Movado Group, Inc.'s Earnings Sink as Retailers Struggle

By Joe Tenebruso Markets Fool.com

Movado Group (NYSE: MOV) reported fiscal 2017 fourth-quarter earnings on March 20. In the face of falling sales and profits, the luxury watchmaker is attempting to adapt its business to the rapid growth of e-commerce.

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Movado Group results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Sales

$130.785 million

$143.264 million

(8.7%)

Net income

$5.232 million

$7.888 million

(33.7%)

Earnings per share

$0.22

$0.34

(35.3%)

Data source: Movado Group Q4 2017 earnings press release.

Image source: Movado.

What happened with Movado Group this quarter?

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Net sales fell 8.7% year over year to$130.8 million, and 7.5% on a constant dollar basis, as Movado continues to be negatively impacted by the struggles of department stores and other traditional retailers."We are seeing a significant shift from brick and mortar to e-commerce and a continuing challenged fashion watch market inthe United States," said Chairman and CEO Efraim Grinberg in a press release.

Gross profit declined 14% to $64.7 million, with gross margin falling to 49.5% compared to 52.6% in the fourth quarter of 2016.Lower sales also dented operating income, which dropped 36% to$7.4 million.All told, net income tumbled 34% to$5.2 million, and earnings per share decreased 35% to$0.22.

Looking forward

In response to this challenging retail environment, Movado is implementing multiple cost-saving initiatives and devoting more resources to its e-commerce business."Given the evolution of the retail market place, we are consolidating certain operations and shifting a greater portion of our investment into the continued development and growth of our digital footprint, including allocating a larger percentage of our marketing budget to online venues," said Grinberg.

"We are fully committed in our investments in digital and are very pleased with the multiple initiatives underway," added President Ricardo Quintero during a conference call with analysts. "Movado.com was our fastest-growing business unit with double-digit increases and our digital advertising and social media footprint continues to grow and gain traction."

To further adapt to changing consumer preferences, Movado is also expanding its lineup of smartwatches by partnering with Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google."While we believe in the continued growth potential of the traditional watch category, we are also excited about our recently announced partnership withGoogleto launch a new smartwatch collection, Movado Connect," Grinberg said.

Still, Movado is reducing its workforce in an attempt to cut operating costs by $12 million in fiscal 2018 and $15 millionannually thereafter. The company expects to record a pre-tax charge of approximately $7 million to $10 million related to these initiatives, mostly in the first quarter."We are decisive in our commitment to become a leaner, more agile organization, rightsized to the current operating environment and making smart resource allocations against the biggest opportunities with a focus on delivering sustainable, profitable growth in the long run," Quintero said.

In all, Movado's fiscal 2018 full-year outlook includes:

  • Net sales in a range of$515 million to $530 million.
  • Operating income of $50 million to $55 million.
  • Net income of $33 million to $36.3 million, or$1.40 to $1.55per share.

"Looking into fiscal 2018, we continue to believe there are many opportunities in the watch category," added Quintero. "Innovation is the lifeline of our business and we are committed to continuing to lead, with superior watch design in the traditional watch category as well as in the connected segment."

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Movado Group. The Motley Fool has a disclosure policy.