter, I did call out that currency was a factor that lifted our gross margin in the fourth quarter, and then I mentioned that ---+ we're keeping currency flat throughout next year.
So that was one of the major underlying pieces.
So I can't give you any more ---+ insight into margin by quarter or any other cadence.
And I would add that we believe that Movado will stabilize and begin to grow again as well as Olivia Burton is accretive to our gross margin.
Well, I think you're seeing ---+ the U.S. was more challenged last year from a retail perspective, bouncing back late in the year versus international retailers.
So I think that's one thing that's skewing the overall result.
I think you had a significant focus in U.S. retailers on inventory management and resetting of the ---+ of inventory levels as well as still certain ---+ and as I mentioned in my comments, certain channels, particularly chain ---+ mall-based chain retailers have not moved as quickly to an omni-channel platform as specialty stores and department stores.
So I think you will see that again, you'll see improvements in that arena this year.
You'll begin to see that, but we've seen very good results in our department stores and specialty store channels in the U.S., we continue to see very strong growth at retail in last year in our fashion watch brands, particularly in Europe and Latin America.
So I think you saw last year, really a year of stabilization for retail and now people kind of addressing the new realities and the new environment and the new paradigm of retail omni-channel, websites, moving forward.
Well, I think over the last number of years, retailers have moved closer ---+ much closer to ordering to the season, ordering more frequently, replenishment models.
All of those things pretty much on a global basis.
So I think maintaining as little inventory for themselves as possible to be able to produce the business.
So that is not a ---+ really a more recent dynamic, but one that's been evolving over time.
As I said earlier, we expect to return to growth in the U.S. this year and part of it is that we've great reaction to our products across our brands.
And believe we have the plans in place to be able to grow the U.S. again.
And I think the U.S. had grown very quickly over the previous years, and has been a little bit in a cyclical downturn in retail.
I think you saw that again begin to bounce back in the fourth quarter for retailers overall.
So ---+ and I think we would expect that, that trend will continue.
But we still expect to grow in Europe as well.
And Matt, your question on the gross margin was, it's not necessarily U.S. versus International, it's more of which brands.
And as we talked about, our licensed brands, obviously, the royalty goes through gross margin and our ---+ the brands we own don't.
So things like Olivia Burton and Movado would have a stronger gross margin.
So it's all in the mix of what brand ---+ what composition they are to total.
We have not.
Like any of our brands, we don't break out specific brand revenues.
It did meet our plans as we'd announced at the beginning of the year when we first acquired the brand.
So it's pretty much on target for us, and we've been really excited by the acquisition.
<UNK>, I'll jump in and I'm sure <UNK> will add some and you are right, we had a lot of initiatives kind of going at once.
So our cost saving initiatives which started this time last year, when we announced it.
Those have been fully implemented, we did pull out the right amount of dollars out of our infrastructure.
We did realize all of those savings.
So that was throughout this year, fiscal 2018.
And later in this year, we talked about not going to Basel and that would be savings for '19, although we mentioned that those savings are going to be reinvested in things like the small summit that we did, that was more intimate, like adding the digital center of excellence.
And kind of reinvesting those savings in.
So our outlook kind of has all of that mixed in, the slimming down, if you will, of our infrastructure last year as well as the new investments we have this year to support our growth.
Historically, the event happened in Q1 but the expense was throughout the year.
And that's for ---+ that was for fiscal '19.
Yes, our summit on the other hand would be a first quarter event and it's obviously, a different scale than what Basel was.
So I'll answer that.
It's just really our teams did a fabulous job in managing their inventory levels throughout the year on a constant currency basis there was actually an even bigger drop than the low single-digit drop that we had.
So they just did a really, really good job in managing the level.
There was not any one-off events or anything like that in that.
Not really.
Obviously, we're not aware, we're not including any type of tariffs or anything like that.
We don't believe that they would affect our business, but though they possibly could, okay.
Since ---+ we have one more question.
Okay.
If ---+ since we have no more questions, I'd just like to thank everybody for being on the call today.
And we look forward to speaking to everybody at the ---+ for our first quarter conference call, and wish everybody a nice holiday this weekend.
Okay, thank you very much.
