L
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 October 31, 20192020
☐ | 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
| MOV |
| New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 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 | ☐ |
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 November 21, 201919, 2020 were 16,414,35016,585,236 and 6,603,645,6,608,548 respectively.
MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
October 31, 20192020
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Part I |
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Item 1. |
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Consolidated Balance Sheets at October 31, |
| 3 |
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| 6 |
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| 7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| October 31, |
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| January 31, |
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| October 31, |
| October 31, |
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| January 31, |
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| October 31, |
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| 2019 |
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| 2019 |
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| 2018 |
| 2020 |
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| 2020 |
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| 2019 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | 116,025 |
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| $ | 189,911 |
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| $ | 142,668 |
| $ | 163,218 |
|
| $ | 185,872 |
|
| $ | 116,025 |
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Trade receivables, net |
| 136,272 |
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| 84,026 |
|
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| 126,106 |
|
| 103,506 |
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| 78,388 |
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| 136,272 |
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Inventories |
| 201,164 |
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| 165,311 |
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| 183,539 |
|
| 176,841 |
|
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| 171,406 |
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| 201,164 |
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Other current assets |
| 30,737 |
|
|
| 28,898 |
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|
| 31,590 |
|
| 28,028 |
|
|
| 28,888 |
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|
| 30,737 |
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Total current assets |
| 484,198 |
|
|
| 468,146 |
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|
| 483,903 |
|
| 471,593 |
|
|
| 464,554 |
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| 484,198 |
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Property, plant and equipment, net |
| 29,275 |
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|
| 26,067 |
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| 25,471 |
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| 24,002 |
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| 29,238 |
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| 29,275 |
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Operating lease right-of-use assets |
| 88,126 |
|
|
| — |
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|
| — |
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| 77,932 |
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| 89,523 |
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| 88,126 |
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Deferred and non-current income taxes |
| 28,191 |
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| 24,503 |
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| 17,400 |
|
| 54,748 |
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| 25,403 |
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| 28,191 |
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Goodwill |
| 135,280 |
|
|
| 136,033 |
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|
| 131,756 |
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| 0 |
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| 136,366 |
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| 135,280 |
|
Other intangibles, net |
| 43,532 |
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| 48,183 |
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| 47,479 |
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| 17,123 |
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| 42,359 |
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| 43,532 |
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Other non-current assets |
| 58,453 |
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| 56,769 |
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| 57,907 |
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| 56,380 |
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|
| 59,865 |
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| 58,453 |
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Total assets | $ | 867,055 |
|
| $ | 759,701 |
|
| $ | 763,916 |
| $ | 701,778 |
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| $ | 847,308 |
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| $ | 867,055 |
|
LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable | $ | 33,757 |
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| $ | 38,650 |
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| $ | 47,164 |
| $ | 35,562 |
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| $ | 35,488 |
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| $ | 33,757 |
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Accrued liabilities |
| 62,499 |
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| 44,429 |
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| 65,761 |
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| 59,612 |
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| 44,210 |
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| 62,499 |
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Accrued payroll and benefits |
| 9,353 |
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| 18,773 |
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| 14,530 |
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| 12,693 |
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| 6,302 |
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| 9,353 |
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Current operating lease liabilities |
| 14,579 |
|
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| — |
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| — |
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| 14,210 |
|
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| 15,083 |
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| 14,579 |
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Income taxes payable |
| 17,243 |
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|
| 10,831 |
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| 9,617 |
|
| 11,275 |
|
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| 8,217 |
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| 17,243 |
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Total current liabilities |
| 137,431 |
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| 112,683 |
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| 137,072 |
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| 133,352 |
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| 109,300 |
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| 137,431 |
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Loans payable to bank |
| 50,685 |
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| 50,280 |
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| 49,590 |
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| 37,266 |
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| 51,910 |
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| 50,685 |
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Deferred and non-current income taxes payable |
| 26,370 |
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| 29,242 |
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| 29,519 |
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| 20,893 |
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| 25,419 |
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| 26,370 |
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Non-current operating lease liabilities |
| 80,682 |
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| — |
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| — |
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| 71,658 |
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| 81,877 |
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| 80,682 |
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Other non-current liabilities |
| 47,943 |
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| 67,120 |
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| 66,721 |
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| 45,179 |
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| 48,393 |
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| 47,943 |
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Total liabilities |
| 343,111 |
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| 259,325 |
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| 282,902 |
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| 308,348 |
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| 316,899 |
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| 343,111 |
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Commitments and contingencies (Note 9) |
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Commitments and contingencies (Note 12) |
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Redeemable noncontrolling interest |
| 3,263 |
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| 3,721 |
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| — |
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| 2,772 |
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| 3,165 |
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| 3,263 |
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Equity: |
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Preferred Stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued |
| — |
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| — |
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| — |
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| 0 |
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| 0 |
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| 0 |
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Common Stock, $0.01 par value, 100,000,000 shares authorized; 27,856,954, 27,701,742 and 27,676,495 shares issued and outstanding, respectively |
| 279 |
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| 277 |
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| 276 |
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Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,603,645, 6,586,780 and 6,596,780 shares issued and outstanding, respectively |
| 65 |
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| 65 |
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| 66 |
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Common Stock, $0.01 par value, 100,000,000 shares authorized; 28,077,806, 27,859,328 and 27,856,954 shares issued and outstanding, respectively |
| 281 |
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| 279 |
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| 279 |
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Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,608,548, 6,603,645 and 6,603,645 shares issued and outstanding, respectively |
| 65 |
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| 65 |
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| 65 |
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Capital in excess of par value |
| 206,725 |
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| 201,814 |
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| 199,822 |
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| 212,730 |
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| 208,473 |
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| 206,725 |
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Retained earnings |
| 456,579 |
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| 431,180 |
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| 418,337 |
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| 313,696 |
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| 455,479 |
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| 456,579 |
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Accumulated other comprehensive income |
| 79,825 |
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| 80,507 |
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| 76,110 |
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| 85,879 |
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| 85,050 |
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| 79,825 |
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Treasury Stock, 11,442,625, 11,268,492 and 11,164,865 shares, respectively, at cost |
| (222,792 | ) |
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| (217,188 | ) |
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| (213,597 | ) | |||||||||||
Treasury Stock, 11,492,591, 11,443,308 and 11,442,625 shares, respectively, at cost |
| (223,306 | ) |
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| (222,809 | ) |
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| (222,792 | ) | |||||||||||
Total Movado Group, Inc. shareholders' equity |
| 520,681 |
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| 496,655 |
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| 481,014 |
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| 389,345 |
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| 526,537 |
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| 520,681 |
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Noncontrolling interest |
| 1,313 |
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| 707 |
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| 0 |
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Total equity |
| 390,658 |
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| 527,244 |
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| 520,681 |
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Total liabilities, redeemable noncontrolling interest and equity | $ | 867,055 |
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| $ | 759,701 |
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| $ | 763,916 |
| $ | 701,778 |
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| $ | 847,308 |
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| $ | 867,055 |
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See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Net sales | $ | 205,618 |
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| $ | 208,949 |
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| $ | 509,983 |
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| $ | 480,191 |
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Cost of sales |
| 95,549 |
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| 95,585 |
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| 235,702 |
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| 221,469 |
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Gross profit |
| 110,069 |
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| 113,364 |
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| 274,281 |
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| 258,722 |
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Selling, general and administrative |
| 87,431 |
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| 89,257 |
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| 237,893 |
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| 213,616 |
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Operating income |
| 22,638 |
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| 24,107 |
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| 36,388 |
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| 45,106 |
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Non-operating income/(expense): |
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Change in contingent consideration (Note 8) |
| — |
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| — |
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| 13,627 |
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| — |
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Interest expense |
| (240 | ) |
|
| (146 | ) |
|
| (689 | ) |
|
| (530 | ) |
Interest income |
| 18 |
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|
| 144 |
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|
| 63 |
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| 258 |
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Income before income taxes |
| 22,416 |
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| 24,105 |
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| 49,389 |
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| 44,834 |
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Provision/(benefit) for income taxes (Note 11) |
| 4,955 |
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| (2,817 | ) |
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| 10,543 |
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|
| 657 |
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Net income |
| 17,461 |
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| 26,922 |
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| 38,846 |
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| 44,177 |
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Less: Net loss attributable to noncontrolling interests |
| (304 | ) |
|
| — |
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|
| (349 | ) |
|
| — |
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Net income attributable to Movado Group, Inc. | $ | 17,765 |
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| $ | 26,922 |
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| $ | 39,195 |
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| $ | 44,177 |
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Basic income per share: |
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Weighted basic average shares outstanding |
| 23,117 |
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| 23,254 |
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| 23,124 |
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| 23,200 |
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Net income per share attributable to Movado Group, Inc. | $ | 0.77 |
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| $ | 1.16 |
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| $ | 1.69 |
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| $ | 1.90 |
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Diluted income per share: |
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Weighted diluted average shares outstanding |
| 23,250 |
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| 23,698 |
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| 23,322 |
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| 23,624 |
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Net income per share attributable to Movado Group, Inc. | $ | 0.76 |
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| $ | 1.14 |
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| $ | 1.68 |
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| $ | 1.87 |
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| Three Months Ended October 31, |
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| Nine Months Ended October 31, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Net sales | $ | 169,863 |
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| $ | 205,618 |
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| $ | 328,067 |
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| $ | 509,983 |
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Cost of sales |
| 77,410 |
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|
| 95,549 |
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|
| 158,365 |
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|
| 235,702 |
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Gross profit |
| 92,453 |
|
|
| 110,069 |
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|
| 169,702 |
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|
| 274,281 |
|
Selling, general and administrative |
| 69,386 |
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|
| 87,431 |
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|
| 181,795 |
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|
| 237,893 |
|
Impairment of goodwill and intangible assets (Note 7) |
| 0 |
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|
| 0 |
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|
| 155,919 |
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| 0 |
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Total operating expenses |
| 69,386 |
|
|
| 87,431 |
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|
| 337,714 |
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|
| 237,893 |
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Operating income/(loss) |
| 23,067 |
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| 22,638 |
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| (168,012 | ) |
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| 36,388 |
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Non-operating income/(expense): |
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Gain on sale of a non-operating asset |
| 0 |
|
|
| 0 |
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|
| 1,317 |
|
|
| 0 |
|
Change in contingent consideration (Note 11) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,627 |
|
Interest expense |
| (608 | ) |
|
| (240 | ) |
|
| (1,469 | ) |
|
| (689 | ) |
Interest income |
| 8 |
|
|
| 18 |
|
|
| 31 |
|
|
| 63 |
|
Income/(loss) before income taxes |
| 22,467 |
|
|
| 22,416 |
|
|
| (168,133 | ) |
|
| 49,389 |
|
Provision/(benefit) for income taxes (Note 13) |
| 7,524 |
|
|
| 4,955 |
|
|
| (26,365 | ) |
|
| 10,543 |
|
Net income/(loss) |
| 14,943 |
|
|
| 17,461 |
|
|
| (141,768 | ) |
|
| 38,846 |
|
Less: Net income/(loss) attributable to noncontrolling interests |
| 118 |
|
|
| (304 | ) |
|
| 15 |
|
|
| (349 | ) |
Net income/(loss) attributable to Movado Group, Inc. | $ | 14,825 |
|
| $ | 17,765 |
|
| $ | (141,783 | ) |
| $ | 39,195 |
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Basic income/(loss) per share: |
|
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Weighted basic average shares outstanding |
| 23,285 |
|
|
| 23,117 |
|
|
| 23,223 |
|
|
| 23,124 |
|
Net income/(loss) per share attributable to Movado Group, Inc. | $ | 0.64 |
|
| $ | 0.77 |
|
| $ | (6.11 | ) | �� | $ | 1.69 |
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Diluted income/(loss) per share: |
|
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|
|
Weighted diluted average shares outstanding |
| 23,375 |
|
|
| 23,250 |
|
|
| 23,223 |
|
|
| 23,322 |
|
Net income/(loss) per share attributable to Movado Group, Inc. | $ | 0.63 |
|
| $ | 0.76 |
|
| $ | (6.11 | ) |
| $ | 1.68 |
|
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See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net income | $ | 17,461 |
|
| $ | 26,922 |
|
| $ | 38,846 |
|
| $ | 44,177 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on investments, net of tax benefit of $(3), $(5), $0 and $(24), respectively |
| (8 | ) |
|
| (16 | ) |
|
| — |
|
|
| (80 | ) |
Net change in effective portion of hedging contracts, net of tax (benefit) provision of $(13) and $7, respectively |
| — |
|
|
| (66 | ) |
|
| — |
|
|
| 38 |
|
Amortization of prior service cost, net of tax provision of $4 and $11, respectively |
| 13 |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
Foreign currency translation adjustments |
| 5,614 |
|
|
| (4,210 | ) |
|
| (721 | ) |
|
| (24,191 | ) |
Total other comprehensive income (loss), net of taxes |
| 5,619 |
|
|
| (4,292 | ) |
|
| (682 | ) |
|
| (24,233 | ) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| (304 | ) |
|
| — |
|
|
| (349 | ) |
|
| — |
|
Foreign currency translation adjustments |
| 27 |
|
|
| — |
|
|
| (109 | ) |
|
| — |
|
Total comprehensive loss attributable to noncontrolling interest | $ | (277 | ) |
|
| — |
|
| $ | (458 | ) |
|
| — |
|
Total comprehensive income attributable to Movado Group, Inc. | $ | 23,357 |
|
| $ | 22,630 |
|
| $ | 38,622 |
|
| $ | 19,944 |
|
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net income/(loss) |
| $ | 14,943 |
|
| $ | 17,461 |
|
| $ | (141,768 | ) |
| $ | 38,846 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain/(loss) on investments, net of tax provision/(benefit) of $1, $(3), $(10) and $0, respectively |
|
| 1 |
|
|
| (8 | ) |
|
| (31 | ) |
|
| 0 |
|
Amortization of prior service cost, net of tax provision of $4, $4, $12 and $11, respectively |
|
| 14 |
|
|
| 13 |
|
|
| 42 |
|
|
| 39 |
|
Foreign currency translation adjustments |
|
| (245 | ) |
|
| 5,614 |
|
|
| 818 |
|
|
| (721 | ) |
Total other comprehensive (loss)/income, net of taxes |
|
| (230 | ) |
|
| 5,619 |
|
|
| 829 |
|
|
| (682 | ) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
| 118 |
|
|
| (304 | ) |
|
| 15 |
|
|
| (349 | ) |
Foreign currency translation adjustments |
|
| (58 | ) |
|
| 27 |
|
|
| 198 |
|
|
| (109 | ) |
Total comprehensive income/(loss) attributable to noncontrolling interests |
| $ | 60 |
|
| $ | (277 | ) |
| $ | 213 |
|
| $ | (458 | ) |
Total comprehensive income/(loss) attributable to Movado Group, Inc. |
| $ | 14,653 |
|
| $ | 23,357 |
|
| $ | (141,152 | ) |
| $ | 38,622 |
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended October 31, |
| Nine Months Ended October 31, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Movado Group, Inc. | $ | 39,195 |
|
| $ | 44,177 |
| |||||||
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: |
|
|
|
|
|
|
| |||||||
Net (loss)/income attributable to Movado Group, Inc. | $ | (141,783 | ) |
| $ | 39,195 |
| |||||||
Adjustments to reconcile net (loss)/income to net cash used in operating activities: |
|
|
|
|
|
|
| |||||||
Impairment of goodwill and intangible assets |
| 155,919 |
|
|
| 0 |
| |||||||
Non-cash corporate initiatives |
| 6,685 |
|
|
| 0 |
| |||||||
Change in contingent consideration |
| (13,627 | ) |
|
| — |
|
| 0 |
|
|
| (13,627 | ) |
Gain on sale of a non-operating asset |
| (1,317 | ) |
|
| 0 |
| |||||||
Depreciation and amortization |
| 11,888 |
|
|
| 9,907 |
|
| 10,546 |
|
|
| 11,888 |
|
Transactional losses |
| 309 |
|
|
| 133 |
| |||||||
Transactional losses/(gains) |
| 231 |
|
|
| 309 |
| |||||||
Provision for inventories and accounts receivable |
| 2,626 |
|
|
| 2,233 |
|
| 2,066 |
|
|
| 2,626 |
|
Deferred income taxes |
| (6,462 | ) |
|
| (7,538 | ) |
| (31,536 | ) |
|
| (6,462 | ) |
Stock-based compensation |
| 4,658 |
|
|
| 4,287 |
|
| 3,848 |
|
|
| 4,658 |
|
(Benefit) for 2017 tax act |
| — |
|
|
| (3,929 | ) | |||||||
Other |
| (435 | ) |
|
| — |
|
| 306 |
|
|
| (435 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
| (52,659 | ) |
|
| (47,754 | ) |
| (26,835 | ) |
|
| (52,659 | ) |
Inventories |
| (38,064 | ) |
|
| (25,884 | ) |
| (7,073 | ) |
|
| (38,064 | ) |
Other current assets |
| (2,407 | ) |
|
| 2,154 |
|
| (821 | ) |
|
| (2,407 | ) |
Accounts payable |
| (4,184 | ) |
|
| 17,973 |
|
| 40 |
|
|
| (4,184 | ) |
Accrued liabilities |
| 19,271 |
|
|
| 22,176 |
|
| 15,929 |
|
|
| 19,271 |
|
Accrued payroll and benefits |
| (9,379 | ) |
|
| 1,062 |
|
| 6,124 |
|
|
| (9,379 | ) |
Income taxes payable |
| 6,407 |
|
|
| 5,513 |
|
| 516 |
|
|
| 6,407 |
|
Other non-current assets |
| 640 |
|
|
| 900 |
|
| (347 | ) |
|
| 640 |
|
Other non-current liabilities |
| (2,347 | ) |
|
| 1,436 |
|
| 796 |
|
|
| (2,347 | ) |
Net cash (used in)/provided by operating activities |
| (44,570 | ) |
|
| 26,846 |
| |||||||
Net cash used in operating activities |
| (6,706 | ) |
|
| (44,570 | ) | |||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (10,023 | ) |
|
| (8,206 | ) |
| (2,428 | ) |
|
| (10,023 | ) |
Proceeds from sale of a non-operating asset |
| 1,317 |
|
|
| 0 |
| |||||||
Proceeds from sale of an asset held for sale |
| 0 |
|
|
| 242 |
| |||||||
Trademarks and other intangibles |
| (194 | ) |
|
| (130 | ) |
| (118 | ) |
|
| (194 | ) |
Acquisition, net of cash acquired |
| — |
|
|
| (93,040 | ) | |||||||
Proceeds from sale of an asset held for sale |
| 242 |
|
|
| — |
| |||||||
Net cash used in investing activities |
| (9,975 | ) |
|
| (101,376 | ) |
| (1,229 | ) |
|
| (9,975 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of bank borrowings |
| (47,699 | ) |
|
| 0 |
| |||||||
Proceeds from bank borrowings |
| — |
|
|
| 50,296 |
|
| 30,879 |
|
|
| 0 |
|
Repayments of bank borrowings |
| — |
|
|
| (25,000 | ) | |||||||
Stock awards and options exercised and other changes |
| (1,249 | ) |
|
| 4,863 |
|
| (497 | ) |
|
| (1,249 | ) |
Stock repurchase |
| (4,199 | ) |
|
| (3,931 | ) |
| 0 |
|
|
| (4,199 | ) |
Dividends paid |
| (13,796 | ) |
|
| (13,855 | ) |
| 0 |
|
|
| (13,796 | ) |
Net cash (used in)/provided by financing activities |
| (19,244 | ) |
|
| 12,373 |
| |||||||
Debt issuance cost |
| (300 | ) |
|
| 0 |
| |||||||
Net cash used in financing activities |
| (17,617 | ) |
|
| (19,244 | ) | |||||||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
| (93 | ) |
|
| (9,986 | ) |
| 2,926 |
|
|
| (93 | ) |
Net decrease in cash, cash equivalents and restricted cash |
| (73,882 | ) |
|
| (72,143 | ) |
| (22,626 | ) |
|
| (73,882 | ) |
Cash, cash equivalents, and restricted cash at beginning of year |
| 190,459 |
|
|
| 215,411 |
|
| 186,438 |
|
|
| 190,459 |
|
Cash, cash equivalents, and restricted cash at end of period | $ | 116,577 |
|
| $ | 143,268 |
| $ | 163,812 |
|
| $ | 116,577 |
|
|
|
|
|
|
|
|
| |||||||
�� |
|
|
|
|
|
|
| |||||||
Reconciliation of cash, cash equivalents, and restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 116,025 |
|
| $ | 142,668 |
| $ | 163,218 |
|
| $ | 116,025 |
|
Restricted cash included in other non-current assets |
| 552 |
|
|
| 600 |
|
| 594 |
|
|
| 552 |
|
Cash, cash equivalents, and restricted cash | $ | 116,577 |
|
| $ | 143,268 |
| $ | 163,812 |
|
| $ | 116,577 |
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – – BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statementsConsolidated 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 statementsConsolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 20192020 (the “2019“2020 Annual Report on Form 10-K”). The unaudited consolidated financial statementsConsolidated 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 statementsConsolidated 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 statementsConsolidated 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, 20192020 is derived from the audited annual financial statements, which are included in the Company’s 20192020 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 2 – IMPACT OF THE COVID-19 PANDEMIC
In December 2019, COVID-19 emerged and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and other social distancing requirements. As a result of the outbreak, in mid-March 2020, the Company and the majority of the Company’s wholesale customers temporarily closed all of their retail stores due to health concerns associated with COVID-19. Although the Company reopened all of its retail stores during the second quarter and most of the Company’s brick and mortar wholesale customers have reopened the majority of their retail locations as well, the discretionary consumer goods segment remains highly challenged at brick and mortar retail locations worldwide.
The Company entered this period of uncertainty with a healthy liquidity position, and it took actions to enhance its financial liquidity and flexibility, including minimizing all non-essential operating expenses (including marketing, travel and consulting services), reevaluating all capital expenditures, furloughing approximately 80% of the Company’s North American workforce during March through June and temporarily reducing the work-rate of international employees while applying for available government payroll subsidies in accordance with local government guidelines and programs, suspending the Company’s share repurchase program and regular quarterly dividends, reducing salaries and suspending Board of Director fees from April through June 2020, amending license agreements to reduce its royalty obligations in fiscal 2021 and negotiating rent abatements in respect of its rent obligations for its Company Stores and certain other leases. As a precautionary measure, the Company borrowed an additional $30.9 million under its revolving credit facility in March 2020 and amended its revolving credit facility to modify some of its financial covenants (see Note 9 – Debt and Lines of Credit). During the second and third quarter of fiscal 2021, the Company repaid $36.8 million and $10.9 million, respectively, under its revolving credit facility.
As part of the Company’s efforts to continue to reduce operating expenses and adjust cash flows in light of the ongoing economic challenges resulting from the COVID-19 pandemic, the Company committed to a restructuring plan (the “Restructuring Plan”) on June 29, 2020 (see Note 6 – Restructuring Provision for further discussion).
The Company evaluates its long-lived assets, operating lease right of use assets, goodwill and intangible assets for indicators of impairment at least annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Given the substantial reduction in the Company’s sales and the reduced cash flow projections as a result of closures of the Company’s retail stores and its wholesale customers due to the COVID-19 pandemic, as well as the significant decline in the Company’s market capitalization, the Company determined that a triggering event occurred during the first quarter of fiscal 2021 and that an impairment assessment was warranted for goodwill and intangible assets. This analysis resulted in impairment charges related to goodwill of $133.7 million and intangible assets of $22.2 million in the first quarter of fiscal 2021. See Note 7 – Goodwill and Intangible Assets – for a further discussion of these impairments.
Although the full magnitude of the effects on the Company’s business is difficult to predict at this time, the COVID-19 pandemic has had, and for the foreseeable future is expected to continue to have, a material impact on the Company’s business, financial condition, results of operations and cash flows. In addition to the resurgence of COVID-19 cases in many regions in the fall which has resulted in the tightening of containment and mitigation measures in many countries, the ongoing economic impacts and health concerns associated with the pandemic will likely continue to affect consumer behavior, spending levels, shopping preferences and tourism. Nevertheless, the Company believes that based on the Company’s current expectations, cash flows from operations and its credit lines and cash on-hand, the Company has adequate funds to support its operating, capital and debt service requirements and expects to maintain compliance with its debt covenants for the next twelve months subsequent to the issuance of these financial statements.
NOTE 23 – RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”, which makes improvements to financial instruments guidance, including the current expected credit losses guidance. The adoption of the new guidance was not material to the Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This guidance provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance but does not except the adoption of this standard to have a material impact on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in “Income Taxes (Topic 740)”. It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company early adopted this standard effective February 1, 2020. The provision of ASU 2019-12 which has the most significant impact on the Company is the removal of a limitation on the tax benefit recognized on pre-tax losses during interim periods which exceed the expected loss for the fiscal year. The Company’s income tax benefit for the nine months ended October 31, 2020 includes an income tax benefit of$0.5 million as a result of early adoption in the first quarter of fiscal 2021.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements in ASC 820, Fair Value Measurement. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard.
In June 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. The Company adopted ASU 2018-072018-13 during the first quarter of fiscal 2020.2021. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12. ASU 2017-12 amends and simplifies hedge accounting guidance in order to enable entities to better portray the economics of their risk management activities. The Company adopted ASU 2017-12 on February 1, 2019, the first day of fiscal 2020. The adoption of the standard did not have an impact on the Company's consolidated results of operations.
The Company adopted ASU 2016-02, “Leases”, on February 1, 2019, the first day of fiscal 2020, using the modified retrospective approach and accordingly the Company recognized a cumulative effect adjustment in the first quarter of fiscal 2020, rather than restating any prior periods. The Company has elected to use the package of practical expedients permitted under the transition guidance, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct costs for any expired or existing leases. The transition practical expedient allows Companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. The adoption did not result in any adjustments to the opening balance of retained earnings.
Adoption of ASU 2016-02 resulted in recording right-of-use lease assets of $97.0 million which were reduced to $91.1 million as a result of $5.9 million of previously recorded deferred rent liabilities and tenant allowances, and lease liabilities of $97.0 million as of February 1, 2019. The standard did not have a material impact on the Company's consolidated results of operations or cash flows. See Note 10 – Leases for additional lease disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. This standard introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will requirerequires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This may result in the earlier recognition of allowance for losses. This guidance is effective for fiscal years beginning after December 15, 2019, which will be the Company’s first quarter of fiscal 2021, with early adoption permitted. The Company is currently evaluating the impact of theadopted ASU 2016-13 on February 1, 2020. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements. Results for reporting periods as of February 1, 2020 are presented under the new standard, while prior results continue to be reported under the previous standard.
NOTE 34 – EARNINGS PER SHARE AND CASH DIVIDENDS
The Company presents net incomeincome/(loss) attributable to Movado Group, Inc. after adjusting for redeemable noncontrolling interest,interests, as applicable, per share on a basic and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.
The number of shares used in calculating basic and diluted earnings (loss) per share is as follows (in thousands):
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 23,117 |
|
|
| 23,254 |
|
|
| 23,124 |
|
|
| 23,200 |
|
| 23,285 |
|
|
| 23,117 |
|
|
| 23,223 |
|
|
| 23,124 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options to purchase shares of common stock |
| 133 |
|
|
| 444 |
|
|
| 198 |
|
|
| 424 |
|
| 90 |
|
|
| 133 |
|
|
| 0 |
|
|
| 198 |
|
Diluted |
| 23,250 |
|
|
| 23,698 |
|
|
| 23,322 |
|
|
| 23,624 |
|
| 23,375 |
|
|
| 23,250 |
|
|
| 23,223 |
|
|
| 23,322 |
|
For the three months ended October 31, 2020 and 2019, and 2018, approximately 889,000 and786,000 and 2,000,, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended October 31, 20192020 and 2018,2019, approximately 352,000815,000 and 77,000,352,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended October 31, 2020, the Company also had approximately 80,000stock options outstanding that could potentially dilute earnings per share in future periods that were excluded from the computation of diluted EPS because their effect would have been anti-dilutive given the net loss during the period.
During the first three quarters of fiscal 2021, the Company did not declare quarterly cash dividends. The Company declared quarterly cash dividends of $0.20 in each of the first three quarters of fiscal year 2020, representing $13.8 million in total dividends. Of this amount, $4.6 million was paid on September 24, 2019, $4.6 million was paid on June 25, 2019 and $4.6 million was paid on April 24, 2019. The Company declared quarterly cash dividends of $0.20 in each of the first three quarters of fiscal year 2019, representing $13.9 million in total dividends. Of this amount, $4.7 million was paid on September 25, 2018, $4.6 million was paid on June 25, 2018 and $4.6 million was paid on April 25, 2018.
NOTE 45 – ACQUISITIONS
Australia
On November 22, 2019, the Company entered into an agreement and formed a joint venture with GDL Accessories PTY Ltd. (“GDL”), an Australian based company which distributed the Company’s products in Australia and New Zealand. The agreement established a joint venture, MGDL Distribution Pty Ltd (“MGDL”), and set out the terms in which both parties will govern their relationship as shareholders of MGDL, and the terms on which the joint venture will be managed.
The joint venture was formed to more cost effectively market and distribute Movado products to customers in Australia and in New Zealand.
The Company contributed 0.9 million Australian dollars (equivalent to approximately $0.6 million US dollars) to the joint venture and is a 51% interest holder. The Company controls all of the significant participating rights of the joint venture. As the Company controls all of the significant participating rights of the joint venture and is the majority interest holder in MGDL, the assets, liabilities and results of operations of the joint venture are consolidated and included in the Company’s Consolidated Financial Statements since the date of acquisition within the Watch and Accessory Brands segment. GDL’s interest is reflected in Net income attributable to noncontrolling interest in the Consolidated Statements of Operations and Noncontrolling interest in the Consolidated Balance Sheets. As of October 31, 2020, all amounts in the Consolidated Financial Statements related to MGDL were immaterial.
City Time
On December 3, 2018, the Company acquired 51% of City Time Distribucion, S.L.S.L.U. (“City Time”), the Company’s distributor in Spain, and simultaneously signed a joint venture agreement. The purchase price was 4.2 million Euros or(equivalent to approximately $4.8 million US dollars), net of cash acquired, and was funded with cash on hand. The results of City Time have been included in the consolidated financial statementsCompany’s Consolidated Financial Statements since the date of acquisition within the International location of the Watch and Accessory Brands segment. Of the total purchase consideration, there were no material amounts allocated to assets acquired and liabilities assumed.
Pursuant to the joint venture agreement, the noncontrolling interest holder has the right to sell its interest in City Time to the Company on two specific dates in the future. The noncontrolling interest is not redeemable until such dates. The Company will adjust the carrying value of the redeemable interest to the redemption amount assuming it was redeemable at the balance sheet date. At October 31, 2019,2020, the Company concluded that theno remeasurement adjustment is immaterial.was needed. If the noncontrolling interest holder does not exercise its right to sell its interest in City Time to the Company, the Company nevertheless has the option to purchase the noncontrolling interest holder’s interest on each of the same two dates and at the same price as would have applied if the noncontrolling interest holder had exercised its sale option.
MVMT
On October 1, 2018, the Company acquired MVMT Watches, Inc., owner of the MVMT brand, for an initial payment of $100.0 million and 2 future contingent payments that combined could total up to an additional $100.0 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. After giving effect to the closing adjustments, the purchase price was $108.4 million, net of cash acquired of $3.8 million. The acquisition was funded with cash on hand and adds a new brand with significant global growth potential to the Company’s portfolio.
The resultsCompany recorded goodwill (as of October 1, 2018) of $77.5 million based on the MVMT brand have been included inamount by which the consolidated financial statements since the date of acquisition within the U.S. and International locations of the Watch and Accessory Brands segment.
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 following table summarizespurchase price exceeded the fair value of the net assets acquired and liabilities assumed asacquired. As the structure of the October 1, 2018 acquisition date (in thousands):
Assets Acquired and Liabilities Assumed |
| Fair Value |
| |
Cash and cash equivalents |
| $ | 3,848 |
|
Trade receivables |
|
| 370 |
|
Inventories |
|
| 14,552 |
|
Prepaid expenses and other current assets |
|
| 2,325 |
|
Property, plant and equipment |
|
| 179 |
|
Other non-current assets |
|
| 6,500 |
|
Goodwill |
|
| 77,542 |
|
Trade name and other intangibles |
|
| 28,928 |
|
Total assets acquired |
|
| 134,244 |
|
Accounts payable |
|
| 5,982 |
|
Accrued liabilities |
|
| 9,018 |
|
Other non-current liabilities |
|
| 7,064 |
|
Total liabilities assumed |
|
| 22,064 |
|
Total purchase price |
| $ | 112,180 |
|
Inventories (asallowed for a step up in basis for tax purposes, the full amount of October 1, 2018) included a step-up adjustment of $0.7 million, which was amortizedgoodwill is deductible for federal income tax purposes over 5 months. The components of Trade name and other intangibles (as of October 1, 2018) included a trade name of $24.7 million (amortized over 10 years), and customer relationships of $4.2 million (amortized over 10 years).15 years.
The acquisition agreement also includesincluded a contingent consideration arrangement based on the MVMT brand achieving certain revenue and EBITDA (as defined in the acquisition agreement) targets. In connection therewith, the Company recorded a non-current liability of $16.5 million as of the date of acquisition to reflect the estimated fair value of the contingent purchase price. $14.5 million was allocated to purchase price and $2.0 million to deferred compensation expense based on future employee service requirements.
The estimated fair value of the contingent consideration was determined using a Monte Carlo simulation that includes key assumptions regarding MVMT’s projected financial performance during the earn-out period (through 2023), volatilities, estimated discount rates, risk-free interest rate, and correlation. Each reporting period after the acquisition, the Company remeasures the fair value of the contingent purchase price liability and will record increases or decreases in the fair value of the liability in its Consolidated Statements of Operations. Changes in fair value will result fromBased on changes in actual and projected financial performance, discount rates, volatilities, and the other key assumptions. The inputs and assumptions are not observable in the market but reflect the assumptions the Company believes would be made by a market participant. The possible outcomes for the contingent consideration range from $0 to $100 million on an undiscounted basis. As a result, changes in the estimated fair value of the contingent consideration over time may result in significant volatility in the Company’s reported earnings.t
The contingent purchase price liability had been remeasured at July 31, 2019 to $1.9 million.million and to 0 at January 31, 2020. Of the $15.0$16.9 million (including interest accretion) decrease in the liability, $13.6$15.4 million iswas included in non-operating income (portion of contingent consideration allocated to purchase price) in the Consolidated Statements of Operations for the nine monthsyear ended OctoberJanuary 31, 2019,2020, and $0.5 million and $0.9$1.0 million arewere reflected as a reduction of deferred compensation (portion of contingent consideration allocated to deferred compensation based on future service requirements) within other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets.
In connection with the remeasurement of the contingent consideration during the nine monthsfiscal year ended OctoberJanuary 31, 2019,2020, the Company assessed the undiscounted cash flows associated with the long-lived assets pertaining to MVMT. Current estimates indicateat that time indicated that carrying amounts arewere expected to be recovered. Management considersThe undiscounted cash flows related to the MVMT long-lived assets as of January 31, 2020 exceeded the carrying value by approximately 33%. See Note 7 – Goodwill and Intangible Assets for impairment of MVMT’s long-lived assets as of October 31, 2020.
NOTE 6 – RESTRUCTURING PROVISION
On June 29, 2020, the Company committed to a Restructuring Plan as part of the Company’s corporate initiatives to reduce operating expenses and adjust cash flows in light of the ongoing economic challenges resulting from the COVID-19 pandemic and its estimatesimpact on the Company’s business. The Restructuring Plan was substantially completed during the second quarter of the Company’s current fiscal year, although cash severance will be paid over time and such payments are expected to be reasonable, however, actual results could differ from these estimates. Refercontinue into the next fiscal year. During the quarter ended October 31, 2020, the Company recorded an additional $0.8 million primarily related to Note 8additional severance and conclusion in negotiations on certain leased properties and consulting arrangements. Of the total provision incurred, approximately $8.7 million is expected to result in cash expenditures with the remaining $6.7 million resulting in non-cash use. The Company expects annual savings in the range of $14 million to $16 million as it relates to severance, employee related and properties (contained within Other in table below).
A summary rollforward of the provision related to the Company’s corporate initiatives, including the provision associated with the Restructuring Plan, is as follows for further discussionthe three months ended October 31, 2020 (in thousands):
| Balance July 31, 2020 |
|
| Provision |
|
| Non-Cash Use |
|
| Cash Payments |
|
| Balance October 31, 2020 |
| |||||
Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related | $ | 5,806 |
|
| $ | 144 |
|
| $ | 0 |
|
| $ | (2,784 | ) |
| $ | 3,166 |
|
Other |
| 89 |
|
|
| 631 |
|
|
| (117 | ) |
|
| (536 | ) |
|
| 67 |
|
Corporate Initiative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related |
| 541 |
|
|
| 0 |
|
|
| 0 |
|
|
| (541 | ) |
|
| 0 |
|
Inventory |
| 3,460 |
|
|
| 0 |
|
|
| (203 | ) |
|
| 0 |
|
|
| 3,257 |
|
Accounts receivable |
| 1,075 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,075 |
|
Other |
| 37 |
|
|
| 6 |
|
|
| 0 |
|
|
| (15 | ) |
|
| 28 |
|
Total | $ | 11,008 |
|
| $ | 781 |
|
| $ | (320 | ) |
| $ | (3,876 | ) |
| $ | 7,593 |
|
A summary rollforward of fair value measurements.the provision related to the Company’s corporate initiatives, including the provision associated with the Restructuring Plan, is as follows for the nine months ended October 31, 2020 (in thousands):
| Balance January 31, 2020 |
|
| Provision |
|
| Non-Cash Use |
|
| Cash Payments |
|
| Balance October 31, 2020 |
| |||||
Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related (1) | $ | 0 |
|
| $ | 7,110 |
|
| $ | 0 |
|
| $ | (3,944 | ) |
| $ | 3,166 |
|
Other (2) |
| 0 |
|
|
| 1,033 |
|
|
| (315 | ) |
|
| (651 | ) |
|
| 67 |
|
Corporate Initiative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Related |
| 0 |
|
|
| 936 |
|
|
| 0 |
|
|
| (936 | ) |
|
| 0 |
|
Inventory (3) |
| 0 |
|
|
| 3,507 |
|
|
| (250 | ) |
|
| 0 |
|
|
| 3,257 |
|
Accounts receivable (4) |
| 0 |
|
|
| 1,075 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,075 |
|
Other (2) |
| 0 |
|
|
| 1,728 |
|
|
| (1,518 | ) |
|
| (182 | ) |
|
| 28 |
|
Total | $ | 0 |
|
| $ | 15,389 |
|
| $ | (2,083 | ) |
| $ | (5,713 | ) |
| $ | 7,593 |
|
The following amounts are included in the Consolidated Balance Sheet at October 31, 2020:
(1) | $2.8 million included in Accrued payroll and benefits and $0.4 million included in Capital in excess of par value. |
(2) | Balance included in Accrued liabilities. |
(3) | Reserve included in Inventories. |
(4) | Reserve included in Trade receivables, net. |
Included in Other is approximately a $1.5 million write-off related to unrefunded deposits for a canceled global customer event.
The corporate initiative costs by operating segment are as follows:
| For the Three Months Ended October 31, 2020 Provision |
|
| For the Nine Months Ended October 31, 2020 Total |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
United States | $ | 594 |
|
| $ | 11,929 |
|
International |
| 187 |
|
|
| 3,460 |
|
Total Watch and Accessory Brands |
| 781 |
|
|
| 15,389 |
|
Total Company Stores |
| 0 |
|
|
| 0 |
|
Total Consolidated | $ | 781 |
|
| $ | 15,389 |
|
|
|
|
|
|
|
|
|
Cost of sales | $ | 43 |
|
| $ | 3,551 |
|
Selling, general and administrative |
| 738 |
|
|
| 11,838 |
|
Total | $ | 781 |
|
| $ | 15,389 |
|
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year or if an event occurs that would more likely than not reduce the fair value below its carrying amount.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as well as the Watch and Accessory Brands reporting unit.
The Company performed recoverability tests for the long-lived assets of MVMT, Olivia Burton and the Company Stores as of April 30, 2020. The Company concluded that the carrying amounts of the long-lived assets of Olivia Burton and the Company Stores were recoverable, while the long-lived assets of MVMT may not be recoverable. Utilizing a royalty rate to determine discounted projected future cash flows in the valuation of MVMT’s trade name and a discounted cash flow method for the valuation of MVMT’s customer relationships, the Company concluded that the fair values of MVMT’s tradenames and customer relationships did not exceed their carrying values. As a result, the Company recorded impairment charges in the Watch and Accessory Brands segment totaling $22.2 million in the first quarter of fiscal 2021, decreasing MVMT’s trade name to $2.4 million and MVMT’s customer relationships to 0.
After adjusting the carrying value of MVMT’s intangible assets, the Company completed an interim quantitative impairment test of goodwill (asas of October 1, 2018) of $77.5 million based on the amount byApril 30, 2020 in which the purchase price exceededCompany compared the fair value of the net assets acquired. AsWatch and Accessory Brands reporting unit to its respective carrying value. An impairment test of goodwill was not performed for the structureCompany Stores reporting unit as there was 0 goodwill at this reporting unit. The fair value estimate for the Watches and Accessory reporting unit was based on the income and market approaches. The discounted cash flow method under the income approach involves estimating the cash flows in a discrete forecast period and a terminal value based on the Gordon Growth Model and discounting at a rate of return that reflects the relative risk of the acquisition allowed for a step up in basis for tax purposes,cash flows. The market approach involves applying valuation multiples to the full amountoperating performance of goodwill is deductible for federal income tax purposes over 15 years.
The following table provides the Company’s unaudited pro forma net sales, net incomeWatch and net income per basicAccessory Brands reporting unit derived from comparable publicly traded companies based on the relative historical and diluted common share as if the results ofprojected operations of the MVMT brand had been includedreporting unit.
The key estimates used in the discounted cash flows model included the Company’s operations commencing on February 1, 2018,weighted average cost of capital and projected cash flows, notably revenue growth rates and margin assumptions. The Company’s assumptions were based on available information relating to operationsthe actual historical performance of the MVMT brand. This pro forma information is not necessarily indicative eitherreporting units and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of recovery, and implied risk premiums based on market prices of the combined results of operations that actually would have been realized by the Company had the MVMT brand acquisition been consummated at the beginningCompany’s common stock as of the period for whichassessment date. The significant estimates in the pro forma information is presented, ormarket approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of future results.the reporting unit. The excess of the Watch and Accessory Brands unit’s carrying value over the estimate of the fair value was recorded in the Watch and Accessory Brands segment as the goodwillimpairment charge in the first quarter of 2021, totaling $133.7 million.
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 (1) |
| ||||
(In thousands, except per share data) |
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Net sales |
| $ | 205,618 |
|
| $ | 217,950 |
|
| $ | 509,983 |
|
| $ | 513,211 |
|
Net income |
|
| 17,765 |
|
| $ | 32,814 |
|
| $ | 39,195 |
|
| $ | 39,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Movado Group, Inc. |
| $ | 0.77 |
|
| $ | 1.41 |
|
| $ | 1.69 |
|
| $ | 1.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Movado Group, Inc. |
| $ | 0.76 |
|
| $ | 1.39 |
|
| $ | 1.68 |
|
| $ | 1.67 |
|
|
|
The changes in the carrying amount of other intangible assets during the nine months ended October 31, 20192020 are as follows (in thousands):
|
| Trade names |
|
| Customer relationships |
|
| Other (1) |
|
| Total |
|
| Trade names |
|
| Customer relationships |
|
| Other (1) |
|
| Total |
| ||||||||
Weighted Average Amortization Period (in years) |
| 10 |
|
| 7 |
|
| 7 |
|
|
|
|
|
| 10 |
|
| 7 |
|
| 9 |
|
|
|
|
| ||||||
Balance, January 31, 2019 |
| $ | 34,771 |
|
| $ | 12,181 |
|
| $ | 1,231 |
|
| $ | 48,183 |
| ||||||||||||||||
Balance at January 31, 2020 |
| $ | 31,075 |
|
| $ | 10,154 |
|
| $ | 1,130 |
|
| $ | 42,359 |
| ||||||||||||||||
Impairment |
|
| (18,595 | ) |
|
| (3,570 | ) |
|
| 0 |
|
|
| (22,165 | ) | ||||||||||||||||
Additions |
|
| — |
|
|
| — |
|
|
| 194 |
|
|
| 194 |
|
|
| 0 |
|
|
| 0 |
|
|
| 118 |
|
|
| 118 |
|
Amortization |
|
| (2,787 | ) |
|
| (1,487 | ) |
|
| (283 | ) |
|
| (4,557 | ) |
|
| (1,487 | ) |
|
| (1,242 | ) |
|
| (232 | ) |
|
| (2,961 | ) |
Foreign exchange impact |
|
| (113 | ) |
|
| (169 | ) |
|
| (6 | ) |
|
| (288 | ) |
|
| (224 | ) |
|
| (32 | ) |
|
| 28 |
|
|
| (228 | ) |
Balance, October 31, 2019 |
| $ | 31,871 |
|
| $ | 10,525 |
|
| $ | 1,136 |
|
| $ | 43,532 |
| ||||||||||||||||
Balance at October 31, 2020 |
| $ | 10,769 |
|
| $ | 5,310 |
|
| $ | 1,044 |
|
| $ | 17,123 |
|
(1) | Other includes fees paid related to trademarks and non-compete agreement related to Olivia Burton brand. |
Amortization expense for intangible assets was $0.9 million and$1.5 million and $1.0 million for the three months ended October 31, 2020 and 2019, respectively,and 2018 respectively,$3.0 million and $4.6 million and $2.8 million for the nine months ended October 31, 2020 and 2019, and 2018, respectively.
NOTE 58 – INVENTORIES
Inventories consisted of the following (in thousands):
|
| October 31, 2019 |
|
| January 31, 2019 |
|
| October 31, 2018 |
|
| October 31, 2020 |
|
| January 31, 2020 |
|
| October 31, 2019 |
| ||||||
Finished goods |
| $ | 154,758 |
|
| $ | 123,947 |
|
| $ | 143,134 |
|
| $ | 130,515 |
|
| $ | 125,603 |
|
| $ | 154,758 |
|
Component parts |
|
| 42,976 |
|
|
| 39,752 |
|
|
| 38,820 |
|
|
| 42,438 |
|
|
| 41,708 |
|
|
| 42,976 |
|
Work-in-process |
|
| 3,430 |
|
|
| 1,612 |
|
|
| 1,585 |
|
|
| 3,888 |
|
|
| 4,095 |
|
|
| 3,430 |
|
|
| $ | 201,164 |
|
| $ | 165,311 |
|
| $ | 183,539 |
|
| $ | 176,841 |
|
| $ | 171,406 |
|
| $ | 201,164 |
|
NOTE 69 – DEBT AND LINES OF CREDIT
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated 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 amends and restates the Company’s prior credit agreement dated as of January 30, 2015 (the “Prior Credit Agreement”) and extends the maturity of the $100.0 million senior secured revolving credit facility (the “Facility”) provided thereunder to October 12, 2023. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrowers, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of April 30, 2020. Among other things, the Second Amendment provides for the following temporary relief with respect to the financial maintenance covenants in the Credit Agreement from April 30, 2020 through the date on which the Company delivers a compliance certificate in respect of the period ended July 31, 2021 (or earlier if the Company demonstrates satisfaction of certain earnings and leverage milestones) (the “Suspension Period”): (i) the maximum consolidated leverage ratio is increased from 2.50 to 1.0 to 2.75 to 1.0 for the four quarter period ended April 30, 2020 and suspended thereafter until the end of the Suspension Period when it resumes at 2.50 to 1.0 and (ii) the minimum EBITDA covenant levels are reduced. In addition, the Second Amendment provides that (i) through April 30, 2021, the Company is required to maintain minimum liquidity (comprised of unrestricted cash and cash equivalents and unutilized commitments under the Credit Agreement) of $100.0 million, (ii) during the Suspension Period, certain covenants, including covenants related to dividends, share repurchases, debt incurrence, investments and capital expenditures, have been tightened and (iii) during the Suspension Period, the interest rate for borrowings under the Credit Agreement is increased to LIBOR plus 2.75% per annum and the commitment fee in respect of the unutilized commitments is increased to 0.45% per annum. In addition, the Second Amendment permanently increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and permanently reduced the minimum EBITDA financial covenant level to $35.0 million starting with the four-quarter period ending July 31, 2021.
As of October 31, 2019,2020, and October 31, 2018,2019, there werewas 25.0 million and 50.0 million in Swiss francs for both periodsFrancs, respectively (with a dollar equivalent of $50.727.3 million and $49.6$50.7 million, respectively), in addition to $10.0 million as of October 31, 2020, in loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both October 31, 20192020 and October 31, 2018.2019. At October 31, 2019,2020, the letters of credit have expiration dates through June 1, 2020.2021. As of October 31, 2019,2020, and October 31, 2018,2019, availability under the Facility was $49.0$62.4 million and $50.1$49.0 million, respectively.
The Company had weighted average borrowings under the facility of $50.6$44.5 million and $3.3$50.6 million during the three months ended October 31, 20192020 and 2018,2019, respectively, with a weighted average interest rate of 3.75% and 1.00% for bothduring the three months ended October 31, 2020 and 2019, and 2018. respectively. The Company had weighted average borrowings under the facility of $50.2 $60.5 million and $3.6$50.2 million, with a weighted average interest rate of 1.00%2.37% and 2.43%,1.00% during the nine months ended October 31, 2020 and 2019, and 2018, respectively.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of October 31, 2019,2020, and 2018,2019, these lines of credit totaled 6.5 million Swiss francsFrancs for both periods, with a dollar equivalent of $6.6$7.1 million and $6.4$6.6 million, respectively. As of October 31, 2019,2020, and 2018,2019, there were 0 borrowings against these lines. As of October 31, 2019,2020, and 2018,2019, 2 European banks had guaranteed obligations to third parties on behalf of 2 of the Company’s foreign subsidiaries in the dollar equivalent of $1.2$1.3 million and $1.1$1.2 million, respectively, in various foreign currencies, of which $0.6$0.6 million,in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $0.5$1.3 million and $0.4$0.5 million for the nine monthnine-month period ended October 31, 20192020 and October 31, 2018,2019, respectively.
NOTE 710 – DERIVATIVE FINANCIAL INSTRUMENTS
As of October 31, 2019,2020, the Company’s entire net forward contracts hedging portfolio consisted of 37.421.6 million Chinese Yuan equivalent, 28.06.0 million Swiss francsFrancs equivalent, 37.420.0 million US dollars equivalent, 27.624.0 million Euros equivalent and 10.95.6 million British Pounds equivalent with various expiry dates ranging through April 22, 2020.January 12, 2021. These forward contracts are not designated as qualified hedges in accordance with ASC 815, Derivatives and Hedging, and, therefore, changes in the fair value of these derivatives are recognized in earnings in the period they arise. Net gains or losses related to these forward contracts are included in Selling,cost of sales and selling and general and administrative expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.
See Note 811 – Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.
For the quarter ended October 31, 2019,2020, the Company did 0t have any cash flow hedges.
NOTE 811 – 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 guidance requires the use of observable market data if such data is available without undue cost and effort.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of October 31, 20192020 and 20182019 and January 31, 20192020 (in thousands):
|
|
|
| Fair Value at October 31, 2019 |
|
|
|
| Fair Value at October 31, 2020 |
| ||||||||||||||||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
| Other current assets |
| $ | 177 |
|
| $ | — |
|
| $ | — |
|
| $ | 177 |
|
| Other current assets |
| $ | 143 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 143 |
|
Short-term investment |
| Other current assets |
|
| 156 |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
| Other current assets |
|
| 156 |
|
|
| 0 |
|
|
| 0 |
|
|
| 156 |
|
SERP assets - employer |
| Other non-current assets |
|
| 1,280 |
|
|
| — |
|
|
| — |
|
|
| 1,280 |
|
| Other non-current assets |
|
| 1,020 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,020 |
|
SERP assets - employee |
| Other non-current assets |
|
| 43,049 |
|
|
| — |
|
|
| — |
|
|
| 43,049 |
|
| Other non-current assets |
|
| 42,040 |
|
|
| 0 |
|
|
| 0 |
|
|
| 42,040 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 33,312 |
|
|
| 33,312 |
|
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 25,206 |
|
|
| 25,206 |
|
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| 79 |
|
|
| — |
|
|
| 79 |
| ||||||||||||||||||
Total |
|
|
| $ | 44,662 |
|
| $ | 79 |
|
| $ | 33,312 |
|
| $ | 78,053 |
|
|
|
| $ | 43,359 |
|
| $ | 0 |
|
| $ | 25,206 |
|
| $ | 68,565 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 43,049 |
|
| $ | — |
|
| $ | — |
|
| $ | 43,049 |
|
| Other non-current liabilities |
| $ | 42,040 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 42,040 |
|
Hedge derivatives |
| Accrued liabilities |
|
| — |
|
|
| 83 |
|
|
| — |
|
|
| 83 |
|
| Accrued liabilities |
|
| 0 |
|
|
| 12 |
|
|
| 0 |
|
|
| 12 |
|
Contingent consideration |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 1,918 |
|
|
| 1,918 |
| ||||||||||||||||||
Total |
|
|
| $ | 43,049 |
|
| $ | 83 |
|
| $ | 1,918 |
|
| $ | 45,050 |
|
|
|
| $ | 42,040 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 42,052 |
|
|
|
|
| Fair Value at January 31, 2019 |
|
|
|
| Fair Value at January 31, 2020 |
| ||||||||||||||||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
| Other current assets |
| $ | 177 |
|
| $ | — |
|
| $ | — |
|
| $ | 177 |
|
| Other current assets |
| $ | 184 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 184 |
|
Short-term investment |
| Other current assets |
|
| 155 |
|
|
| — |
|
|
| — |
|
|
| 155 |
|
| Other current assets |
|
| 156 |
|
|
| 0 |
|
|
| 0 |
|
|
| 156 |
|
SERP assets - employer |
| Other non-current assets |
|
| 860 |
|
|
| — |
|
|
| — |
|
|
| 860 |
|
| Other non-current assets |
|
| 988 |
|
|
| 0 |
|
|
| 0 |
|
|
| 988 |
|
SERP assets - employee |
| Other non-current assets |
|
| 38,170 |
|
|
| — |
|
|
| — |
|
|
| 38,170 |
|
| Other non-current assets |
|
| 45,256 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45,256 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 33,223 |
|
|
| 33,223 |
|
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 24,227 |
|
|
| 24,227 |
|
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
| Other current assets |
|
| 0 |
|
|
| 347 |
|
|
| 0 |
|
|
| 347 |
|
Total |
|
|
| $ | 39,362 |
|
| $ | 22 |
|
| $ | 33,223 |
|
| $ | 72,607 |
|
|
|
| $ | 46,584 |
|
| $ | 347 |
|
| $ | 24,227 |
|
| $ | 71,158 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 38,170 |
|
| $ | — |
|
| $ | — |
|
| $ | 38,170 |
|
| Other non-current liabilities |
| $ | 45,264 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,264 |
|
Hedge derivatives |
| Accrued liabilities |
|
| — |
|
|
| 156 |
|
|
| — |
|
| $ | 156 |
| ||||||||||||||||||
Contingent consideration |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 16,718 |
|
|
| 16,718 |
| ||||||||||||||||||
Total |
|
|
| $ | 38,170 |
|
| $ | 156 |
|
| $ | 16,718 |
|
| $ | 55,044 |
|
|
|
| $ | 45,264 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,264 |
|
|
|
|
| Fair Value at October 31, 2018 |
|
|
|
| Fair Value at October 31, 2019 |
| ||||||||||||||||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
| Other current assets |
| $ | 166 |
|
| $ | — |
|
| $ | — |
|
| $ | 166 |
|
| Other current assets |
| $ | 177 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 177 |
|
Short-term investment |
| Other current assets |
|
| 154 |
|
|
| — |
|
|
| — |
|
|
| 154 |
|
| Other current assets |
|
| 156 |
|
|
| 0 |
|
|
| 0 |
|
|
| 156 |
|
SERP assets - employer |
| Other non-current assets |
|
| 1,270 |
|
|
| — |
|
|
| — |
|
|
| 1,270 |
|
| Other non-current assets |
|
| 1,280 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,280 |
|
SERP assets - employee |
| Other non-current assets |
|
| 37,440 |
|
|
| — |
|
|
| — |
|
|
| 37,440 |
|
| Other non-current assets |
|
| 43,049 |
|
|
| 0 |
|
|
| 0 |
|
|
| 43,049 |
|
Defined benefit plan assets |
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 33,312 |
|
|
| 33,312 |
| ||||||||||||||||||
Hedge derivatives |
| Other current assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| Other current assets |
|
| 0 |
|
|
| 79 |
|
|
| 0 |
|
|
| 79 |
|
Total |
|
|
| $ | 39,030 |
|
| $ | — |
|
| $ | — |
|
| $ | 39,030 |
|
|
|
| $ | 44,662 |
|
| $ | 79 |
|
| $ | 33,312 |
|
| $ | 78,053 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities - employee |
| Other non-current liabilities |
| $ | 37,440 |
|
| $ | — |
|
| $ | — |
|
| $ | 37,440 |
|
| Other non-current liabilities |
| $ | 43,049 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 43,049 |
|
Hedge derivatives |
| Accrued liabilities |
|
| — |
|
|
| 463 |
|
|
| — |
|
|
| 463 |
|
| Accrued liabilities |
|
| 0 |
|
|
| 83 |
|
|
| 0 |
|
|
| 83 |
|
Contingent consideration |
| Other non-current liabilities |
|
| — |
|
|
| — |
|
|
| 16,600 |
|
|
| 16,600 |
|
| Other non-current liabilities |
|
| 0 |
|
|
| 0 |
|
|
| 1,918 |
|
|
| 1,918 |
|
Total |
|
|
| $ | 37,440 |
|
| $ | 463 |
|
| $ | 16,600 |
|
| $ | 54,503 |
|
|
|
| $ | 43,049 |
|
| $ | 83 |
|
| $ | 1,918 |
|
| $ | 45,050 |
|
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 francFranc 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. The carrying amount of debt approximated fair value as of October 31, 2019,2020, January 31, 2019,2020, and October 31, 2018,2019, due to the availability and floating rate for similar instruments.
The Company sponsors a defined benefit pension plan in Switzerland which was amended to a defined benefit plan effective December 31, 2018.Switzerland. The plan covers certain international employees and is based on years of service and compensation on a career-average pay basis. The assets within the plan are classified as a Level 3 asset within the fair value hierarchy and consist of an investment in pooled assets and include separate employee accounts that are invested in equity securities, debt securities and real estate. The values of the separate accounts invested are based on values provided by the administrator of the funds that cannot be readily derived from or corroborated by observable market data. The value of the assets is part of the funded status of the defined benefit plan and included in other non-current liabilities in the consolidated balance sheets at October 31, 20192020, January 31, 2020 and JanuaryOctober 31, 2019.
The fair value of the Level 3 contingent purchase price liability related to the acquisition of MVMT Watches, Inc., owner of the MVMT brand is measured using a Monte Carlo simulation with key assumptions that include revenue and brand EBITDA, (as defined inat the time of the acquisition, agreement) of the acquired business during the earn-out period, volatilities, estimated discount rates, risk-free rate, and correlation. The liability is revalued each reporting period after the acquisition and increases or decreases in the fair value of the liability are recorded in the Consolidated Statements of Operations. Changes in fair value can result from the estimated achievement of the revenue and brand EBITDA performance hurdles, and movements in discount rates, volatilities, and the other key assumptions. The inputs and assumptions are not observable in the market but reflect the assumptions the Company believes would be made byconsidered a market participant. The possible outcomes for the contingent consideration range from $0 to $100 million on an undiscounted basis. As a result, changes in the estimated fair value of the contingent consideration over time may result in significant volatility in the Company’s reported earnings.
Level 3 liability. Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company remeasured the contingent consideration to 0 at January 31, 2020. At July 31, 2019 the Company remeasured the contingent consideration to $1.9 million at July 31, 2019. Of the $15.0 million decrease in the liability,and, as a result, $13.6 million is included in non-operating income (portion of contingent consideration allocated to purchase price) in the Consolidated Statements of Operations for the nine months ended October 31, 2019, and 0.5$0.5 million and $0.9 million are reflected as a reduction of deferred compensation (portion of contingent consideration allocated to deferred compensation based on future service requirements) within other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets. As the remeasurement is not a direct benefit realized from operating the MVMT business, the Company has recorded the change in contingent consideration within non-operating income in the Consolidated Statements of Operations and as such, hasdid not includedinclude it in operating income for the Watch and Accessory Brands segment. Refer to Note 1719 for Segment and Geographic Information.
The following tables presentspresent the change in the Level 3 contingent purchase price liability during the three and nine months ended October 31, 2019:
|
| Three Months Ended October 31, |
|
| Three Months Ended October 31, |
| ||
(In thousands) |
| 2019 |
|
| 2019 |
| ||
Balance at July 31, 2019 |
| $ | 1,900 |
|
| $ | 1,900 |
|
Payments |
|
| — |
|
|
| 0 |
|
Adjustments included in income before income taxes |
|
| 18 |
|
|
| 18 |
|
Adjustments to deferred compensation |
|
| — |
|
|
| 0 |
|
Ending Balance |
| $ | 1,918 |
|
| $ | 1,918 |
|
|
| Nine Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||
(In thousands) |
| 2019 |
|
| 2019 |
| ||
Balance at January 31, 2019 |
| $ | 16,718 |
|
| $ | 16,718 |
|
Payments |
|
| — |
|
|
| 0 |
|
Adjustments included in income before income taxes |
|
| (13,443 | ) |
|
| (13,443 | ) |
Adjustments to deferred compensation |
|
| (1,357 | ) |
|
| (1,357 | ) |
Ending Balance |
| $ | 1,918 |
|
| $ | 1,918 |
|
There were 0 transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.
NOTE 912 – 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.
The Company had previously recorded an obligation of $28.2 million due to the 2017 Tax Cuts and Jobs Act, which was signed into law on December 22, 2017 and imposed a one-time mandatory deemed repatriation tax on cumulative undistributed foreign earnings which have not been previously taxed. The obligation, which was recorded in prior years, is payable in installments over eight years, with the first payment having been made in the second quarter of fiscal 2019.
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.
On October 23, 2018, Swiss Time Watch & Jewellry GmbH (“ST Germany”) filed a lawsuit against the Company in the Superior Court of California for the County of Los Angeles. The lawsuit, which was subsequently removed to the United States District Court for the Central District of California, primarily alleged that the Company, as legal successor to MVMT Watches, Inc., failed to perform its obligations under the parties’ August 1, 2018 distribution agreement (the “ST Germany Agreement”). Under this agreement, ST Germany was granted the right, subject to certain limitations, to distribute a curated collection of MVMT watch styles in Germany. ST Germany also alleged various related torts and statutory violations and sought specific performance of the ST Germany Agreement as well as unspecified monetary damages. In February 2019, the parties settled the matter and the lawsuit was subsequently dismissed. The settlement terms included an immaterial cash payment by the Company and certain amendments to the ST Germany Agreement, including an extension of the agreement through early fiscal 2023.
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 $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 thereafter provided 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-satisfactorymutually satisfactory resolution.
The purchase consideration for the MVMT business includesincluded 2 future contingent payments that combined could total up to $100 million. AlthoughBased on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company has established appropriate reserves for this liability based on its current estimate ofremeasured the amounts that will eventually become payable, the exact amount of the future payments will be determined by MVMT's financial performance through the end of fiscal 2023. The Company expectscontingent consideration to recognize gains/losses, as the case may be, as the Company’s estimate of the amount payable is updated from time to time. These gains/losses could result in significant volatility in reported earnings. (See0 at January 31, 2020 (see Note 45 – Acquisitions and Note 811 – Fair Value Measurements).
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 October 31, 2019,2020, 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 – LEASES
The Company evaluates contractual arrangements at inception to determine if individual agreements are a lease or contain an identifiable lease component as defined by ASC 842. When evaluating contracts to determine appropriate classification and recognition under ASC 842, significant judgment may be necessary to determine, among other criteria, if an embedded leasing arrangement exists, the length of the term, classification as either an operating or financing lease and whether renewal or termination options are reasonably certain to be exercised. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term calculated using the Company’s incremental borrowing rate, adjusted for the lease term and lease country, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and are reduced by lease incentives. Some lease terms include options to extend or terminate the lease and they are included in the measurement of the lease assets and lease liabilities if the Company is reasonably certain that those options will be exercised.
Variable lease payments are generally expensed as incurred and include certain index-based changes in rent and certain non-lease components such as maintenance and other services provided by the lessor to the extent the charges are variable. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.
The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
The Company leases certain real estate properties, vehicles, and equipment in various countries around the world. Leased properties are typically used for retail, office and distribution. The Company’s leases are classified as operating leases with remaining terms of 1 to 11 years, some of which include an option to extend or renew. If the exercise of an option to extend or renew is determined to be reasonably certain, the associated right-of-use asset and lease liability reflects the extended period and payments.
The components of lease expense were as follows (in thousands):
Lease Expense |
| Consolidated Statements of Operation Location |
| For the Three Months Ended October 31, 2019 |
|
| For the Nine Months Ended October 31, 2019 |
| ||
Operating lease expense |
| SG&A |
| $ | 4,851 |
|
| $ | 14,385 |
|
Short-term lease cost |
| SG&A |
|
| 142 |
|
|
| 544 |
|
Variable lease cost |
| SG&A |
|
| 2,547 |
|
|
| 6,394 |
|
Total operating lease expense |
|
|
| $ | 7,540 |
|
| $ | 21,323 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| SG&A |
| $ | 29 |
|
| $ | 87 |
|
Interest on lease liabilities |
| Interest expense |
| $ | 3 |
|
| $ | 10 |
|
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
Leases |
| Consolidated Balance Sheets Location |
| October 31, 2019 |
| |
Assets |
|
|
|
|
|
|
Operating |
| Operating lease right-of-use assets |
| $ | 88,126 |
|
Finance |
| Other non-current assets |
| $ | 312 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Operating |
| Current operating lease liabilities |
| $ | 14,579 |
|
Finance |
| Accrued liabilities |
| $ | 115 |
|
Noncurrent: |
|
|
|
|
|
|
Operating |
| Non-current operating lease liabilities |
| $ | 80,682 |
|
Finance |
| Other non-current liabilities |
| $ | 200 |
|
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases:
|
| |||
| ||||
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
|
Future minimum lease payments by year as of October 31, 2019 were as follows (in thousands):
Fiscal Year |
| Operating Leases |
|
| Finance Leases |
| ||
2020 (remaining) |
| $ | 4,811 |
|
| $ | 31 |
|
2021 |
|
| 17,124 |
|
| 125 |
| |
2022 |
|
| 15,569 |
|
| 125 |
| |
2023 |
|
| 13,467 |
|
| 49 |
| |
2024 |
|
| 12,685 |
|
|
| — |
|
Thereafter |
|
| 46,439 |
|
|
| — |
|
Total lease payments |
| $ | 110,095 |
|
| $ | 330 |
|
Less: Interest |
|
| (14,834 | ) |
|
| (15 | ) |
Total lease obligations |
| $ | 95,261 |
|
| $ | 315 |
|
Future minimum lease payments by year as of January 31, 2019 were as follows (in thousands):
Fiscal Year Ending January 31, |
| |||
2020 |
| $ | 14,036 |
|
2021 |
|
| 11,325 |
|
2022 |
|
| 10,135 |
|
2023 |
|
| 8,279 |
|
2024 |
|
| 7,683 |
|
Thereafter |
|
| 35,020 |
|
|
| $ | 86,478 |
|
Supplemental cash flow information related to leases was as follows (in thousands):
|
| For the Three Months Ended October 31, 2019 |
|
| For the Nine Months Ended October 31, 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 4,511 |
|
| $ | 12,791 |
|
Operating cash flows from finance leases |
|
| 3 |
|
|
| 10 |
|
Financing cash flows from finance leases |
|
| 28 |
|
|
| 84 |
|
Leased assets obtained in exchange for new operating lease liabilities |
|
| 1,023 |
|
|
| 9,374 |
|
Leased assets obtained in exchange for new financing lease liabilities |
|
| — |
|
|
| 399 |
|
As of October 31, 2019, the Company did not have any material operating or finance leases that have been signed but not commenced.
NOTE 1113 – INCOME TAXES
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provides economic relief to assist American families and companies during the COVID-19 global pandemic. The CARES Act includes, among other things, provisions related to net operating loss carryback periods, refundable payroll tax credits and the delay of certain payroll taxes, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act allows U.S. net operating losses generated in fiscal 2019, 2020, and 2021 to be carried back up to five years to prior taxable years with a U.S. statutory tax rate of 35.0% and to offset 100% of regular taxable income in such years (the “CARES Act NOL Carryback Provision”). The Company anticipates that there will be a U.S. net operating loss generated in fiscal 2021 which will be carried back to prior taxable years.
The Company recorded an income tax expenseprovision of $5.0$7.5 million and income tax benefit of $2.8$5.0 million for the three months ended October 31, 20192020 and 2018,2019, respectively.
The effective tax rate was 33.5% and 22.1% and -11.7% for the three months ended October 31, 20192020 and 2018,2019, respectively. The change insignificant components of the effective tax rate waschanged primarily due to athe U.S. tax on Global Intangible Low-Taxed Income (“GILTI”) and excess tax deficiencies related to stock-based compensation, partially offset by the CARES Act NOL Carryback Provision. change in the deferred withholding tax liability on unremitted foreign earnings, the release of valuation allowances against certain foreign deferred tax assets, and the impact of other discrete items, all of which occurred in the prior year.
The Company recorded an income tax expensebenefit of $10.526.4 million and $0.7income tax provision of $10.5 million for the nine months ended October 31, 20192020 and 2018,2019, respectively.
The effective tax rate was 21.3%15.7% and 1.5%21.3% for the nine months ended October 31, 2020 and 2019, and 2018, respectively. The change insignificant components of the effective tax rate waschanged primarily due to a change inimpairments of the deferred withholdingportion of goodwill of the Watch and Accessory Brands reporting unit which is not tax liabilitydeductible, the U.S. tax on unremitted foreign earningsGILTI and the releaserecording of valuation allowances againston certain foreign deferred tax assets, bothassets. These changes were partially offset by changes in foreign profits in lower tax jurisdictions and the CARES Act NOL Carryback Provision.
The effective tax ratefor the three months ended October 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to the U.S. tax on GILTI and excess tax deficiencies related to stock-based compensation, partially offset by foreign profits being taxed in lower taxing jurisdictions and the CARES Act NOL Carryback Provision.The effective tax rate for the nine months ended October 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which occurred inis not tax deductible and the prior year.U.S. tax on GILTI, partially offset by the CARES Act NOL Carryback Provision.
The effective tax rate for the three and nine months ended October 31, 2019 differs from the U.S. statutory tax rate of 21.0% primarily due to 0 tax benefit being recognized on losses incurred by certain foreign operations, partially offset by foreign profits being taxed in lower taxing jurisdictions.
In December 2019, the FASB issues ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in “Income Taxes (Topic 740)”. It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company early adopted this standard effective February 1, 2020. The provision of ASU 2019-12 which has the most significant impact on the Company is the removal of a limitation on the tax ratebenefit recognized on pre-tax losses during interim periods which exceed the expected loss for the three months ended October 31, 2018 differs from the U.S. statutoryfiscal year. The Company’s income tax rate of 21.0% primarily due toa change in estimate of the Company’s provisional deferred withholding tax liability on unremitted foreign earnings, the release of valuation allowances against certain foreign deferred tax assets and the impact of other discrete items. The effective tax ratebenefit for the nine months ended October 31, 2018 differs from2020 includes an income tax benefit of$0.5 million as a result of early adoption in the U.S. statutoryfirst quarter of fiscal 2021.
As of October 31, 2020, the Company had 0 deferred tax rateliability for the undistributed foreign earnings of 21.0% primarily dueapproximately $211.1 million because the Company intends to continue permanently reinvesting such earnings in its foreign operations. It is not practicable to estimate the tax liability related to a change in estimatefuture distribution of the Company’s provisional deferred withholding tax liability on unremittedthese permanently reinvested foreign earnings and the release of valuation allowances against certain foreign deferred tax assets.earnings.
NOTE 1214 – EQUITY
The components of equity for the nine months ended October 31, 20192020 and 20182019 are as follows (in thousands):
|
|
|
|
|
| Movado Group, Inc. Shareholders' Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| |||||||||
Balance, January 31, 2019 |
| $ | — |
|
| $ | 277 |
|
| $ | 65 |
|
| $ | 201,814 |
|
| $ | 431,180 |
|
| $ | 80,507 |
|
| $ | (217,188 | ) |
| $ | 496,655 |
|
| $ | 3,721 |
|
Net income/ (loss) attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,195 |
|
|
|
|
|
|
|
|
|
|
| 39,195 |
|
|
| (349 | ) |
Dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13,796 | ) |
|
|
|
|
|
|
|
|
|
| (13,796 | ) |
|
|
|
|
Stock repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,199 | ) |
|
| (4,199 | ) |
|
|
|
|
Stock options exercised |
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 154 |
|
|
|
|
|
|
|
|
|
|
| (1,405 | ) |
|
| (1,249 | ) |
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 99 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,658 |
|
|
|
|
|
Amortization of prior service cost, net of tax provision of $11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39 |
|
|
|
|
|
|
| 39 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (721 | ) |
|
|
|
|
|
| (721 | ) |
|
| (109 | ) |
Balance, October 31, 2019 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 206,725 |
|
| $ | 456,579 |
|
| $ | 79,825 |
|
| $ | (222,792 | ) |
| $ | 520,681 |
|
| $ | 3,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| |||||||||
Balance, January 31, 2018 |
| $ | — |
|
| $ | 273 |
|
| $ | 66 |
|
| $ | 189,808 |
|
| $ | 388,739 |
|
| $ | 100,343 |
|
| $ | (208,894 | ) |
| $ | 470,335 |
|
| $ | — |
|
Net income attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 44,177 |
|
|
|
|
|
|
|
|
|
|
| 44,177 |
|
|
|
|
|
Dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13,855 | ) |
|
|
|
|
|
|
|
|
|
| (13,855 | ) |
|
|
|
|
Adoption of new revenue recognition Standard (Topic 606) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (724 | ) |
|
|
|
|
|
|
|
|
|
| (724 | ) |
|
|
|
|
Stock repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,931 | ) |
|
| (3,931 | ) |
|
|
|
|
Stock options exercised |
|
|
|
|
|
| 3 |
|
|
|
|
|
|
| 5,632 |
|
|
|
|
|
|
|
|
|
|
| (772 | ) |
|
| 4,863 |
|
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 95 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,287 |
|
|
|
|
|
Net unrealized loss on investments, net of tax benefit of $24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (80 | ) |
|
|
|
|
|
| (80 | ) |
|
|
|
|
Net change in effective portion of hedging contracts, net of tax provision of $7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38 |
|
|
|
|
|
|
| 38 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (24,191 | ) |
|
|
|
|
|
| (24,191 | ) |
|
|
|
|
Balance, October 31, 2018 |
| $ | — |
|
| $ | 276 |
|
| $ | 66 |
|
| $ | 199,822 |
|
| $ | 418,337 |
|
| $ | 76,110 |
|
| $ | (213,597 | ) |
| $ | 481,014 |
|
| $ | — |
|
|
|
|
|
|
| Movado Group, Inc. Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Noncontrolling Interest |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| ||||||||||
Balance, January 31, 2020 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 208,473 |
|
| $ | 455,479 |
|
| $ | 85,050 |
|
| $ | (222,809 | ) |
| $ | 707 |
|
| $ | 527,244 |
|
| $ | 3,165 |
|
Net income/(loss) attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (141,783 | ) |
|
|
|
|
|
|
|
|
|
| 571 |
|
|
| (141,212 | ) |
|
| (556 | ) |
Stock options exercised |
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
| (497 | ) |
|
|
|
|
|
| (497 | ) |
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 69 |
|
|
|
|
|
Stock-based compensation expense (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,190 |
|
|
|
|
|
Net unrealized loss on investments, net of tax benefit of $10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (31 | ) |
|
|
|
|
|
|
|
|
|
| (31 | ) |
|
|
|
|
Amortization of prior service cost, net of tax provision of $12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 42 |
|
|
|
|
|
|
|
|
|
|
| 42 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 818 |
|
|
|
|
|
|
| 35 |
|
|
| 853 |
|
|
| 163 |
|
Balance, October 31, 2020 |
| $ | — |
|
| $ | 281 |
|
| $ | 65 |
|
| $ | 212,730 |
|
| $ | 313,696 |
|
| $ | 85,879 |
|
| $ | (223,306 | ) |
| $ | 1,313 |
|
| $ | 390,658 |
|
| $ | 2,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Stock |
|
| Common Stock (1) |
|
| Class A Common Stock (2) |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Treasury Stock |
|
| Noncontrolling Interest |
|
| Total Movado Group, Inc. Shareholders' Equity |
|
| Redeemable Noncontrolling Interest |
| ||||||||||
Balance, January 31, 2019 |
| $ | — |
|
| $ | 277 |
|
| $ | 65 |
|
| $ | 201,814 |
|
| $ | 431,180 |
|
| $ | 80,507 |
|
| $ | (217,188 | ) |
| $ | — |
|
| $ | 496,655 |
|
| $ | 3,721 |
|
Net income/(loss) attributable to Movado Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,195 |
|
|
| (349 | ) |
Dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13,796 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13,796 | ) |
|
|
|
|
Stock repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,199 | ) |
|
|
|
|
|
| (4,199 | ) |
|
|
|
|
Stock options exercised |
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 154 |
|
|
|
|
|
|
|
|
|
|
| (1,405 | ) |
|
|
|
|
|
| (1,249 | ) |
|
|
|
|
Supplemental executive retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 99 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,658 |
|
|
|
|
|
Amortization of prior service cost, net of tax provision of $11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39 |
|
|
|
|
|
|
|
|
|
|
| 39 |
|
|
|
|
|
Foreign currency translation adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (721 | ) |
|
|
|
|
|
|
|
|
|
| (721 | ) |
|
| (109 | ) |
Balance, October 31, 2019 |
| $ | — |
|
| $ | 279 |
|
| $ | 65 |
|
| $ | 206,725 |
|
| $ | 456,579 |
|
| $ | 79,825 |
|
| $ | (222,792 | ) |
| $ | — |
|
| $ | 520,681 |
|
| $ | 3,263 |
|
(1) | Each share of common stock is entitled to one vote per share on all matters submitted to a vote of the shareholders. |
(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. |
(4) | Includes $0.4 million related to the Restructuring Plan of the corporate initiatives. |
NOTE 1315 – TREASURY STOCK
On August 29, 2017, the Board approved a share repurchase program under which the Company iswas 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 program had replaced a priorUnder the share repurchase program, approved by the Board on March 31, 2016 under which the Company was authorizedpermitted to purchase up to $50.0 million of its outstanding common stock from time to time and under which $5.5 million had been repurchased. Under the existing program, the company may purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. This authorization expiresexpired on August 29, 2020. See Note 9 – Debt and Lines of Credit – for restrictions on share repurchase under the Company’s revolving credit facility.
During the nine months ended October 31, 2019,2020, the Company did 0t repurchase shares of its common stock under the existing repurchase program,program. Duringthe nine months ended October 31, 2019, the Company repurchased a total of 131,402 shares of its common stock under the share repurchase program at a total cost of $4.2$4.2 million, or an average of $31.96 per share. During the nine months ended October 31, 2018, under the existing repurchase program, the Company repurchased a total of 99,191 shares of its common stock at a total cost of $3.9 million, or an average of $39.64 per share.
At October 31, 2019, $36.4 million remains available for purchase under the Company’s current repurchase program.
There were 42,73149,283 and 19,00342,731 shares of common stock repurchased during the nine months ended October 31, 20192020 and 2018,2019, 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.
NOTE 1416 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The accumulated balances at October 31, 20192020 and 2018,2019, and January 31, 2019,2020, related to each component of accumulated other comprehensive income (loss) are as follows (in thousands):
|
| October 31, 2019 |
|
| January 31, 2019 |
|
| October 31, 2018 |
|
| October 31, 2020 |
|
| January 31, 2020 |
|
| October 31, 2019 |
| ||||||
Foreign currency translation adjustments |
| $ | 80,087 |
|
| $ | 80,808 |
|
| $ | 75,999 |
|
| $ | 86,163 |
|
| $ | 85,345 |
|
| $ | 80,087 |
|
Available-for-sale securities |
|
| 119 |
|
|
| 119 |
|
|
| 111 |
|
|
| 93 |
|
|
| 124 |
|
|
| 119 |
|
Unrecognized prior service cost related to defined benefit pension plan |
|
| (381 | ) |
|
| (420 | ) |
|
| — |
|
|
| (325 | ) |
|
| (367 | ) |
|
| (381 | ) |
Net actuarial loss related to defined benefit pension plan |
|
| (52 | ) |
|
| (52 | ) |
|
| 0 |
| ||||||||||||
Total accumulated other comprehensive income |
| $ | 79,825 |
|
| $ | 80,507 |
|
| $ | 76,110 |
|
| $ | 85,879 |
|
| $ | 85,050 |
|
| $ | 79,825 |
|
NOTE 1517 – REVENUE
Disaggregation of 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):
|
| For the Three Months Ended October 31, |
|
| For the Nine Months Ended October 31, |
|
| For the Three Months Ended October 31, |
|
| For the Nine Months Ended October 31, |
| ||||||||||||||||||||
Customer Type |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Wholesale |
| $ | 168,558 |
|
| $ | 180,490 |
|
| $ | 402,855 |
|
| $ | 404,199 |
|
| $ | 135,605 |
|
| $ | 168,558 |
|
| $ | 248,977 |
|
| $ | 402,855 |
|
Direct to consumer |
|
| 36,059 |
|
|
| 27,124 |
|
|
| 104,149 |
|
|
| 72,236 |
|
|
| 33,508 |
|
|
| 36,059 |
|
|
| 77,500 |
|
|
| 104,149 |
|
After-sales service |
|
| 1,001 |
|
|
| 1,335 |
|
|
| 2,979 |
|
|
| 3,756 |
|
|
| 750 |
|
|
| 1,001 |
|
|
| 1,590 |
|
|
| 2,979 |
|
Net Sales |
| $ | 205,618 |
|
| $ | 208,949 |
|
| $ | 509,983 |
|
| $ | 480,191 |
|
| $ | 169,863 |
|
| $ | 205,618 |
|
| $ | 328,067 |
|
| $ | 509,983 |
|
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 1719 – Segment and Geographic Information).
Wholesale Revenue
The Company’s wholesale revenue consists primarily of revenues from independent distributors, and from department stores, and 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 Watch and Accessory Brands Segmentsegment (see Note 1719 – 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,e-commerce, and consumer repairs. Revenue is recognized as the end consumer obtains delivery of the merchandise. Direct to Consumer revenue is included in either the Watch and Accessory Brands segment or Company Stores Segment based on how the Company makes decisions about the allocation of resources and performance measurement. Direct to Consumer revenue derived from concession stores, e-commerce and ecommerceconsumer repairs is included within the Watch and Accessory Brands Segment;segment; revenue derived from outlet stores is included within the Company Stores Segment (see Note 1719 – Segment and Geographic Information). Direct to Consumer revenue is included in either the Watch and Accessory Brands or Company Stores 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 materials and workmanship. The Company does not sell warranties separately.
The Company’s after-sales service revenues consists of out of warranty service provided to 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 and control is transferred to the customer. After-sales service revenue 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, is included entirely within the Watch and Accessory Brands Segment,segment, consistent with how management makes decisions about the allocation of resources and performance measurement.
NOTE 1618 – STOCK-BASED COMPENSATION
Under the Company’s Employee Stock Option Plan, as amended and restated as of April 4, 2013 (the “Plan”), the Compensation Committee of the Board of Directors, which consists of fourthree of the Company’s non-employee directors, has the authority to grant participants incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and stock awards, for up to 11,000,000 shares of common stock.
Stock Options:
Stock options granted to participants under the plan generally became exercisable in equal installments over three years or cliff-vested after three years and remain exercisable until the tenth anniversary of the date of grant. All stock options granted under the Plan have an exercise price equal to or greater than the fair market value of the Company’s common stock on the grant date.
The table below presents the weighted average assumptions used with the Black-Scholes option-pricing model for the calculation of the fair value of stock options granted during the nine months ended October 31, 2020. There were 0 stock options granted during the three months ended October 31, 2020 or during the three and nine months ended October 31, 2019.
|
| Nine Months Ended October 31, 2020 |
| |
Expected volatility |
|
| 50.79 | % |
Expected life in years |
|
| 6.0 |
|
Risk-free interest rates |
|
| 0.34 | % |
Dividend rate |
|
| 4.29 | % |
Weighted average fair value per option at date of grant |
| $ | 3.87 |
|
The fair value of the stock options, less expected forfeitures, is amortized on a straight-line basis over the vesting term. Total compensation expense for stock option grants recognized during the three months ended October 31, 2020 and 2019 and 2018 was $0.1approximately$0.1 million (net of tax of approximately $27,000) and $0.2 million (net of tax of $0.1 million), respectively.for both periods. Total compensation expense for stock option grants recognized during the nine months ended October 31, 2020 and 2019 was $0.2 millionand 2018 was $0.3$0.4 million, (net of tax of $0.1 million) and $0.6 million (net of tax of $0.2 million), respectively. AAs s of October 31, 2019,2020, there was $0.20.6 million of unrecognized compensation cost related to unvested stock options. Total consideration received for stock option exercises during both the three months ended October 31, 2020 and 2019 and 2018 was 00 .and $0.1 million, respectively. Total consideration received for stock option exercises during the nine months ended October 31, 2020 and 2019 was 0 and 2018 was $0.2$0.2 million, and $5.6 million, respectively.respectively.
The following table summarizes the Company’s stock options activity during the first nine months of fiscal 2020:2021:
|
| Outstanding Options |
|
| Weighted Average Exercise Price per Option |
|
| Option Price Per Share |
|
| Weighted Average Remaining Contractual Term (years) |
|
| Aggregate Intrinsic Value $(000) |
| |||||
Options outstanding at January 31, 2019 (264,244 options exercisable) |
|
| 566,260 |
|
| $ | 28.43 |
|
| $23.35-$42.12 |
|
| 6.2 |
|
| $ | 2,654 |
| ||
Granted |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
| (5,150 | ) |
| $ | 30.36 |
|
| $ | 30.36 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at October 31, 2019 |
|
| 561,110 |
|
| $ | 28.41 |
|
| $23.35-$42.12 |
|
| 5.4 |
|
| $ | 435 |
| ||
Exercisable at October 31, 2019 |
|
| 399,905 |
|
| $ | 30.45 |
|
|
|
|
|
| 4.6 |
|
|
|
|
| |
Expected to vest at October 31, 2019 |
|
| 160,706 |
|
| $ | 23.35 |
|
|
|
|
|
|
| 7.5 |
|
| $ | 434 |
|
|
| Outstanding Options |
|
| Weighted Average Exercise Price per Option |
|
| Option Price Per Share |
|
| Weighted Average Remaining Contractual Term (years) |
|
| Aggregate Intrinsic Value $(000) |
| |||||
Options outstanding at January 31, 2020 (399,905 options exercisable) |
|
| 561,110 |
|
| $ | 28.41 |
|
| $23.35-$42.12 |
|
| 5.2 |
|
| $ | 0 |
| ||
Granted |
|
| 200,000 |
|
| $ | 12.42 |
|
| $ | 12.42 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at October 31, 2020 |
|
| 761,110 |
|
| $ | 24.21 |
|
| $12.42-$42.12 |
|
| 5.8 |
|
| $ | 0 |
| ||
Exercisable at October 31, 2020 |
|
| 561,110 |
|
| $ | 28.41 |
|
|
|
|
|
| 4.4 |
|
| $ | 0 |
| |
Expected to vest at October 31, 2020 |
|
| 172,959 |
|
| $ | 12.42 |
|
|
|
|
|
|
| 9.6 |
|
| $ | 0 |
|
The fair value ofThere were 0 stock options exercised during the first nine months of fiscal 2020 was approximately $63,000 and the intrinsic value was approximately $47,000.2021.
Stock Awards:
Under the Plan, the Company can also grant stock awards to employees.employees and directors. For the three months ended October 31, 2020 and 2019, compensation expense for stock awards was $1.0 millionand 2018,$1.4 million, respectively. Forthe nine months ended October 31, 2020 and 2019, compensation expense for stock awards was $1.14.0 million (net ($0.4 million is included in the Restructuring Plan of tax of $0.3the corporate initiatives) million) and $0.9$4.2 million, (net of tax of $0.3 million), respectively. For the nine months ended October 31, 2019 and 2018, compensation expense for stock awards was $3.2 million (net of tax of $1.0 million) and $2.7 million (net of tax of $0.8 million), respectively. As of October 31, 2019,2020, there was $8.53.3 million of unrecognized compensation cost related to unvested stock awards.
The following table summarizes the Company’s stock awards activity during the first nine months of fiscal 2020:2021:
|
| Number of Stock Award Units |
|
| Weighted- Average Grant Date Fair Value |
|
| Weighted- Average Remaining Contractual Term (years) |
| Aggregate Intrinsic Value $(000's) |
|
| Number of Stock Award Units |
|
| Weighted- Average Grant Date Fair Value |
|
| Weighted- Average Remaining Contractual Term (years) |
| Aggregate Intrinsic Value $(000's) |
| ||||||
Units outstanding at January 31, 2019 |
|
| 447,022 |
|
| $ | 32.27 |
|
| 1.4 |
| $ | 14,282 |
| ||||||||||||||
Units outstanding at January 31, 2020 |
|
| 490,239 |
|
| $ | 33.50 |
|
| 1.4 |
| $ | 8,442 |
| ||||||||||||||
Units granted |
|
| 264,133 |
|
| $ | 32.77 |
|
|
|
|
|
|
|
|
| 89,289 |
|
| $ | 10.02 |
|
|
|
|
|
|
|
Units vested |
|
| (149,448 | ) |
| $ | 29.27 |
|
|
|
|
|
|
|
|
| (212,070 | ) |
| $ | 26.05 |
|
|
|
|
|
|
|
Units forfeited |
|
| (11,538 | ) |
| $ | 34.79 |
|
|
|
|
|
|
|
|
| (31,084 | ) |
| $ | 31.11 |
|
|
|
|
|
|
|
Units outstanding at October 31, 2019 |
|
| 550,169 |
|
| $ | 33.37 |
|
| 1.8 |
| $ | 14,332 |
| ||||||||||||||
Units outstanding at October 31, 2020 |
|
| 336,374 |
|
| $ | 32.19 |
|
| 0.9 |
| $ | 3,670 |
|
Outstanding stock awards can be classified as either time-based stock awards or performance-based stock awards. Time-based stock awards vest over time subject to continued employment. Performance-based stock awards vest over time subject both to continued employment and to the achievement of corporate financial performance goals. Upon the vesting of a stock award, shares are issued from the pool of authorized shares. For performance-based stock awards, the number of shares issued related to the performance units granted can vary from 0% to 150% of the target number of underlying stock award units, depending on the extent of the achievement of predetermined financial goals. The total fair value of stock award units that vested during the first nine months of fiscal 20202021 was $4.45.5 million. The number of shares issued related to the remaining stock awards are established at grant date.
NOTE 1719 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company conducts its business in 2 operating segments: Watch and Accessory Brands and Company Stores. The Company’s Watch and Accessory Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry and other accessories, of owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company Stores segment includes the Company’s physical retail outlet locations. The Chief Executive Officer of the Company is the chief operating decision maker (“CODM”) and regularly reviews operating results for each of the two operating segments to assess performance and makes operating decisions about the allocation of the Company’s resources.
The Company divides its business into 2 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 Middle East, the Americas (excluding the United States), the Middle East and Asia accounted for 36.241.9%, 7.8%6.6%, 6.6%6.5% and 6.2%6.4%, respectively, of the Company’s total net sales for the three months ended October 31, 2019.2020. For the three months ended October 31, 2018,2019, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 36.2%, 7.8%, 6.6% and 6.2%, respectively, of the Company’s total net sales. The Company’s International operations in Europe, the Middle East, Asia and the Middle EastAmericas (excluding the United States) accounted for 34.3%40.4%, 8.3%7.3%, 6.1%7.0% and 6.0%, respectively, of the Company’s total net sales.
Thesales for the nine months ended October 31, 2020. For the nine months ended October 31, 2019, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 34.3%, 8.6%, 8.1% and 6.7%, respectively, of the Company’s total net sales for the nine months ended October 31, 2019. For the nine months ended October 31, 2018, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 33.5%, 9.3%, 8.2% and 7.0%, respectively, of the Company’s total net sales.
Operating Segment Data for the Three Months Ended October 31, 20192020 and 20182019 (in thousands):
|
| Net Sales |
|
| Net Sales |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 76,120 |
|
| $ | 80,155 |
|
| $ | 55,774 |
|
| $ | 76,120 |
|
Licensed brands category |
|
| 108,336 |
|
|
| 107,694 |
|
|
| 95,576 |
|
|
| 108,336 |
|
After-sales service and all other |
|
| 1,149 |
|
|
| 1,533 |
|
|
| 758 |
|
|
| 1,149 |
|
Total Watch and Accessory Brands |
|
| 185,605 |
|
|
| 189,382 |
|
|
| 152,108 |
|
|
| 185,605 |
|
Company Stores |
|
| 20,013 |
|
|
| 19,567 |
|
|
| 17,755 |
|
|
| 20,013 |
|
Consolidated total |
| $ | 205,618 |
|
| $ | 208,949 |
|
| $ | 169,863 |
|
| $ | 205,618 |
|
|
| Operating Income (3) |
|
| Operating Income (3) |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands |
| $ | 20,206 |
|
| $ | 21,216 |
|
| $ | 19,810 |
|
| $ | 20,206 |
|
Company Stores |
|
| 2,432 |
|
|
| 2,891 |
|
|
| 3,257 |
|
|
| 2,432 |
|
Consolidated total |
| $ | 22,638 |
|
| $ | 24,107 |
|
| $ | 23,067 |
|
| $ | 22,638 |
|
Operating Segment Data as of and for the Nine Months Ended October 31, 20192020 and 20182019 (in thousands):
|
| Net Sales |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 184,729 |
|
| $ | 173,270 |
|
Licensed brands category |
|
| 258,617 |
|
|
| 243,267 |
|
After-sales service and all other |
|
| 10,560 |
|
|
| 8,026 |
|
Total Watch and Accessory Brands |
|
| 453,906 |
|
|
| 424,563 |
|
Company Stores |
|
| 56,077 |
|
|
| 55,628 |
|
Consolidated total |
| $ | 509,983 |
|
| $ | 480,191 |
|
|
| Operating Income (3) |
|
| Net Sales |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands |
| $ | 28,999 |
|
| $ | 35,784 |
| ||||||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
| ||||||||
Owned brands category |
| $ | 112,757 |
|
| $ | 184,729 |
| ||||||||
Licensed brands category |
|
| 177,674 |
|
|
| 258,617 |
| ||||||||
After-sales service and all other |
|
| 3,152 |
|
|
| 10,560 |
| ||||||||
Total Watch and Accessory Brands |
|
| 293,583 |
|
|
| 453,906 |
| ||||||||
Company Stores |
|
| 7,389 |
|
|
| 9,322 |
|
|
| 34,484 |
|
|
| 56,077 |
|
Consolidated total |
| $ | 36,388 |
|
| $ | 45,106 |
|
| $ | 328,067 |
|
| $ | 509,983 |
|
|
| Total Assets (1) |
|
| Operating (Loss)/Income (3)(4)(5) |
| ||||||||||||||
|
| October 31, 2019 |
|
| January 31, 2019 |
|
| October 31, 2018 |
|
| 2020 |
|
| 2019 |
| |||||
Watch and Accessory Brands |
| $ | 799,887 |
|
| $ | 735,244 |
|
| $ | 737,106 |
|
| $ | (169,756 | ) |
| $ | 28,999 |
|
Company Stores |
|
| 67,168 |
|
|
| 24,457 |
|
|
| 26,810 |
|
|
| 1,744 |
|
|
| 7,389 |
|
Consolidated total |
| $ | 867,055 |
|
| $ | 759,701 |
|
| $ | 763,916 |
|
| $ | (168,012 | ) |
| $ | 36,388 |
|
|
| Total Assets (A) |
| |||||||||
|
| October 31, 2020 |
|
| January 31, 2020 |
|
| October 31, 2019 |
| |||
Watch and Accessory Brands |
| $ | 640,652 |
|
| $ | 782,339 |
|
| $ | 799,887 |
|
Company Stores |
|
| 61,126 |
|
|
| 64,969 |
|
|
| 67,168 |
|
Consolidated total |
| $ | 701,778 |
|
| $ | 847,308 |
|
| $ | 867,055 |
|
|
|
Geographic Location Data for the Three Months Ended October 31, 20192020 and 20182019 (in thousands):
|
| Net Sales |
|
| Operating Income / (Loss) (3) |
|
| Net Sales |
|
| Operating (Loss)/Income (3)(5) |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
United States (1) |
| $ | 85,634 |
|
| $ | 94,219 |
|
| $ | (7,077 | ) |
| $ | (4,473 | ) |
| $ | 65,485 |
|
| $ | 85,634 |
|
| $ | (6,684 | ) |
| $ | (7,077 | ) |
International (2) |
|
| 119,984 |
|
|
| 114,730 |
|
|
| 29,715 |
|
|
| 28,580 |
|
|
| 104,378 |
|
|
| 119,984 |
|
|
| 29,751 |
|
|
| 29,715 |
|
Consolidated total |
| $ | 205,618 |
|
| $ | 208,949 |
|
| $ | 22,638 |
|
| $ | 24,107 |
|
| $ | 169,863 |
|
| $ | 205,618 |
|
| $ | 23,067 |
|
| $ | 22,638 |
|
The United States and International net sales are net of intercompany sales of $111.0$100.5 million and $109.4$111.0 million for the three months ended October 31, 20192020 and 2018,2019, respectively.
Geographic Location Data as of and for the Nine Months Ended October 31, 20192020 and 20182019 (in thousands):
|
| Net Sales |
|
| Operating Income / (Loss) (3) |
|
| Net Sales |
|
| Operating (Loss)/Income (3)(4)(5) |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
United States (1) |
| $ | 211,657 |
|
| $ | 202,081 |
|
| $ | (19,280 | ) |
| $ | (12,666 | ) |
| $ | 128,785 |
|
| $ | 211,657 |
|
| $ | (140,993 | ) |
| $ | (19,280 | ) |
International (2) |
|
| 298,326 |
|
|
| 278,110 |
|
|
| 55,668 |
|
|
| 57,772 |
|
|
| 199,282 |
|
|
| 298,326 |
|
|
| (27,019 | ) |
|
| 55,668 |
|
Consolidated total |
| $ | 509,983 |
|
| $ | 480,191 |
|
| $ | 36,388 |
|
| $ | 45,106 |
|
| $ | 328,067 |
|
| $ | 509,983 |
|
| $ | (168,012 | ) |
| $ | 36,388 |
|
United States and International net sales are net of intercompany sales of $280.0$172.4 million and $250.5$280.0 million for the nine months ended October 31, 20192020 and 2018,2019, respectively.
(1) | The United States operating loss included |
(2) | The International operating income included |
(3) | For the three months ended October 31, 2020 and 2019, and for the nine months ended October 31, 2020 and 2019, in the United States |
(4) | For the nine months ended October 31, 2020, in the United States locations of the Watch and Accessory Brands segment, operating loss included a charge of $99.7 million, related to the impairment of goodwill and intangible assets associated with the MVMT brand. In addition, in the International locations of the Watch and Accessory Brands segment, for the nine months ended October 31, 2020, operating loss included a charge of $56.2 million related to the impairment of goodwill associated with the Olivia Burton brand and City Time Joint Venture. |
(5) | For the three months ended October 31, 2020, in the United States locations and the International locations of the Watch and Accessory Brands segment, operating (loss)/income included a charge of $0.6 million and $0.2million, respectively, related to the corporate initiatives that the Company took in response to the impact on its business due to the COVID-19 pandemic. For the nine months ended October 31, 2020, in the United States locations and the International locations of the Watch and Accessory Brands segment, operating loss included a charge of $11.9 million and $3.5 million, respectively, related to the corporate initiatives that the Company took in response to the impact on its business due to the COVID-19 pandemic. |
|
| Total Assets (1) |
|
| Total Assets (1) |
| ||||||||||||||||||
|
| October 31, 2019 |
|
| January 31, 2019 |
|
| October 31, 2018 |
|
| October 31, 2020 |
|
| January 31, 2020 |
|
| October 31, 2019 |
| ||||||
United States |
| $ | 465,630 |
|
| $ | 328,014 |
|
| $ | 358,987 |
|
| $ | 300,351 |
|
| $ | 425,018 |
|
| $ | 465,630 |
|
International |
|
| 401,425 |
|
|
| 431,687 |
|
|
| 404,929 |
|
|
| 401,427 |
|
|
| 422,290 |
|
|
| 401,425 |
|
Consolidated total |
| $ | 867,055 |
|
| $ | 759,701 |
|
| $ | 763,916 |
|
| $ | 701,778 |
|
| $ | 847,308 |
|
| $ | 867,055 |
|
(1) |
|
|
| Property, Plant and Equipment, Net |
|
| Property, Plant and Equipment, Net |
| ||||||||||||||||||
|
| October 31, 2019 |
|
| January 31, 2019 |
|
| October 31, 2018 |
|
| October 31, 2020 |
|
| January 31, 2020 |
|
| October 31, 2019 |
| ||||||
United States |
| $ | 19,613 |
|
| $ | 17,030 |
|
| $ | 17,599 |
|
| $ | 15,884 |
|
| $ | 18,852 |
|
| $ | 19,613 |
|
International |
|
| 9,662 |
|
|
| 9,037 |
|
|
| 7,872 |
|
|
| 8,118 |
|
|
| 10,386 |
|
|
| 9,662 |
|
Consolidated total |
| $ | 29,275 |
|
| $ | 26,067 |
|
| $ | 25,471 |
|
| $ | 24,002 |
|
| $ | 29,238 |
|
| $ | 29,275 |
|
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, inventory levels, 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: 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,sold; uncertainty regarding such economic and business conditions,conditions; trends in consumer debt levels and bad debt write-offs,write-offs; general uncertainty related to possible terrorist attacks, natural disasters, pandemics, including the effect of the COVID-19 pandemic and other diseases on travel and traffic in the Company’s retail stores and the stores of its wholesale customers; supply disruptions and delivery delays from the Company’s suppliers as a result of the COVID-19 pandemic; adverse impact on the Company’s wholesale customers and customer traffic in the Company’s stores as a result of increased uncertainty and economic disruption caused by the COVID-19 pandemic; the stability of the European Union (including the impact of the United Kingdom’s process to exit from the European Union),; the stability of the United Kingdom after its potential exit from the European Union, and defaults on or downgrades of sovereign debt and the impact of any of those events on consumer spending,spending; changes in consumer preferences and popularity of particular designs, new product development and introduction,introduction; decrease in mall traffic and increase in e-commerce,e-commerce; the ability of the Company to successfully implement its business strategies, competitive products and pricing,pricing; the impact of “smart” watches and other wearable tech products on the traditional watch market, seasonality,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,orders; the loss of or curtailed sales to significant customers,customers; the Company’s dependence on key employees and officers,officers; the ability to successfully integrate the operations of acquired businesses (including the Olivia Burton and MVMT brands) without disruption to other business activities,activities; the possible impairment of acquired intangible assets including goodwill if the carrying value of any reporting unit were to exceed its fair value,value; volatility in reported earnings resulting from changes in the estimated fair value of contingent acquisition consideration,consideration; the continuation of the company’sCompany’s major warehouse and distribution centers,centers; the continuation of licensing arrangements with third parties,parties; losses possible from pending or future litigation,litigation; the ability to secure and protect trademarks, patents and other intellectual property rights,rights; the ability to lease new stores on suitable terms in desired markets and to complete construction on a timely basis,basis; the ability of the Company to successfully manage its expenses on a continuing basis,basis; information systems failure or breaches of network security,security; the continued availability to the Company of financing and credit on favorable terms,terms; business disruptions,disruptions; and general risks associated with doing business outside the United States including, without limitation, import duties, tariffs (including retaliatory 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 20192020 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 Company’s consolidated financial statementsConsolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and those significant policies are more fully described in Note 1 to the Company’s consolidated financial statements.Consolidated Financial Statements. The preparation of these financial statements and the application of certain critical accounting policies require management to make judgments based on estimates and assumptions that affect the information reported. On an on-going basis, management evaluates its estimates and judgments, including those related to sales discounts and markdowns, product returns, bad debt, inventories, income taxes, warranty obligations, useful lives of property, plant and equipment, impairments, stock-based compensation and contingencies and litigation. Management bases its estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience, contractual commitments and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
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 20192020 Annual Report on Form 10-K and are incorporated by reference herein.
UnderIn the MVMT acquisition agreement,first quarter of 2020, the estimated fair valueCompany adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13. As a result of adoption, the Company replaced its methodology in determining the allowance for doubtful accounts which was based on an analysis of the contingent consideration was determined using a Monte Carlo simulation with key assumptions that include revenue and brand EBITDAaging of accounts receivable, assessments of collectability based on historical trends, the financial condition of the acquired businessCompany’s customers and an evaluation of economic conditions with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss rate for its trade accounts receivables. The adoption had no material impact on the Company’s Consolidated Financial Statements.
The Company performs its annual impairment assessment of goodwill and long-lived intangible assets at the beginning of the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2020. During the three months ended April 30, 2020, in light of the COVID-19 induced closing of the Company’s stores and the stores of the vast majority of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), decrease in customer spending and the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the earn-out period, volatilities, estimated discount rates, risk-free rate,first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and correlation (see Note 4 – AcquisitionsCompany Stores’ long-lived assets, as well as the Watch and Note 8 – Fair Value Measurements).Accessory Brands reporting unit. The assessment concluded that the fair values of MVMT’s tradename and customer relationships and Watch and Accessory Brands reporting unit did not exceed their respective carrying values. This analysis resulted in impairment charges related to goodwill of $133.7 million and intangible assets of $22.2 million in the first quarter of fiscal 2021 and are included in operating loss in the Consolidated Statements of Operations for the nine months ended October 31, 2020.
See Note 2 – Accounting Pronouncements Recently Adopted for updates
As of October 31, 2020, there have been no material changes to any of the Company’s critical accounting policies disclosed inother than the Company’s 2019 Annual Report on Form 10-K.
Recent Developments
On November 26, 2019, 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 December 20, 2019, to all shareholders of record as of the close of business on December 6, 2019. 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.
Starting in July 2018, the Trump Administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential special tariffs of 10% to 25% of import value, in addition to the regular tariffs that have historically applied to such products. Certain of the Company’s packaging products became subject to a special 10% tariff in September 2018, which was increased to 25% effective May 10, 2019. In addition, all of the Company’s smartwatches became subject to a special 15% tariff on September 1, 2019, and in a third-party ruling U.S. Customs and Border Patrol (“CBP”) has taken the position that this special 15% tariff applies broadly to China-sourced cases and bands on watches assembled in China and other countries. Under this position, most of the cases and bands used in the production of the Company’s traditional watches imported into the U.S. became subject to the special 15% tariff effective September 1, 2019. A pending request to CBP for reconsideration and revocation of the ruling has been filed on behalf of the Company and certain other watch importers on the basis that the CBP ruling is inconsistent with CBP’s longstanding position that the country of origin of the movement confers the country of origin of a traditional watch. The special tariffs on Chinese products will increase cost of sales, but the precise impact of the special tariffs is impossible to predict at this time.changes mentioned above.
Overview
The Company conducts its business primarily in two operating segments: Watch and Accessory Brands and Company Stores. The Company’s Watch and Accessory Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry and other accessories, of quality owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company Stores segment includes the Company’s physical retail outlet locations in the United States and Canada. The Company also operates in two major geographic locations: United States and International, the latter of which includes the results of all non-U.S. Company operations.
The Company divides its watch and accessory business into two principal categories: the owned brands category and the licensed brands category. The owned brands category consists of the Movado®, Ebel®Concord®, Concord®Ebel®, Olivia Burton® and MVMT® brands. WatchesProducts in the licensed brands category include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, Tommy Hilfiger®, HUGO BOSS®, Lacoste®, 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 due to the impact of royalty payments made on the licensed brands. Gross margins in the Company’s e-commerce business generally earn higher gross margin percentages than those of the traditional wholesale business. 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.
Recent Developments and Initiatives
COVID-19
In December 2019, COVID-19 emerged and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and other social distancing requirements. The Company’s operating results for the three months and nine months ended October 31, 2020 were materially impacted by the COVID-19 pandemic and are not necessarily indicative of the results that the Company will experience in the full fiscal year 2021.
At the end of the first quarter of fiscal year 2021, the impact of the COVID-19 pandemic resulted in the closure of the Company’s retail stores and the majority of the stores of the Company’s wholesale customers. During the second quarter of fiscal 2021, many worldwide regional and local governments lifted or modified restrictions and orders. By the end of the second quarter and throughout the third quarter, all of the Company’s retail stores and a majority of the stores of the Company’s wholesale customers have reopened; however, these stores have been impacted by a decrease in retail traffic and reduced hours at many locations. As we progressed through the second quarter and moved into the third quarter, sales trends improved as COVID-19 restrictions began easing in various stages across the world, enabling some return of foot traffic in the Company’s retail stores and those of its wholesale customers. However, due to continued restrictions affecting brick-and-mortar retail traffic and sales, sales declined in the Company’s retail stores and its wholesale business relative to the prior year period, but were partially offset by strong growth in e-commerce sales, both on the Company’s owned websites and those of third-parties.
The Company expects declines in net sales to continue in its retail and wholesale channels as potential customers react to social distancing requirements and other safety measures, as well as face layoffs and other negative economic impacts from the COVID-19 outbreak that negatively affect their disposable income and discretionary purchases. These trends could worsen if COVID-19 infections continue to increase as people spend more time congregating indoors due to the colder fall and winter weather in the northern hemisphere, which is where the Company’s biggest markets are located. The ongoing impact of the outbreak of COVID-19 on the Company’s liquidity, revenues, impairment considerations surrounding the Company’s indefinite and long-lived assets and results of operations cannot be reasonably predicted at this time due to the high level of uncertainty regarding future developments, the duration of containment measures and the timeline for recovery.
In response to this challenging environment, while the Company’s focus remains on the health and safety of its associates, customers and business partners, the Company has taken and continues to take the following actions:
Revenue-Generating Activities
• | Optimizing of the Company’s e-commerce platforms and ensuring that distribution centers remain operational across all major regions; and |
• | Supporting the Company’s wholesale customers as local containment measures ease throughout the world. |
Eliminating Non-Essential Operating Costs Across All Key Areas of Spend
• | Driving SG&A savings by minimizing all non-essential operating costs, right-sizing marketing expenses to the lower revenue base while maintaining a focus on digital, and driving procurement savings, including by reducing third party services. |
Strengthening the Company’s Balance Sheet and Enhancing Financial Flexibility
• | Adapting our inventory management to take account of market conditions and expected demand; and |
• | Reducing capital expenditures while prioritizing investment in high-return projects particularly in digital. |
Preserving Liquidity
• | Suspending the Company’s quarterly cash dividend beginning in the first quarter of fiscal 2021; and |
• | Suspending the share repurchase program. |
Addressing Organizational Costs
• | Implementation in June 2020 of a Restructuring Plan aimed at reducing operating expenses while maintaining a high level of variable expenses enabling the Company to be more responsive to further shifts in trends and the retail environment, and streamlining the organization, including a permanent workforce reduction; |
• | Applying for available government payroll subsidy programs in various countries to mitigate payroll expense; and |
• | Freezing the Company’s match on executive deferred compensation plans and the Company’s 401(k) match. |
The Company will continue to consider near-term demands and the long-term financial health of the business as steps are taken to mitigate the consequences of the COVID-19 pandemic and the uncertain business environment.
Fiscal 2021 Impairments
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in global equity markets, the Company concluded that a triggering event had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as well as the Watch and Accessory Brands reporting unit.
The Company made revisions to its internal forecasts, resulting in a reduction in both current and future expected cash flows, due to the COVID-19 pandemic and the uncertain business environment. As a result, during the first quarter of fiscal 2021, the Company recorded impairment charges related to goodwill of $133.7 million and intangible assets related to MVMT’s tradename and customer relationships of $22.2 million.
During the first quarter of fiscal 2021, the Company recorded $3.5 million of increases in inventory reserves and $1.1 million increases in allowance for doubtful accounts, similarly driven by current and expected changes to operations as result of the COVID-19 pandemic.
Tariffs
Starting in July 2018, the Trump Administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential U.S. special tariffs of 10% to 25% of import value, in addition to the regular tariffs that have historically applied to such products. Certain of the Company’s packaging products became subject to a U.S. special 10% tariff in September 2018, which was increased to 25% effective May 10, 2019. In addition, all of the Company’s smart watches became subject to a U.S. special 15% tariff on September 1, 2019, and in a third-party ruling, U.S. Customs and Border Patrol (“CBP”) has taken the position that this U.S. special 15% tariff applies broadly to China-sourced cases and bands on watches assembled in China and other countries. Under this position, most of the cases and bands used in the production of the Company’s traditional watches imported into the U.S. became subject to the U.S. special 15% tariff effective September 1, 2019, although the tariff rate was decreased to 7.5% effective February 14, 2020 in connection with the “Phase One” trade agreement between the United States and China signed on January 15, 2020. A pending request to CBP for reconsideration and revocation of the ruling has been filed on behalf of the Company and certain other watch importers on the basis that the CBP ruling is inconsistent with CBP’s longstanding position that the country of origin of the movement confers the country of origin of a traditional watch.
Results of Operations Overview
During the three and nine months ended October 31, 2020, the Company and many of its wholesale customers have been impacted by closures, reduced store hours or reduced traffic. The Company has seen and expects to continue to see material reductions in sales as a result of the COVID-19 pandemic and the uncertain business environment. In addition, these reductions in sales have not been entirely offset by proportional decreases in expenses, as the Company continues to incur costs such as operating lease costs, depreciation expense, and certain other costs such as compensation and administrative expenses, adversely affecting the relationship between the Company’s expenses and sales. The Company continues to take steps as discussed above in response to this challenging environment to mitigate the adverse impact of the pandemic. The current circumstances are dynamic and the impacts of the COVID-19 pandemic on the Company’s business operations, including the duration and impact on overall consumer demand, cannot be reasonably predicted at this time. These impacts could worsen if COVID-19 infections continue to increase as people spend more time congregating indoors due to the colder fall and winter weather in the northern hemisphere, which is where the Company’s biggest markets are located. The Company anticipates the COVID-19 pandemic will have a material impact on its business, results of operations, financial condition and cash flows for the year ending January 31, 2021. As the COVID-19 pandemic is complex and rapidly evolving, the Company’s plans may change.
Results of operations for the three months ended October 31, 20192020 as compared to the three months ended October 31, 20182019
Net Sales: Comparative net sales by business segment were as follows (in thousands):
|
| Three Months Ended October 31, |
|
| Three Months Ended October 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 66,287 |
|
| $ | 75,035 |
|
| $ | 48,403 |
|
| $ | 66,287 |
|
International |
|
| 119,318 |
|
|
| 114,347 |
|
|
| 103,705 |
|
|
| 119,318 |
|
Total Watch and Accessory Brands |
|
| 185,605 |
|
|
| 189,382 |
|
|
| 152,108 |
|
|
| 185,605 |
|
Company Stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
| 19,347 |
|
|
| 19,184 |
|
|
| 17,082 |
|
|
| 19,347 |
|
International |
|
| 666 |
|
|
| 383 |
|
|
| 673 |
|
|
| 666 |
|
Total Company Stores |
|
| 20,013 |
|
|
| 19,567 |
|
|
| 17,755 |
|
|
| 20,013 |
|
Net Sales |
| $ | 205,618 |
|
| $ | 208,949 |
|
| $ | 169,863 |
|
| $ | 205,618 |
|
Comparative net sales by categories were as follows (in thousands):
|
| Three Months Ended October 31, |
|
| Three Months Ended October 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 76,120 |
|
| $ | 80,155 |
|
| $ | 55,774 |
|
| $ | 76,120 |
|
Licensed brands category |
|
| 108,336 |
|
|
| 107,694 |
|
|
| 95,576 |
|
|
| 108,336 |
|
After-sales service and all other |
|
| 1,149 |
|
|
| 1,533 |
|
|
| 758 |
|
|
| 1,149 |
|
Total Watch and Accessory Brands |
|
| 185,605 |
|
|
| 189,382 |
|
|
| 152,108 |
|
|
| 185,605 |
|
Company Stores |
|
| 20,013 |
|
|
| 19,567 |
|
|
| 17,755 |
|
|
| 20,013 |
|
Net Sales |
| $ | 205,618 |
|
| $ | 208,949 |
|
| $ | 169,863 |
|
| $ | 205,618 |
|
Net Sales
Net sales for the three months ended October 31, 20192020 were $205.6$169.9 million, $3.3$35.8 million or 1.6%17.4% below the prior year period. This decrease is primarily as a result of the ongoing COVID-19 pandemic. For the three months ended October 31, 2019,2020, fluctuations in foreign currency exchange rates negativelypositively impacted net sales by $4.3$4.2 million when compared to the prior year period.
Watch and Accessory Brands Net Sales
Net sales for the three months ended October 31, 20192020 in the Watch and Accessory Brands segment were $185.6$152.1 million, below the prior year period by $3.8$33.5 million, or 2.0%18.0%. The decrease in net sales was primarily attributable to the ongoing COVID-19 pandemic and continued restrictions on some stores of the Company’s wholesale customers during the period. There were decreases in net sales in both the United States locations partially offset by increases in net sales in theand International locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands Net Sales
Net sales for the three months ended October 31, 20192020 in the United States locationlocations of the Watch and Accessory Brands segment were $66.3$48.4 million, below the prior year period by $8.8$17.9 million, or 11.7%27.0%, resulting from net sales decreasedecreases across most brands in both the owned and licensed brand categories.categories due to the ongoing COVID-19 pandemic. The net sales recorded in the owned brands category decreased by $3.2$12.4 million, or 6.1%24.9%, primarily due to a decrease in sales in the Movado brand, partially offset by sales attributable to the addition of the MVMT brand and increased sales in the Company’s Movado.com e-commerce business. The net sales recorded in the licensed brandsbrand category decreased $5.5$4.7 million, or 25.7%29.7%.
International Watch and Accessory Brands Net Sales
Net sales for the three months ended October 31, 20192020 in the International locationlocations of the Watch and Accessory Brands segment were $119.3$103.7 million, abovebelow the prior year by $5.0$15.6 million, or 4.3%13.1%, which included fluctuations in foreign currency exchange rates which unfavorablyfavorably impacted net sales by $4.3$4.2 million when compared to the prior year. This increase was driven byyear period. The decrease in net sales increaseswas across most brands in the licensed brands category, partially offset by decreases inboth the owned brands category. The net sales increase in theand licensed brands category was $6.1 million, or 7.1%, primarilybrand categories due to net sales increases in Europe, the Middle East, Asia and Latin America.ongoing COVID-19 pandemic. The net sales decrease recorded in the owned brands category was $0.8$8.0 million, or 3.0%30.2% and is due to sales decreases primarily in Europe, the Americas (excluding the United States), Asia, and the Middle East and Latin America.East. The net sales decrease in the ownedlicensed brands category was partially offset by$8.1 million, or 8.7%, primarily due to net sales decreases in the sales attributable toAmericas (excluding the addition ofUnited States), Asia and the MVMT brand.
Middle East.
Company Stores Net Sales
Net sales for the three months ended October 31, 20192020 in the Company Stores segment were $20.0$17.8 million, $0.5$2.3 million or 2.3% above11.3% below the prior year period. Although the conversion rate remained strong as products continue to resonate well with customers,The net sales decrease in comparable stores decreasedis primarily as athe result of a decreasecontinued restrictions on some of the Company’s retail stores during the period in customer foot traffic generated byresponse to the outlet centers in which certainCOVID-19 pandemic and the ongoing COVID-19 pandemic. As of October 31, 2020, all of the Company stores are located.open. This decrease was partially offset by the addition of a new store openings.that did not exist in the prior-year period but contributed to sales in the current period. As of October 31, 2019,2020, and 2018,2019, the Company operated 4647 and 4446 retail outlet locations, respectively.
Gross Profit
Gross profit for the three months ended October 31, 20192020 was $92.5 million or 54.4% of net sales as compared to $110.1 million or 53.5% of net sales as compared to $113.4 million or 54.3% of net sales in the prior year.year period. The decrease in gross profit of $3.3$17.6 million was primarily due to lower net sales, andpartially offset by a lowerhigher gross margin percentage. The decreaseincrease in the gross margin percentage of approximately 8090 basis points for the three months ended October 31, 20192020 resulted primarily from an unfavorable impact of sales mix, partially offset by the addition of MVMT,cost savings of approximately 7050 basis points, and the negativea positive impact of fluctuations in foreign currency exchange rates of approximately 50 basis points and a favorable impact of sales mix of approximately 30 basis points, partially offset by the decreased leveraging of certain fixed costs as a result of lower sales of approximately 40 basis points.
Selling, General and Administrative (“SG&A”)
SG&A expenses for the three months ended October 31, 20192020 were $87.4$69.4 million, representing a decrease from the prior year period of $1.8$18.0 million, or 2.0%. Included in the prior year period are $10.8 million of transaction costs and amortization expenses related to the MVMT acquisition. Without these costs, SG&A expenses increased $9.0 million resulting20.6%, primarily from higherlower marketing expenses of $5.5 million due primarily to the addition of MVMT and additional costs to support brand awareness; an increase$10.3 million; a decrease in payroll related expenses of $2.6$7.7 million primarily as a result of permanent staff reductions that took place in July in response to the acquisitionCOVID-19 pandemic; a $1.1 million decrease in consulting and recruiting charges; a decrease of MVMT$0.9 million in travel and entertainment charges due to travel restrictions related to the openingCOVID-19 pandemic; and a decrease of new company stores; higher rent and related expenses of $1.8$0.6 million in amortization expense as a result of new company store openings, expansion of one of the Company’s distribution centers and the addition of MVMT; $1.4 million of operating expenses relateda reduction in intangible assets due to the Company’s new joint venture in Spain and an increaseimpairment taken during the first quarter of $0.4 million in credit card charges primarily as a result of the increase in e-commerce sales. Included in the current period are $0.9 million of expenses related to the amortization of MVMT’s intangible assets and deferred compensation arrangements.fiscal 2021. The increasedecrease in SG&A was partially offset by a decreasean increase in performance-based compensation of $4.2 million.$3.5 million and corporate initiative charges primarily in response to the COVID-19 pandemic of $0.7 million consisting of $0.6 million in other restructuring charges and $0.1 million in severance and payroll related. For the three months ended October 31, 2019,2020, fluctuations in foreign currency rates related to the foreign subsidiaries positivelynegatively impacted SG&A expenses by $0.4$1.0 million when compared to the prior year.year period.
Watch and Accessory Brands Operating Income
For the three months ended October 31, 20192020 and 2018,2019, the Company recorded Watch and Accessory Brands segment operating income of $20.2$19.8 million and $21.2$20.2 million, respectively, which includes $15.4$16.3 million and $23.8$15.4 million of unallocated corporate expenses as well as $24.5$23.0 million and $17.9$24.5 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. The $1.0$0.4 million decrease in operating income was the result of a decrease in gross profit of $3.3$17.4 million, partially offset by a decrease in SG&A expenses of $2.3$17.0 million when compared to the prior year.year period. The decrease in gross profit was the result of lower sales, partially offset by a higher gross margin percentage and lower sales. Includedpercentage. The decrease in the prior year period are $10.8 million of transaction costs and amortization expenses related to the MVMT acquisition. Without these costs, SG&A expenses in the Watch and Accessory Brands segment increased $8.5of $17.0 million resultingresulted primarily from higherlower marketing expenses of $5.6$10.3 million; an increasea decrease in payroll related expenses of $2.4$7.0 million primarily due to the addition of MVMT; higher rent related expenses of $1.5 million; $1.4 million of operating expenses related to the Company’s new joint venture in Spain and an increase of $0.4 million in credit card charges primarily as a result of permanent staff reductions that took place in July in response to the increaseCOVID-19 pandemic; a $1.1 million decrease in e-commerce sales. Included in the current period areconsulting and recruiting charges; a decrease of $0.9 million of expensesin travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; and a decrease of $0.6 million in amortization expense as a result of MVMT’sa reduction in intangible assets and deferred compensation arrangements.due to the impairment taken during the first quarter of fiscal 2021. The increasedecrease in SG&A was partially offset by a decreasean increase in performance-based compensation of $4.0 million.$3.4 million and corporate initiative charges primarily in response to the COVID-19 pandemic of $0.7 million consisting of $0.6 million in other restructuring charges and $0.1 million in severance and payroll related. For the three months ended October 31, 2019,2020, fluctuations in foreign currency exchange rates negativelypositively impacted the Watch and Accessory brandsBrands segment operating income by $1.7$0.7 million when compared to the prior year.year period.
U.S. Watch and Accessory Brands Operating Loss
In the United States locationlocations of the Watch and Accessory Brands segment, for the three months ended October 31, 20192020 and 2018,2019, the Company recorded an operating loss of $9.3$9.8 million and $7.2$9.3 million, respectively, which includes unallocated corporate expenses of $15.4$16.3 million and $23.8$15.4 million, respectively. The increase in operating loss of $2.1 million was the result of lower gross profit of $7.9$8.9 million, partially offset by lower SG&A expenses of $5.8$8.4 million. The decrease in gross profit of $7.9$8.9 million was due to lower sales, andpartially offset by a lowerhigher gross margin percentage. IncludedThe decrease in SG&A expenses of $8.4 million resulted primarily from lower marketing costs of $5.7 million; a decrease in payroll related expenses of $4.0 million primarily as a result of permanent staff reductions that took place in July in response to the prior year period are $10.8COVID-19 pandemic; a decrease of $0.8 million in consulting and recruiting charges; a decrease of transaction costs$0.6 million in amortization expense as a result of a reduction in intangible assets due to the impairment taken during the first quarter of fiscal 2021; and amortization expensesa decrease of $0.4 million in travel and entertainment charges due to travel restrictions related to the MVMT acquisition. Without these costs, SG&A expenses in U.S. Watch and Accessory Brands increased $5.0 million resulting primarily from higher marketing costs of $5.4 million; higher payroll related of $1.9 million; $0.5 million of higher rent related expenses and an increase of $0.2 million in credit card charges. Included in the current period are $0.9 million of expenses related to the amortization of MVMT’s intangible assets and deferred compensation arrangements.COVID-19 pandemic. The increasedecrease in SG&A was partially offset by a decreasean increase in performance-based compensation of $3.3 million.$3.0 million and corporate initiative charges primarily in response to the COVID-19 pandemic consisting of $0.6 million in other restructuring charges.
International Watch and Accessory Brands Operating Income
In the International locationlocations of the Watch and Accessory Brands segment, for the three months ended October 31, 20192020 and 2018,2019, the Company recorded operating income of $29.5$29.6 million and $28.4$29.5 million, respectively, which includes $23.0 million and $24.5 million, and $17.9 millionrespectively, of certain intercompany profits related to the Company’s International supply chain operations. The increase in operating income of $1.1 million was primarily related to higher gross profitlower SG&A expenses of $4.6$8.6 million, partially offset by higher SG&A expenseslower gross profit of $3.5$8.5 million. The increasedecrease in gross profit of $4.6$8.5 million was primarily relateddue to higherlower net sales, andpartially offset by a higher gross margin percentage. The increasedecrease in SG&A expenses of $3.5$8.6 million was attributable to higherresulted primarily from lower marketing costs of $4.6 million; a decrease in payroll related expensesexpense of $3.0 million primarily as a result of permanent staff reductions that took place in July in response to the COVID-19 pandemic; a decrease of $0.5 million; an increase of $1.0 million in rent related expensestravel and $1.4 million of operating expensesentertainment charges due to travel restrictions related to the Company’s new joint ventureCOVID-19 pandemic; and a decrease in Spain.$0.3 million in consulting and recruiting charges. The decrease in SG&A was partially offset by an increase in performance-based compensation of $0.4 million and corporate initiative charges primarily in response to the COVID-19 pandemic consisting of $0.1 million in severance and payroll related. Fluctuation in foreign currency exchange rates negativelypositively impacted operating income by $1.7$0.7 million when compared to the prior year.year period.
Company Stores Operating Income
The Company recorded operating income of $2.4$3.2 million and $2.9$2.4 million in the Company Stores segment for the three months ended October 31, 2020 and 2019, and 2018, respectively. While gross profit remained relatively flat between the periods, the decreaseThe increase in operating income of $0.5$0.8 million was the result of higherprimarily related to lower SG&A expenses of $0.5 million.$1.0 million, partially offset by lower gross profit of $0.2 million primarily due to lower sales. The increasedecrease in SG&A expenses of $0.5 million was primarily due to rent anda decrease in payroll related expenses associated withof $0.7 million primarily due to permanent staff reductions that took place in July in response to the openingCOVID-19 pandemic and a decrease in credit card fees and sales commissions of new outlet locations.$0.2 million due to less sales in the current year period as compared to the prior year period. As of October 31, 2019,2020, and 2018,2019, the Company operated 4647 and 4446 retail outlet locations, respectively.
Income Taxes
The Company recorded an income tax expenseprovision of $5.0$7.5 million and tax benefit of $2.8$5.0 million for the three months ended October 31, 20192020 and 2018,2019, respectively.
The effective tax rate was 33.5% and 22.1% for three months ended October 31, 2020 and -11.7%2019, respectively. The significant components of the effective tax rate changed primarily due to the U.S. tax on GILTI and excess tax deficiencies related to stock-based compensation, partially offset by the CARES Act NOL Carryback Provision.
The effective tax rate for the three months ended October 31, 2019 and 2018, respectively. The change in2020 differs from the effectiveU.S. statutory tax rate wasof 21.0% primarily due to a changethe U.S. tax on GILTI and excess tax deficiencies related to stock-based compensation, partially offset by foreign profits being taxed in the deferred withholding tax liability on unremitted foreign earnings, the release of valuation allowances against certain foreign deferred tax assetslower taxing jurisdictions and the impact of other discrete items, all of which occurred in the prior year.CARES Act NOL Carryback Provision.
The effective tax rate for the three months ended October 31, 2019 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 October 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to a change in estimate of the Company’s provisional deferred withholding tax liability on unremitted foreign earnings, the release of valuation allowances against certain foreign deferred tax assets and the impact of other discrete items.
Net Income Attributable to Movado Group, Inc.
The Company recorded net income attributable to Movado Group, Inc. of $17.8$14.8 million and $26.9$17.8 million, for the three months ended October 31, 2020 and 2019, and 2018, respectively.
Results of operations for the nine months ended October 31, 20192020 as compared to the nine months ended October 31, 20182019
Net Sales: Comparative net sales by business segment were as follows (in thousands):
|
| Nine Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 156,856 |
|
| $ | 147,045 |
|
| $ | 95,605 |
|
| $ | 156,856 |
|
International |
|
| 297,050 |
|
|
| 277,518 |
|
|
| 197,978 |
|
|
| 297,050 |
|
Total Watch and Accessory Brands |
|
| 453,906 |
|
|
| 424,563 |
|
|
| 293,583 |
|
|
| 453,906 |
|
Company Stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
| 54,801 |
|
|
| 55,036 |
|
|
| 33,180 |
|
|
| 54,801 |
|
International |
|
| 1,276 |
|
|
| 592 |
|
|
| 1,304 |
|
|
| 1,276 |
|
Total Company Stores |
|
| 56,077 |
|
|
| 55,628 |
|
|
| 34,484 |
|
|
| 56,077 |
|
Net Sales |
| $ | 509,983 |
|
| $ | 480,191 |
|
| $ | 328,067 |
|
| $ | 509,983 |
|
Comparative net sales by categories were as follows (in thousands):
|
| Nine Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Watch and Accessory Brands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned brands category |
| $ | 184,729 |
|
| $ | 173,270 |
|
| $ | 112,757 |
|
| $ | 184,729 |
|
Licensed brands category |
|
| 258,617 |
|
|
| 243,267 |
|
|
| 177,674 |
|
|
| 258,617 |
|
After-sales service and all other |
|
| 10,560 |
|
|
| 8,026 |
|
|
| 3,152 |
|
|
| 10,560 |
|
Total Watch and Accessory Brands |
|
| 453,906 |
|
|
| 424,563 |
|
|
| 293,583 |
|
|
| 453,906 |
|
Company Stores |
|
| 56,077 |
|
|
| 55,628 |
|
|
| 34,484 |
|
|
| 56,077 |
|
Net Sales |
| $ | 509,983 |
|
| $ | 480,191 |
|
| $ | 328,067 |
|
| $ | 509,983 |
|
Net Sales
Net sales for the nine months ended October 31, 20192020 were $510.0$328.1 million, $29.8$181.9 million or 6.2% above35.7% below the prior year period. This decrease is primarily as a result of the ongoing COVID-19 pandemic. For the nine months ended October 31, 2019,2020, fluctuations in foreign currency exchange rates negativelypositively impacted net sales by $11.1$3.6 million when compared to the prior year.
year period.
Watch and Accessory Brands Net Sales
Net sales for the nine months ended October 31, 20192020 in the Watch and Accessory Brands segment were $453.9$293.6 million, abovebelow the prior year period by $29.3$160.3 million, or 6.9%35.3%. The increasedecrease in net sales was primarily attributable to increasesthe ongoing COVID-19 pandemic and the resultant closure of the stores of the Company’s wholesale customers during a portion of the period and continued restrictions on some stores of the Company’s wholesale customers during the period. There were decreases in net sales in both the InternationalUnited States and United StatesInternational locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands Net Sales
Net sales for the nine months ended October 31, 20192020 in the United States locationlocations of the Watch and Accessory Brands segment were $156.9$95.6 million, abovebelow the prior year period by $9.8$61.2 million, or 6.7%39.0%, resulting from net sales increasedecreases across most brands in both the owned and licensed brands categories.brand categories due to the ongoing COVID-19 pandemic. The net sales recorded in the owned brands category increaseddecreased by $7.3$42.3 million, or 6.7%36.4%, primarily due to sales attributable to the addition of the MVMT brand and increased sales in the Company’s Movado.com e-commerce business. The net sales recorded in the licensed brandsbrand category increased $0.3decreased $13.3 million, or 0.8%38.9%.
International Watch and Accessory Brands Net Sales
Net sales for the nine months ended October 31, 20192020 in the International locationlocations of the Watch and Accessory Brands segment were $297.0$198.0 million, abovebelow the prior year by $19.5$99.1 million, or 7.0%33.4%, which included fluctuations in foreign currency exchange rates which unfavorablyfavorably impacted net sales by $11.1$3.6 million when compared to the prior year period. This increase was driven byThe decrease in net sales increaseswas across all brands in both the owned and licensed brands and owned brands categories.brand categories due to the ongoing COVID-19 pandemic. The net sales increase in the licensed brands category was $15.1 million, or 7.2%, primarily due to net sales increases in Europe, the Middle East, Asia and Latin America. The net sales increasedecrease recorded in the owned brands category was $4.2$29.7 million, or 6.5%,43.2% and is due to sales increasesdecreases primarily in Europe, Latin Americathe Americas (excluding the United States), Asia, and the Middle East. The net sales increasedecrease in the ownedlicensed brands category also includedwas $67.7 million, or 30.1%, primarily due to net sales attributable todecreases in Europe, the addition ofAmericas (excluding the MVMT brand.United States), Asia and the Middle East.
Company Stores Net Sales
Net sales for the nine months ended October 31, 20192020 in the Company Stores segment were $56.1$34.5 million, $0.5$21.6 million or 0.8% above38.5% below the prior year period. Although the conversion rate remained strong as products continue to resonate well with customers,The net sales decrease in comparable stores decreasedis primarily as athe result of a decrease in customer foot traffic generated by the outlet centers in which certainclosure of the CompanyCompany’s retail stores are located.during a portion of the period in response to the COVID-19 pandemic and continued restrictions on some of the Company’s retail stores during the period in response to the COVID-19 pandemic. This decrease was partially offset by the addition of new store openings.stores that did not exist in the prior-year period but contributed to sales in the current period prior to and after the COVID-19 related closures that began in mid-March. As of October 31, 2019,2020, all of the Company stores are open. As of October 31, 2020, and 2018,2019, the Company operated 4647 and 4446 retail outlet locations, respectively.
Gross Profit
Gross profit for the nine months ended October 31, 20192020 was $274.3$169.7 million or 53.8%51.7% of net sales as compared to $258.7$274.3 million or 53.9%53.8% of net sales in the prior year period. The increasedecrease in gross profit of $15.6$104.6 million was primarily due to higherlower net sales partially offset byand, to a lesser extent, a lower gross margin percentage. The decrease in the gross margin percentage of approximately 10210 basis points for the nine months ended October 31, 2019,2020 resulted primarily from the negativedecreased leveraging of certain fixed costs as a result of lower sales of approximately 120 basis points, corporate initiatives related to an increase in inventory reserves in response to the COVID-19 pandemic of approximately 110 basis points, an unfavorable impact of sales mix of approximately 100 basis points and additional U.S. special tariffs of approximately 20 basis points, partially offset by cost savings of 130 basis points and a positive impact of fluctuations in foreign currency exchange rates of approximately 6010 basis points partially offset by the increased leveraging of certain fixed costs as a result of higher sales of approximately 40 basis points.
Selling, General and Administrative (“SG&A”)
SG&A expenses for the nine months ended October 31, 20192020 were $237.9$181.8 million, representing an increasea decrease from the prior year period of $24.3$56.1 million, or 11.4%. Included in the prior year period are $11.8 million of transaction costs and amortization expenses related to the MVMT acquisition. Without these costs, SG&A expenses increased $36.1 million resulting23.6%, primarily from higherlower marketing expenses of $17.4 million due primarily to the addition of MVMT and additional costs to support brand awareness; an increase$30.4 million; a decrease in payroll related expenses of $9.0$25.8 million primarily as a result of the acquisitionfurloughing of MVMTemployees and temporary salary reductions starting at the openingbeginning of new company stores; higher rentApril (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a $3.3 million decrease in consulting and recruiting charges; a decrease of $3.0 million in travel and entertainment charges due to travel restrictions related expensesto the COVID-19 pandemic; a decrease of $4.5$2.7 million in trade show costs due to the cancellation of a global customer event due to COVID-19 health concerns and travel restrictions; a decrease in amortization expense of $1.5 million as a result of new company store openings, expansiona reduction in intangible assets due to the impairment taken during the current period; a decrease of one of the Company’s distribution centers$0.9 million in sales commissions; and the addition of MVMT; $3.6 million of operating expenses related to its new joint venture in Spain; an increase of $1.4 milliona reduction in credit card charges primarily as a resultfees of the increase in e-commerce$0.7 million due to less sales and $0.5 million of additional costs related to an annual sales and marketing event for the Company’s wholesale customers worldwide. Included in the current year period are $3.4 million of expenses relatedas compared to the amortization of MVMT’s intangible assets and deferred compensation arrangements.prior year period. The increases weredecrease in SG&A was partially offset by a decreasean increase in corporate initiative charges primarily in response to the COVID-19 pandemic of $11.8 million consisting of $8.0 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits, $1.2 million in other restructuring charges and $1.1 million in additional accounts receivable reserves; and an increase in performance-based compensation of $6.6$3.0 million. For the nine months ended October 31, 2019,2020, fluctuations in foreign currency exchange rates positivelyrelated to the foreign subsidiaries negatively impacted SG&A expenses by $1.9$1.0 million when compared to the prior year.year period.
Impairment of Goodwill and Intangible Assets
As a result of the economic conditions caused by the response to COVID-19, the Company performed a quantitative assessment of its goodwill and long-lived intangible assets at April 30, 2020. The Company recorded a goodwillimpairment of $133.7 million related to the Company’s Watch and Accessory Brands reporting unit as the carrying value of goodwill exceeded the fair value at April 30, 2020. The Company also recorded a $22.2 millionimpairment charge related to MVMT’s trade name and customer relationships as the carrying amount of these long-lived intangible assets exceeded the fair value.
Watch and Accessory Brands Operating (Loss)/Income
For the nine months ended October 31, 2019 and 2018,2020 the Company recorded an operating loss of $169.8 million in the Watch and Accessory Brands segment which included goodwill and intangible assets impairment charges of $133.7 million and $22.2 million, respectively. Without these charges, for the nine months ended October 31, 2020, operating loss would have been $13.9 million as compared to operating income of $29.0 million for the nine months ended October 31, 2019, which includes $28.4 million and $35.8$28.5 million, respectively, which includes $28.5 million and $44.5 million of unallocated corporate expenses as well as $52.3$45.3 million and $40.2$52.3 million, respectively, of certain intercompany profits related to the Company’s supply chain operations. The $6.8 millionIn addition to the assets impairments, the decrease in operating income was the net result of highera decrease in gross profit of $93.3 million, which included corporate initiative costs of $3.5 million comprising an increase in inventory reserves, partially offset by a decrease in SG&A expenses of $22.1 million, partially offset by an increase in gross profit of $15.3$50.4 million when compared to the prior year.year period. The increasedecrease in gross profit was the result of higherlower sales, whileand to a lesser extent, lower gross margin remained relatively flat. Includedpercentage. The decrease in the prior year period are $11.8 million of transaction costs and amortization expenses related to the MVMT acquisition. Without these costs, SG&A expenses increased $33.9of $50.4 million resultingresulted primarily from higherlower marketing expenses of $17.6$30.3 million; an increasea decrease in payroll related expenses of $8.3$22.0 million due primarily to the addition of MVMT; higher rent related expense of $3.3 million as a result of expansion of one of the Company’s distribution centers and the addition of MVMT; $3.6 million of operating expenses related to the Company’s new joint venture in Spain; an increase of $1.4 million in credit card charges primarily as a result of the increasefurloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in e-commerce salesJuly) and $0.5permanent staff reductions in response to the COVID-19 pandemic; a $3.3 million decrease in consulting and recruiting charges a decrease of additional costs related$2.8 million in travel and entertainment charges due to an annual sales and marketing event for the Company’s wholesale customers worldwide. Included in the current period are $3.4 million of expensestravel restrictions related to the COVID-19 pandemic; a decrease of $2.7 million in trade show costs due to the cancellation of a global customer trade show due to COVID-19 health concerns and travel restrictions; a decrease in amortization expense of MVMT’s$1.5 million as a result of a reduction in intangible assets due to the impairment taken during the current period; and deferred compensation arrangements.a decrease of $0.5 million in sales commissions. The increases weredecrease in SG&A was partially offset by a decreasean increase in corporate initiative charges primarily in response to the COVID-19 pandemic of $11.8 million consisting of $8.0 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits, $1.2 million in other restructuring charges and $1.1 million in additional accounts receivable reserves; and an increase in performance-based compensation of $6.4$3.3 million. FluctuationsFor the nine months ended October 31, 2020, fluctuations in foreign currency exchange rates negativelypositively impacted the Watch and Accessory Brands segment operating incomeloss by $3.9$0.4 million when compared to the prior year.year period.
U.S. Watch and Accessory Brands Operating Loss
InFor the nine months ended October 31, 2020 the Company recorded an operating loss of $142.6 million in the United States locationlocations of the Watch and Accessory Brands segment which included goodwill and impairment charges of $77.5 million and $22.2 million, respectively. Without these charges, for the nine months ended October 31, 2020, operating loss would have been $42.9 million as compared to operating loss of $26.4 million for the nine months ended October 31, 2019, which includes unallocated corporate expenses of $28.4 million and 2018,$28.5 million, respectively. In addition to the assets impairments, the increase in operating loss was the result of lower gross profit of $38.9 million, which reflected corporate initiative costs of $3.5 million comprising an increase in inventory reserves, partially offset by lower SG&A expenses of $22.4 million. The decrease in gross profit of $38.9 million was due to lower sales and, to a lesser extent, a lower gross margin percentage. The decrease in SG&A expenses of $22.4 million resulted primarily from a decrease in payroll related expenses of $14.1 million primarily as a result of the furloughing of employees and temporary salary reductions starting at the beginning of April (with the majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; lower marketing costs of $13.6 million; a decrease of $1.8 million in consulting and recruiting charges; a decrease of $1.5 million in travel and entertainment charges due to travel restrictions related to the COVID-19 pandemic; a decrease in amortization expense of $1.5 million as a result of a reduction in intangible assets due to the impairment taken during the current period; and a decrease of $0.2 million in sales commissions. The decrease in SG&A was partially offset by an increase in corporate initiative charges primarily in response to the COVID-19 pandemic of $8.4 million consisting of $6.3 million in severance and payroll related, $1.1 million in additional accounts receivable reserves and $1.0 million in other restructuring charges; and an increase in performance-based compensation of $2.8 million.
International Watch and Accessory Brands Operating (Loss)/Income
For the nine months ended October 31, 2020 the Company recorded an operating loss of $26.4$27.2 million and $21.8 million, respectively, which includes unallocated corporate expenses of $28.5 million and $44.5 million. The increase in operating loss of $4.6 million was the result of higher SG&A expenses of $7.9 million partially offset by higher gross profit of $3.3 million. The increase in gross profit of $3.3 million was due to higher sales, partially offset by a lower gross margin percentage. Included in the prior year period are $11.8 million of transaction costs and amortization expenses related to the MVMT acquisition. Without these costs, SG&A expenses increased $19.7 million resulting primarily from higher marketing costs of $11.9 million; higher payroll related expenses of $6.7 million primarily due to MVMT; an increase of $1.1 million in credit card charges primarily as a result of the increase in e-commerce sales and $1.3 million of higher rent related expenses primarily due to MVMT. Included in the current period are $3.4 million of expenses related to the amortization of MVMT’s intangible assets and deferred compensation arrangements. The increases were partially offset by a decrease in performance-based compensation of $5.1 million.
International Watch and Accessory Brands Operating Income
In the International locationlocations of the Watch and Accessory Brands segment which included goodwill impairment charges of $56.2 million. Without these charges, for the nine months ended October 31, 2020, the Company would have generated operating income of $29.0 million as compared to operating income of $55.4 million for the nine months ended October 31, 2019, and 2018, the Company recorded operating income of $55.4which amounts include $45.3 million and $57.6$52.3 million, respectively, which includes $52.3 million and $40.2 million of certain intercompany profits related to the Company’s International supply chain operations. TheIn addition to the goodwill impairment charges, the decrease in operating income was primarily related to lower gross profit of $2.2$54.4 million, partially offset by lower SG&A expenses of $28.0 million. The decrease in gross profit of $54.4 million was primarily related to higher SG&A expenses of $14.2 million partially offset by higher gross profit of $12.0 million. The increase in gross profit of $12.0 million was primarily related to higherlower net sales and, to a higherlesser extent, a lower gross margin percentage. The increasedecrease in SG&A expenses of $14.2$28.0 million was attributable to higherresulted primarily from
lower marketing expensescosts of $5.7$16.7 million; highera decrease in payroll related expensesexpense of $1.6 million; an increase of $2.0$7.9 million in rent related expenses primarily as a result of expansionthe furloughing of oneemployees and temporary salary reductions starting at the beginning of April (with the Company’s distribution centers;majority of these actions ending in July) and permanent staff reductions in response to the COVID-19 pandemic; a $3.6decrease of $2.7 million in trade show costs due to cancellation of operating expensesa global customer event due to COVID-19 health concerns and travel restrictions; a decrease of $1.5 million in consulting and recruiting charges; a decrease of $1.3 million in travel and entertainment charges due to travel restrictions related to the Company’s new joint ventureCOVID-19 pandemic; and a decrease of $0.3 million in Spain and $0.5 million of additional costs related to an annual sales and marketing event for the Company’s wholesale customers worldwide,commissions. The decrease in SG&A was partially offset by a decreasean increase in corporate initiative charges primarily in response to the COVID-19 pandemic of $3.4 million consisting of $1.7 million in severance and payroll related, $1.5 million in write-off of unrefunded trade show deposits and $0.2 million in other restructuring charges; and an increase in performance-based compensation of $1.3$0.5 million. Fluctuations in foreign currency exchange rates negativelypositively impacted operating incomeloss by $3.9$0.4 million when compared to the prior year.year period.
Company Stores Operating Income
The Company recorded operating income of $7.4$1.7 million and $9.3$7.4 million in the Company Stores segment for the nine months ended October 31, 20192020 and 2018,2019, respectively. The decrease in operating income of $1.9$5.7 million was the resultprimarily related to lower gross profit of higher$11.3 million mainly due to lower sales, partially offset by lower SG&A expenses of $2.2 million partially offset by higher gross profit of $0.3$5.6 million. The higher gross profit was the result of higher sales while gross margin remained relatively flat. The increasedecrease in SG&A expenses of $2.2 million was primarily due to rent anda decrease in payroll related expenses associated withof $3.8 million primarily due to the openingclosing of newthe Company’s stores and the furloughing of employees during portions of the period due to the COVID-19 pandemic; a decrease of $0.5 million in credit card fees due to less sales in the current year period as compared to the prior year period; a decrease of $0.4 million in sales commissions; and a decrease in travel and entertainment charges of $0.2 million due to travel restrictions related to the COVID-19 pandemic. As of October 31, 2020, and 2019, the Company operated 47 and 46 retail outlet locations.locations, respectively.
Other Non-Operating Income
The Company recorded a gain on sale of a non-operating asset of $1.3 million related to a sale of a building in an international location for the nine months ended October 31, 2020.
Based on updated revenue and EBITDA (as defined in the MVMT acquisition agreement) performance expectations during the earn-out period for MVMT, the Company recorded a non-cash gain on remeasurement of the contingent consideration of $13.6 million for the nine months ended October 31, 2019.
Income Taxes
The Company recorded an income tax expensebenefit of $10.5$26.4 million and $0.7an income tax provision of $10.5 million for the nine months ended October 31, 2020 and 2019, and 2018, respectively.
The effective tax rate was 21.3%15.7% and 1.5%21.3% for the nine months ended October 31, 2020 and 2019, and 2018, respectively. The change insignificant components of the effective tax rate waschanged primarily due to a change inimpairments of the deferred withholdingportion of goodwill of the Watch and Accessory Brands reporting unit which is not tax liabilitydeductible, the U.S. tax on unremitted foreign earningsGILTI and the releaserecording of valuation allowances againston certain foreign deferred tax assets, bothassets. These changes were partially offset by changes in foreign profits in lower tax jurisdictions and the CARES Act NOL Carryback Provision.
The effective tax rate for the nine months ended October 31, 2020 differs from the U.S. statutory tax rate of 21.0% primarily due to impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which occurred inis not tax deductible and the prior year.U.S. tax on GILTI, partially offset by the CARES Act NOL Carryback Provision.
The effective tax rate for the nine months ended October 31, 2019 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 nine months ended October 31, 2018 differs from the U.S. statutory tax rate of 21.0% primarily due to a change in estimate of the Company’s provisional deferred withholding tax liability on unremitted foreign earnings and the release of valuation allowances against certain foreign deferred tax assets.
Net (Loss)/ Income Attributable to Movado Group, Inc.
The Company recorded net loss attributable to Movado Group, Inc. of $141.8 million and net income attributable to Movado Group, Inc. of $39.2 million, and $44.2 million, for the nine months ended October 31, 2020 and 2019, and 2018, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2019 and October 31, 2018,
The Company believes that cash flows from operations, including the impact of the Company had $116.0corporate initiatives, combined with existing cash on hand and amounts available under its credit lines provide adequate funds to support its operating, capital and debt service requirements for the next twelve months subsequent to the issuance of these financial statements. During the first nine months of fiscal 2021, the Company’s cash generated from operations was negatively impacted due to widespread closures of the Company’s retail locations and the Company’s wholesale customers’ stores as a result of the COVID-19 pandemic. The Company entered this period of uncertainty with a healthy liquidity position, and it took actions to enhance the Company’s financial liquidity and flexibility, including minimizing all non-essential operating expenses (including marketing, travel and consulting services), reevaluating all capital expenditures, furloughing approximately 80% of the Company’s North American workforce during March through June and temporarily reducing the work-rate of international employees while applying for available government payroll subsidies in accordance with local government guidelines and programs, suspending the Company’s share repurchase program and regular quarterly dividend, reducing salaries and suspending Board of Director fees from April through June 2020, amending license agreements to reduce its royalty obligations in fiscal 2021, and negotiating rent deferrals or other arrangements in respect of its rent obligations for all of its Company Stores and certain other leases. As a precautionary measure, the Company borrowed an additional $30.9 million under its revolving credit facility in March 2020 and amended its revolving credit facility to modify some of its financial covenants. During the second and third quarter of fiscal 2021, the Company repaid $36.8 million and $142.7$10.9 million, respectively, under its revolving credit facility. Although the Company believes it has adequate sources of cash and cash equivalents. Of this total, $60.5 million and $123.1 million, respectively, consisted of cash and cash equivalents atliquidity over the long term, continued uncertainty surrounding the COVID-19 pandemic, an economic recession or a slow recovery could adversely affect the Company’s foreign subsidiaries.
At October 31, 2019, the Company had no deferred tax liability for foreign withholdingbusiness and a deferred tax asset for U.S. income taxes of $0.1 million related to $8.9 million of foreign earnings. A deferred tax liability has not been recorded for the remaining undistributed foreign earnings of approximately $186.1 million, because the Company intends to permanently reinvest such earnings in its foreign operations. It is not practicable to estimate the tax liability related to a future distribution of these permanently reinvested foreign earnings.liquidity.
At October 31, 2019 and October 31, 2018,2020 the Company had working capital of $338.2 million as compared to $346.8 million for both periods. Workingat October 31, 2019. The decrease in working capital is relatively flat with respect to previous year,was primarily the result of a decrease in accounts receivable resulting primarily from lower sales due to the addition of current operating lease liabilities of $14.6 million in accordanceCOVID-19 pandemic and lower inventory levels as the Company continues to monitor its inventory levels to align with the Company’s adoption of ASU 2016-02, “Leases”; and the acquisition of MVMT in October 2018.expected sales. These factors were partially offset by an increase in inventories and a decrease in accrued liabilities.additional cash of $47.2 million. The Company defines working capital as the difference between current assets and current liabilities.
The Company had $6.7 million of cash used in operating activities for the nine months ended October 31, 2020 as compared to $44.6 million of cash used in operating activities for the nine months ended October 31, 2019 as compared2019. Cash used by operating activities for the nine months ended October 31, 2020 included net loss attributable to the Movado Group, Inc. of $141.8 million, positively adjusted by $146.7 million related to non-cash items. Cash used in operating activities included an increase in accounts receivable of $26.8 million cashprimarily as a result of timing of customer payments and an increase in investment in inventories of $7.1 million in advance of the holiday season. Cash provided by operating activities for the nine months ended October 31, 2018. For the nine months ended October 31, 2019 operating cash flow was the result of net income attributable to Movado Group, Inc. of $39.2 million, adjusted for the effects of unfavorable non-cash items totaling $1.0 million, including a $13.6 million change in contingent consideration related to MVMT and $6.5 million benefit for deferred taxes, partially offset by $11.9 million of depreciation and amortization, $4.7 million for stock based compensation expense and $2.6 million for provision for inventories and allowance for doubtful accounts. Cash used in operating activities2020 included an increase in trade receivableaccrued liabilities of $52.7 million due to an increase in sales, increase in investment in inventories of $38.1 million to support sales growth, decrease in accounts payable of $4.2$15.9 million as a result of timing of payments increase, increase in current assets of $2.4 million due to timing of payments of annual fees and a decreasean increase in accrued payroll and benefits of $9.4$6.1 million primarily due to an increase in performance-based compensation and an increase in severance accrual as a result of payments of performance based compensation, partially offset by an increase in accrued liabilities of $19.3 million and income taxes payable of $6.4 million as a result of timing of payments.the Company’s corporate initiatives.
Cash used in investing was $1.2 million for the nine months ended October 31, 2020 as compared to $10.0 million for the nine months ended October 31, 2019 as compared to $101.4 million for the nine months ended October 31, 2018.2019. The cash used in the nine months ended October 31, 20192020 was primarily $10.0 million in capital expenditures primarily related to the openingcapital expenditures of $2.4 million primarily due to website platform upgrades and renovation of the Company stores and to the construction of shop-in-shops at some of the Company’s wholesale customers. Duringcustomers, partially offset by proceeds from a sale of a non-operating asset in Switzerland of $1.3 million.
Cash used by financing activities was $17.6 million for the nine months ended October 31, 2018, cash used in investing activities included $93.0 million for the acquisition, net of cash acquired, of the MVMT brand.
Cash used in financing activities was2020 as compared to $19.2 million for the nine months ended October 31, 2019 as compared to $12.4 million of cash provided by financing activities for the nine months ended October 31, 2018.2019. The cash used in the nine months ended October 31, 20192020 included $13.8 million dividends paid, $4.2 million in stock repurchased in the open market, and $1.2 million stock options and awards exercised, net of $1.4 million of shares repurchased as a result of the surrender of shares in connection with the vesting of certain stock awards. During the nine months ended October 31, 2018, cash provided by financing activities included proceeds from bank borrowings of $50.3 million, partially offset by $25.0 million repayment of bank borrowings $13.9of $16.8 million of dividends paid and $3.9$0.3 million in stock repurchased indebt issuance cost resulting from the open market.
Management believes that the cash on hand in additionCompany amending its revolving credit facility. In response to the expected cash flows from operationsCOVID-19 pandemic, the Company has suspended its quarterly dividends and share repurchases effective the Company’s short-term borrowing capacity will be sufficient to meet its working capital needs for at leastfirst quarter of fiscal 2021. The Company paid $13.8 million in dividends and $4.2 million in share repurchases during the next twelve months.first nine months of fiscal 2020.
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated 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 amends and restates the Company’s prior credit agreement dated as of January 30, 2015 (the “Prior Credit Agreement”) and extends the maturity of the $100.0 million senior secured revolving credit facility (the “Facility”) provided thereunder to October 12, 2023. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrowers, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of July 31, 2020. Among other things, the Second Amendment provides for the following temporary relief with respect to the financial maintenance covenants in the Credit Agreement from April 30, 2020 through the date on which the Company delivers a compliance certificate in respect of the period ended July 31, 2021 (or earlier if the Company demonstrates satisfaction of certain earnings and leverage milestones) (the “Suspension Period”): (i) the maximum consolidated leverage ratio is increased from 2.50 to 1.0 to 2.75 to 1.0 for the four quarter period ended April 30, 2020 and suspended thereafter until the end of the Suspension Period when it resumes at 2.50 to 1.0 and (ii) the minimum EBITDA covenant levels are reduced. In addition, the Second Amendment provides that (i) through April 30, 2021, the Company is required to maintain minimum liquidity (comprised of unrestricted cash and cash equivalents and unutilized commitments under the Credit Agreement) of $100.0 million, (ii) during the Suspension Period, certain covenants, including covenants related to dividends, share repurchases, debt incurrence, investments and capital expenditures, have been tightened and (iii) during the Suspension Period, the interest rate for borrowings under the Credit Agreement is increased to LIBOR plus 2.75% per annum and the commitment fee in respect of the unutilized commitments is increased to 0.45% per annum. In addition, the Second Amendment permanently increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and permanently reduced the minimum EBITDA financial covenant level to $35.0 million starting with the four-quarter period ending July 31, 2021.
The foregoing summary of the Second Amendment is qualified by reference to the full text of the amendment, which is attached as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended April 30, 2020 and incorporated herein by reference.
As of October 31, 2019,2020, and October 31, 2018,2019, there werewas 25.0 million and 50.0 million in Swiss francs for both periodsFrancs, respectively (with a dollar equivalent of $27.3 million and $50.7 million, and $49.6respectively), in addition to $10.0 million respectively),as of October 31, 2020, in loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both October 31, 20192020 and October 31, 2018.2019. At October 31, 2019,2020, the letters of credit have expiration dates through June 1, 2020.2021. As of October 31, 2019,2020, and October 31, 2018,2019, availability under the Facility was $62.4 million and $49.0 million, respectively. For additional information regarding the Facility, see Note 9 – Debt and $50.1Lines of Credit to the Consolidated Financial Statements.
The Company had weighted average borrowings under the facility of $44.5 million and $50.6 million, with a weighted average interest rate of 3.75% and 1.00% during the three months ended October 31, 2020 and 2019, respectively.
The Company had weighted average borrowings under the facility of $50.6$60.5 million and $3.3 million during the three months ended October 31, 2019 and 2018, respectively, with a weighted average interest rate of 1.00% for both three month periods ended October 31, 2019 and 2018. The Company had weighted average borrowings under the facility of $50.2 million and $3.6 million, with a weighted average interest rate of 1.00%2.37% and 2.43%1.00%, during the nine months ended October 31, 20192020 and 2018,2019, respectively.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of October 31, 2019,2020, and 2018,2019, these lines of credit totaled 6.5 million Swiss francsFrancs for both periods, with a dollar equivalent of $6.6$7.1 million and $6.4$6.6 million, respectively. As of October 31, 2019,2020, and 2018,2019, there were no borrowings against these lines. As of October 31, 2019,2020, and 2018,2019, 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$1.3 million, and $1.1$1.2 million, respectively, in various foreign currencies, of which $0.6 million, in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $1.3 million and $0.5 million for the nine-month period ended October 31, 2020 and $0.4 million forJuly 31, 2019, respectively.
The Company did not pay cash dividends during the nine months ended October 31, 2019 and October 31, 2018, respectively.
2020. The Company paid cash dividends of $0.60 per share or $13.8 million during the nine months ended October 31, 2019. 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 of Directors, in its sole discretion. The Company is committed to resuming dividend payments when the environment and its business stabilize and dividends are permitted by the terms of its revolving credit facility (see Note 9 – Debt and Lines of Credit).
On August 29, 2017, the Board approved a share repurchase program under which the Company iswas 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 this program the Company maywas permitted to purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise throughotherwise. This authorization expired on August 29, 2020. See Note 9 – Debt and Lines of Credit – for restrictions on share repurchase under the Company’s revolving credit facility. During the nine months ended October 31, 2019,2020, the Company repurchased a total of 131,402did not repurchase any shares of its common stock at a total cost of $4.2 million, or an average of $31.96 per share. At October 31, 2019, $36.4 million remains available for purchase under the company’s repurchase program.stock.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated special-purpose entities.
Accounting Changes and Recent Accounting Pronouncements
See Note 23- Recent Accounting Pronouncements to the accompanying unaudited consolidated financial statementsConsolidated Financial Statements for a description of certain accounting changes and recent accounting pronouncements which may impact the Company’s consolidated financial statementsConsolidated Financial Statements in future reporting periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Rate Risk
The Company’s primary market risk exposure relates to foreign currency exchange risk (see Note 10 – Derivative Financial Instruments7 to the Consolidated Financial Statements). A significant portion of the Company’s purchases are denominated in Swiss francsFrancs 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, Swiss Franc and the British Pound. The Company reduces its exposure to the Swiss franc,Franc, Euro, British Pound, Chinese Yuan 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. To the extent that the Company does not engage in a hedging program, any change in the Swiss franc,Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rates to local currency would have an equal effect on the Company’s earnings.
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.
As of October 31, 2019,2020, the Company’s entire net forward contracts hedging portfolio consisted of 37.421.6 million Chinese Yuan equivalent, 6.0 million Swiss Francs equivalent, 20.0 million US dollars equivalent, 24.0 million Euros equivalent and 5.6 million British Pounds equivalent with various expiry dates ranging through January 12, 2021, compared to a portfolio of 37.4 million Chinese Yuan equivalent, 28.0 million Swiss francsFrancs equivalent, 37.4 million US dollars equivalent, 27.6 million Euros equivalent and 10.9 million British Pounds equivalent with various expiry dates ranging through April 22, 2020, compared to a portfolio of 38.0 million Swiss francs equivalent, 16.7 million Euros equivalent, 4.6 million British Pounds equivalent, and 22.2 million Chinese Yuan equivalent, with various expiry dates ranging through April 24, 2019, as of October 31, 2018. 2019. If the Company were to settle its Swiss francFranc forward contracts at October 31, 2019,2020, the net result would be an immaterial net loss. As of October 31, 2019,2020, the Company’s British Pound, Chinese Yuan, US Dollar and Euro forward contracts had no gain or loss. The Company had no cash flow hedges as of October 31, 20192020 and October 31, 2018,2019, 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. When held, these derivatives 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. The Company did not hold any future contracts in its gold hedge portfolio as of October 31, 20192020 and 2018,2019, 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
Floating rate debt at October 31, 2020 and 2019 and 2018 totaled $50.7$37.3 million (50(25 million in Swiss francs)francs and $49.6$10 million) and $50.7 million (50 million in Swiss francs), respectively. The debt outstanding at October 31, 20192020 is based on LIBOR plus a spread ranging from 1.00% to 1.75%2.75% per annum or on a base rate plus a spread ranging from 0% to 0.75% per annum, with the spread in each case being based on the Company’s consolidated leverage ratio (as defined in the credit agreement).annum. As of October 31, 2019,2020, the Company’s spreads were 1.00% over LIBOR and 0% over the base rate.Company had weighted average borrowings of $60.5 million with a weighted average interest rate of 2.37%. The Company does not hedge these interest rate risks. Based on the average floating rate debt outstanding during the nine months ended October 31, 2019,2020, a one-percent increase or decrease in the average interest rate during the period would have resulted in a change to interest expense of $0.3$0.4 million for the nine months ended October 31, 2019.2020.
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
The Company implemented changes to internal controls due to the adoption of ASU 2016-02 effective February 1, 2019. These changes include implementing a new lease accounting system and processes to evaluate and account for contracts under the new accounting standard.
There have been no other changes in the Company’s internal control over financial reporting during the ninethree months ended October 31, 20192020, that have materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.
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.
On October 23, 2018, Swiss Time Watch & Jewellry GmbH (“ST Germany”) filed a lawsuit against the Company in the Superior Court of California for the County of Los Angeles. The lawsuit, which was subsequently removed to the United States District Court for the Central District of California, primarily alleged that the Company, as legal successor to MVMT Watches, Inc., failed to perform its obligations under the parties’ August 1, 2018 distribution agreement (the “ST Germany Agreement”). Under this agreement, ST Germany was granted the right, subject to certain limitations, to distribute a curated collection of MVMT watch styles in Germany. ST Germany also alleged various related torts and statutory violations and sought specific performance of the ST Germany Agreement as well as unspecified monetary damages. In February 2019, the parties settled the matter and the lawsuit was subsequently dismissed. The settlement terms included an immaterial cash payment by the Company and certain amendments to the ST Germany Agreement, including an extension of the agreement through early fiscal 2023.
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. The Company continues to provide U.S. Customs with supplemental analyses and information supporting the Company’s historical allocation formulas. 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.
In addition to the above matters,matter, the Company is involved in other 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.
Item 1A. Risk Factors
As of October 31, 2019,2020, there have been no material changes to any of the risk factors previously reported in the Company’s 20192020 Annual Report on Form 10-K except as supplemented by our subsequent quarterly reports on Form 10-Q.
This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed with the Securities and Exchange Commission on March 26, 2020 (the “2020 Form 10-K”), and is based on the information currently known to us and developments since the date of the 2020 Form 10-K filing. The matters discussed below should be read in conjunction with the risk factors set forth in the 2020 Form 10-K. However, the risks and uncertainties that we face are not limited to those described below.below and those set forth in the 2020 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock, particularly in light of the fast-changing nature of the COVID-19 pandemic and its impacts on economic and operating conditions.
Special TariffsThe recent COVID-19 novel coronavirus, or other restrictions placedpublic health threats and epidemics, could materially adversely affect our business.
In late 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) that began in Wuhan, China that subsequently spread to the rest of the world. The World Health Organization recognized COVID-19 as a pandemic on importsMarch 11, 2020. In response to the outbreak, in mid-March 2020, the Company and the majority of the Company’s wholesale customers temporarily closed all of their retail stores due to health concerns associated with the COVID-19 pandemic. Although the Company reopened all of its retail stores during the second quarter and most of the Company’s brick and mortar wholesale customers have reopened the majority of their retail locations as well, the discretionary consumer goods segment remains highly challenged. Various containment and mitigation measures that have been imposed by governmental and other authorities around the world (such as quarantines and other social distancing requirements) have adversely affected sales of our products, given that those sales are heavily dependent on customer traffic in traditional retail stores, such as those of our wholesale partners, and our Company stores. Such measures also adversely impacted our supply chain and resulted in late deliveries. The continuation or tightening of such containment and mitigation measures could continue or exacerbate the adverse effect on our results of operations and financial condition. These trends could worsen if COVID-19 infections continue to increase as people spend more time congregating indoors due to the colder fall and winter weather in the northern hemisphere, which is where the Company’s biggest markets are located. In addition, as potential consumers of our products face layoffs and other negative economic impacts from China,the COVID-19 outbreak, their disposable income for discretionary purchases and any retaliatory trade measures taken by China,their actual or perceived wealth may havebe negatively impacted, potentially having a materialmaterially adverse impact on our sales that may extend beyond the end of the health crisis.
Adverse general economic conditions arising from the COVID-19 outbreak, or from other public health threats and epidemics, could also result in an increase in bankruptcies or insolvencies involving our suppliers and wholesale customers, which could also have a materially adverse effect on our operations and financial condition. The impact of the outbreak of COVID-19 on the Company’s financial conditionliquidity, revenues and results of operations.
Starting in July 2018, the Trump Administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential special tariffs of 10% to 25% of import value, in additionoperations cannot be predicted at this time due to the regular tariffs that have historically applied to such products. Certainhigh level of the Company’s packaging products became subject to a special 10% tariff in September 2018, which was increased to 25% effective May 10, 2019. In addition, alluncertainty, unknown future developments and duration of the Company’s smartwatches became subject to a special 15% tariff on September 1, 2019, and in a third-party ruling U.S. Customs and Border Patrol (“CBP”) has taken the position that this special 15% tariff applies broadly to China-sourced cases and bands on watches assembled in China and other countries. Under this position, most of the cases and bands used in the production of the Company’s traditional watches imported into the U.S. became subject to the special 15% tariff effective September 1, 2019. A pending request to CBP for reconsideration and revocation of the ruling has been filed on behalf of the Company and certain other watch importers on the basis that the CBP ruling is inconsistent with CBP’s longstanding position that the country of origin of the movement confers the country of origin of a traditional watch.containment measures.
If CBP declines the aforementioned reconsideration request, or if the special tariffs were to increase, the Company may be required to raise prices for watches sold in the United States, which is the Company’s single largest market, which could result in the loss of customers and harm its operating performance. Alternatively, the Company may seek to shift production outside of China, resulting in significant costs and disruption to the Company’s operations and materially and adversely affecting its sales, costs and results of operations. In addition, the Company’s business may be impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing the Company to raise prices or make changes to its operations, any of which could materially harm its financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 29, 2017, the Board approved a share repurchase program under which the Company iswas authorized to purchase up to $50.0 million of its outstanding common stock from time to time through August 29, 2020, depending on market conditions, share price and other factors. TheUnder this program, the Company maywas permitted to purchase shares of its common stock through open market purchases, repurchase plans, block trades or otherwise. During the three months ended October 31, 2019,2020, the Company didn’tdid not repurchase any shares of its common stock.
At the election of an employee, upon the vesting of a stock award or the exercise of a stock option, shares of common stock having an aggregate value on the vesting of the award or the exercise date of the option, as the case may be, equal to the employee’s withholding tax obligation may be surrendered to the Company by netting them from the vested shares issued. Similarly, shares having an aggregate value equal to the exercise price of an option may be tendered to the Company in payment of the option exercise price and netted from the shares of common stock issued upon the option exercise. An aggregate of 6041,981 shares were repurchased during the three months ended October 31, 20192020 as a result of the surrender of shares of common stock in connection with the vesting of certain restricted stock awards and stock options.
The following table summarizes information about the Company’s purchases for the three months ended October 31, 20192020 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 |
| ||||
August 1, 2019 – August 31, 2019 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 36,405,816 |
|
September 1, 2019 – September 30, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,405,816 |
|
October 1, 2019 – October 31, 2019 |
|
| 604 |
|
|
| 24.86 |
|
|
| — |
|
|
| 36,405,816 |
|
Total |
|
| 604 |
|
| $ | 24.86 |
|
|
| — |
|
| $ | 36,405,816 |
|
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 |
| ||||
August 1, 2020 – August 31, 2020 |
|
| 1,753 |
|
| $ | 11.57 |
|
|
| — |
|
| $ | 36,405,816 |
|
September 1, 2020 – September 30, 2020 |
|
| 228 |
|
|
| 11.57 |
|
|
| — |
|
|
| 36,405,816 |
|
October 1, 2020 – October 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,405,816 |
|
Total |
|
| 1,981 |
|
| $ | 11.57 |
|
|
| — |
|
| $ | 36,405,816 |
|
Item 6. Exhibits
10.1* | ||
|
|
|
31.1 |
| |
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31.2 |
| |
|
|
|
32.1 |
| |
|
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32.2 |
| |
|
|
|
101 |
| The following financial information from Movado Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 31, |
| ||
104 |
| Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL). |
* Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request.
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.
|
|
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| MOVADO GROUP, INC. |
|
|
|
| (Registrant) |
Dated: November |
| By: |
| /s/ Sallie A. DeMarsilis |
|
|
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| Sallie A. DeMarsilis
Chief Operating Officer, Chief Financial Officer and Principal Accounting Officer |
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