~ Fourth Quarter Revenue Increased 14.1% ~

~  Fourth Quarter Operating Income of $13.3 million; Adjusted Operating Income Grew 93.5% to $14.4 million ~

 

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adjusted tax provision of $2.1 million or an adjusted tax rate of 15.1% excluding the $45.0 million provisional tax expense related to the 2017 Tax Act, the $0.2 million benefit related to the Olivia Burton acquisition and the $0.1 million expense related to the Company’s cost savings initiatives.

 

—	Net sales increased 2.8% to $568.0 million compared to net sales of $552.8 million in fiscal 2017. Net sales on a constant dollar basis increased 2.2% compared to net sales in fiscal 2017.

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Gross profit was $298.1 million, or 52.5% of sales, compared to gross profit of $294.8 million, or 53.3% of sales, in the prior year. Adjusted gross profit for fiscal 2018, which excludes $0.8 million in expenses and amortization related to the Olivia Burton brand acquisition and $1.3 million in charges related to the Company’s cost savings initiatives, was $300.2 million, or 52.9% of sales. The decrease in the adjusted gross margin percentage from last year was primarily the result of channel and product mix, partially offset by favorable changes in foreign currency exchange rates and a reduction of certain fixed costs as a result of the Company’s cost savings initiatives.

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Operating expenses were $254.9 million in fiscal 2018 compared to operating expenses of $240.8 million in the prior year. For fiscal 2018, adjusted operating expenses were $236.6 million, which excludes $6.0 million of expenses and amortization related to the acquisition of the Olivia Burton brand and $12.3 million of expenses related to the Company’s cost savings initiatives. For fiscal 2017, adjusted operating expenses were $239.0 million, which excludes $1.8 million of expenses related to the COO’s retirement in the first quarter. The decrease in adjusted operating expenses was primarily the result of decreased compensation and benefit expenses primarily related to the Company’s cost savings initiatives, fluctuations in foreign currency rates and decreased marketing expenses, partially offset by higher performance-based compensation and higher distribution costs.

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Operating income for fiscal 2018 was $43.2 million as compared to operating income of $54.0 million for fiscal 2017. Adjusted operating income for fiscal 2018 was $63.6 million, excluding $6.8 million of expenses and amortization related to the acquisition of the Olivia Burton brand and $13.6 million of expenses related to the Company’s cost savings initiatives. This compares to adjusted operating income of $55.8 million for fiscal 2017, which excludes $1.8 million of expenses related to the COO’s retirement in the first quarter of fiscal 2017.

—	Based upon adjusted pre-tax income, the adjusted effective tax rate for fiscal 2018 was 25.7% as compared to the adjusted effective tax rate of 31.9% in fiscal 2017. The decrease in the adjusted effective tax rate is primarily due to changes in jurisdictional earnings.

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Net loss was $15.2 million, or $0.66 per diluted share, for fiscal 2018 compared to net income of $35.1 million, or $1.51 per diluted share, for the prior year. Adjusted net income in fiscal 2018, which excludes $6.2 million of expenses and amortization related to the acquisition of the Olivia Burton

 

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, significantly changing U.S. tax laws by, among other things, reducing the federal corporate tax rate on U.S. earnings and implementing a territorial tax system. As part of the legislation, U.S. companies are required to pay a tax on historical earnings generated offshore that have not been repatriated to the U.S. and have not been previously taxed. In addition, revaluation of deferred tax asset and liability positions at the lower federal base rate of 21% is required. In the fourth quarter of fiscal 2018, the Company recorded a $45.0 million provisional tax expense related to the 2017 Tax Act. This includes approximately $28.2 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over 8 years. Also included is $8.3 million associated with the revaluation of deferred tax assets and liabilities at the new corporate tax rate, and $8.5 million related to deferred withholding and U.S. state income taxes.

Given the significant complexity and timing of the 2017 Tax Act, accounting for the income tax effects requires significant judgement in the interpretation and application of its provisions. As additional guidance from the U.S. Treasury, and the potential for additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the 2017 Tax Act is anticipated, these estimates may be adjusted during the measurement period of up to one year from the enactment date. The Company is also reviewing its income tax provisions for future periods in light of the changes imposed by the new tax legislation.

In fiscal 2019, the Company anticipates that net sales will be in a range of $605.0 million to $615.0 million and operating income will be approximately $68.0 million to $71.0 million. The Company anticipates net income in fiscal 2019 to be approximately $50.5 million to $52.8 million, or $2.15 to $2.25 per diluted share. Based on the lower U.S. corporate tax rate, coupled with our jurisdictional earnings, the Company anticipates a 25% effective tax rate. The outlook excludes approximately $3.0 million of amortization of the acquired intangible assets for fiscal 2019 related to the Olivia Burton brand. The Company's outlook assumes no further significant fluctuations from prevailing foreign currency exchange rates.

The Company also announced that on March 29, 2018, the Board of Directors approved an increase in the Company’s quarterly cash dividend to $0.20 from $0.13 for each share of the Company’s outstanding common stock and class A common stock. The first such dividend will be paid on April 25, 2018 to all shareholders of record as of the close of business on April 11, 2018.

During the fourth quarter of fiscal 2018, the Company repurchased approximately 20,000 shares under its share repurchase program. As of January 31, 2018, the Company had $48.0 million remaining under the $50.0 million share repurchase authorization.

The Company’s management will host a conference call and audio webcast to discuss its results today, March 29^th, at 9:00 a.m. Eastern Time. The conference call may be accessed by dialing 800-239-9838.  Additionally, a live webcast of the call can be accessed at www.movadogroup.com. The webcast will be archived on the Company’s website approximately one hour after the conclusion of the call. Additionally, a telephonic re-play of the call will be available from 12:00 p.m. ET on March 29, 2018 until 11:59 p.m. ET on April 5, 2018 and can be accessed by dialing 844-512-2921and entering replay pin number 3536235.

Movado Group, Inc. designs, sources, and distributes MOVADO®, OLIVIA BURTON®, EBEL®, CONCORD®, COACH®, TOMMY HILFIGER®, HUGO BOSS®, LACOSTE®, SCUDERIA FERRARI®, REBECCA MINKOFF® and URI MINKOFF® watches worldwide, and operates Movado company stores in the United States.

In this release, the Company presents certain financial measures that are not calculated according to generally accepted accounting principles in the United States (“GAAP”). Specifically, the Company is presenting adjusted gross profit, adjusted gross margin, adjusted operating expenses and adjusted operating income, which are gross profit, gross margin, operating expenses and operating income, respectively, under GAAP, adjusted to eliminate expenses and the amortization of acquisition accounting adjustments related to the Olivia Burton brand acquisition, charges for the cost savings initiatives and the COO’s retirement. The Company is also presenting adjusted tax provision, which is the tax provision under GAAP, adjusted to eliminate the impact of the 2017 Tax Act, charges for the Olivia Burton brand acquisition, cost savings initiatives, impairment of a long-term investment in a private company and the COO’s retirement. The Company believes these adjusted measures are useful because they give investors information about the Company’s financial performance without the effect of certain items that the Company believes are not characteristic of its usual operations. The Company is also presenting adjusted net income, adjusted earnings per share and adjusted effective tax rate, which are net income, earnings per share and effective tax rate, respectively, under GAAP, adjusted to eliminate the after-tax impact of the 2017 Tax Act, expenses and the amortization of acquisition accounting adjustments related to the Olivia Burton brand acquisition, the cost savings initiatives, impairment of a long-term investment in a private company and the COO’s retirement. The Company believes that adjusted net income, adjusted earnings per share and adjusted effective tax rate are useful measures of performance because they give investors information about the Company’s financial performance without the effect of certain items that the Company believes are not characteristic of its usual operations. Additionally, the Company is presenting constant currency information to provide a framework to assess how its business performed excluding the effects of foreign currency exchange rate fluctuations in the current period. Comparisons of financial results on a constant dollar basis are calculated by translating each foreign currency at the same US dollar exchange

 

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company has tried, whenever possible, to identify these forward-looking statements using words such as “expects,” “anticipates,” “believes,” “targets,” “goals,” “projects,” “intends,” “plans,” “seeks,” “estimates,” “may,” “will,” “should” and variations of such words and similar expressions. Similarly, statements in this press release that describe the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the Company's actual results, performance or achievements and levels of future dividends to differ materially from those expressed in, or implied by, these statements. These risks and uncertainties may include, but are not limited to 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 United Kingdom’s process to 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, decrease in mall traffic and increase in e-commerce, 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 Olivia Burton) 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,  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, and the other factors discussed in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. These statements reflect the Company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this press release are likely to cause these statements to become outdated with the passage of time. The Company assumes no duty to update its forward looking statements and this release shall not be construed to indicate the assumption by the Company of any duty to update its outlook in the future.

(Tables to follow)

 

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