Movado Group, Inc. Cuts Guidance

By Markets Fool.com

Image source: Movado.com.

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Movado Group (NYSE: MOV) reported fiscal 2017 second-quarter earnings on Aug. 25. The luxury watchmaker is struggling with a difficult retail environment, prompting the company to cut its sales and profit forecast for the second time this year.

Movado Group results: The raw numbers

Metric

Q2 FY2017

Q2 FY2016

Growth (YOY)

Sales

$128.086 million

$145.569 million

(12%)

Net income

$6.306 million

$12.053 million

(48%)

Earnings per share

$0.27

$0.50

(46%)

Data source: Movado Group Q2 2017 earnings press release. YOY = year over year.

What happened with Movado Group this quarter?

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Net sales fell 12% year over year to$128.1 million, with management stating that the watch market has become a fiercely competitive arena as the industry's growth has slowed."Over the last several years the fashion watch category has had very strong growth and over the last number of quarters the market became somewhat saturated and entered a period of correction," said Chairman and CEO Efraim Grinberg during a conference call with investors.

Gross profit declined 11% to $70.3 million, with gross margin improving to 54.9% compared to 54.3% in Q2 2016 as Movado chose to sacrifice sales by holding firm on pricing during a "highly promotional environment."

The sales drop also dented operating income, which plummeted 45% to$10.1 million.

All told, net income plunged 48% to$6.3 million, while earnings per share -- which were helped somewhat by share buybacks -- dropped 46% to$0.27.

Looking forward

Citing a "challenging retail and economic environment," Movado lowered its outlook for fiscal 2017, which now includes:

  • Net sales of$550 millionto$560 million, down from previous expectations of $565 millionto$580 million in May and $585 million to $600 million back in March
  • Operating income of $50 million to $55 million, down from $55 million to $60 million in May and $65 million to $70 million in March
  • Net income of$33 million to $36.5 million, versus prior forecasts of $36.5 million to $40 million and $43.3 million to $46.7 million
  • Earnings per share of$1.40to$1.55 vs. $1.55to$1.70 and initial guidance of $1.85 to $2.00

"Given the challenging marketplace, we still see a number of headwinds and feel it is prudent to lower our full-year outlook," added Grinberg.Still, management remains optimistic that it can right the ship in the quarters ahead. "As we look to the back half of the year, we are excited about our innovative product pipeline across the portfolio for the holiday season."

Additionally, he noted that Movado's nearly $170 million in net cash on its balance sheet should help the company weather the storm."Our balance sheet remains extremely strong allowing us increased flexibility as we continue to focus on delivering sustainable profitable growth."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Movado Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.