Paramus, NJ—Movado Group, Inc. reported today a decline in its fourth quarter profit hurt by higher charges. But adjusted earnings still beat analysts’ estimate even if net sales didn’t.
For the quarter ended Jan. 31, the watch company reported net income of $719 million, or 28 cents a share, down from $7.92 m million, or 31 cents a share, a year ago. Results included a pre-tax charge of $8.3 million, or 20 cents a share, relating to the company’s strategy to reducing ESQ Movado merchandise while expanding Movado brand offerings in certain retail doors. There also was 5 cents a share charge related to a charitable contribution to the Movado Group Foundation.
Reallocation of ESQ
Therefore, excluding these items, adjusted net was $12 million or 46 cents a share, which beat analysts’ average estimate for 30 cents a share.
Net sales were up 7% to $132.26 million from $123.59 million last year, led by growth in the licensed brand watches. Adjusted net sales went up 9% to $140.1 million (on a constant dollar basis, adjusted sales improved 8.4%), narrowly missing analysts’ average estimate for $143.50 million in sales.
Adjusted gross margin widened to 53.0% from 52.6% last year, excluding the charge to gross profit for anticipated sales returns and the write down of excess inventory related to the ESQ reallocation strategy, and Coach brand repositioning.
Adjusted operating expenses increased 4.0% to $59.9 million related to the Movado Group Foundation contribution and the write down associated with ESQ reallocation.
“The fourth quarter marked an excellent finish to a strong year of growth for Movado Group,” said Efraim Grinberg, chairman/ceo. “We achieved our 16th consecutive quarter of solid financial performance highlighted by strong sales growth and expansion in adjusted operating margin, which fueled a 43.5% increase in adjusted operating income as compared to the fourth quarter of fiscal 2013.”
Commenting on strategic changes in its watch brands, Grinberg noted, “In order to concentrate our resources and efforts on those brands delivering the highest return on investment, we made the strategic decision to reduce the presence of ESQ Movado in certain retail doors so that the case space can be reallocated to our more productive Movado collections. This decision, which resulted in an $8.3 million pre-tax charge in the fourth quarter, will enable us to expand the presence of our best performing Movado products at the point of sale in these doors beginning in the second quarter.”
For 2013, total net income was $50.9 million, or $1.97 a share, and net sales were $570.3 million.
Looking ahead to this fiscal year, Movado forecast net income to increase to about $63.5 million, or $2.44 a share, and net sales to increase nearly 10.7% to $640 million Analysts’ projection is for $2.38 a share on sales of $638.1 million.
The company also projects gross margin percent to be approximately flat to this year, and operating profit to grow about 19% to $90 million.
Rick Coté, president and chief operating officer, cited the repositioning of Coach watches, the launch of Scuderia Ferrari internationally and the continued growth of Movado brand as a giving momentum for sales into this year.
Dividend Rises by 25%
“We also continued to invest in geographical infrastructure allowing us to continue driving International growth,” Coté said. These business milestones have positioned us well to deliver on our strategic plan initiatives of 10% annualized sales growth and 20% annualized operating profit growth. The first year of this strategic plan generated 13% sales growth and 32% adjusted operating profit growth.”
Shares of Movado Group rose in early trading today after this earnings report and news that the company is increasing its quarterly cash dividend by 25%. The company will pay a dividend of 10 cents a share on April 21 to shareholders of record as of April 7.