0001193125-25-190723
SEC filingRevenue rose 3.1% to $161.8M, but gross margin fell 20 bps to 54.1% due to tariffs and FX, while net income declined to $3.0M.
For the three months ended July 31, 2025, Movado Group reported net sales of $161.8 million, a 3.1% increase from $157.0 million in the prior year period. The growth was primarily driven by licensed brands (up 9.5%), while owned brands declined 7.2%. Foreign exchange positively impacted sales by $2.6 million; excluding FX, organic growth was 1.4%. Gross profit rose $2.3 million to $87.6 million, but gross margin contracted 20 basis points to 54.1% due to a 130 bps negative impact from increased U.S. tariffs and 100 bps from unfavorable FX, partially offset by favorable sales mix (150 bps) and lower shipping costs (30 bps). Selling, general and administrative (SG&A) expenses increased $0.9 million to $83.6 million, driven by higher professional fees from the Dubai investigation ($2.1 million) and performance-based compensation ($1.6 million), partly offset by lower marketing ($2.0 million) and payroll-related expenses. Operating income (calculated as net income plus tax and interest less other income) rose to $3.9 million from $2.5 million. Net income attributable to Movado declined to $3.0 million from $3.5 million due to a higher effective tax rate of 38.5% versus 19.1% in the prior year, driven by changes in jurisdictional earnings mix and valuation allowances.
The Watch and Accessory Brands segment generated $135.7 million in net sales, up 3.1% from $131.6 million. Within the segment, U.S. sales declined 3.7% to $44.8 million, reflecting an unfavorable sales mix in owned brands, while international sales grew 6.8% to $90.9 million, benefiting from higher demand in Europe and the Americas. The segment reported an operating loss of $0.2 million, improving from a loss of $1.0 million in the prior year, as higher gross profit ($1.7 million) offset higher SG&A ($0.9 million). The Company Stores segment posted net sales of $26.2 million, up 3.0%, driven by the online outlet and a new store opening. Operating income increased to $4.2 million from $3.7 million, due to higher gross profit and a higher gross margin.
Management expects the newly imposed U.S. tariffs (30% on China, 15% on Japan, 39% on Switzerland) to materially increase the company's cost of sales and negatively impact U.S. sales volumes. Mitigation strategies include selective price increases and potential sourcing changes, though a material net impact is still anticipated. The cost-savings initiative, which involved headcount reductions and generated $1.5 million in severance charges in the first half, is expected to yield approximately $10 million in annual savings. The recently enacted One Big Beautiful Bill Act (OBBBA) is not expected to have a material impact on financial statements. No specific revenue or earnings guidance was provided.
As of July 31, 2025, Movado Group held $180.5 million in cash and cash equivalents, with no outstanding borrowings under its $100.0 million senior secured revolving credit facility. Availability under the facility was $99.7 million, reduced by $0.3 million in outstanding letters of credit. The Company also maintains unsecured lines of credit in Switzerland totaling 6.5 million Swiss Francs ($8.0 million equivalent), with no borrowings outstanding. Total shareholders' equity stood at $489.9 million, with total assets of $748.7 million. Inventory increased significantly to $211.5 million from $156.7 million at year-end, driven by a $44.4 million cash outflow for inventory in the first half of fiscal 2026.
The Company has minimum commitments under license and endorsement agreements, including minimum annual royalty and advertising payments, but the specific dollar amounts are not quantified in the Notes. The Company is also subject to a U.S. Customs and Border Protection audit regarding tariff allocation methodologies, with a potential exposure of approximately $5.1 million for underpaid duties, though the statute of limitations has lapsed for the audit period. A $2.0 million severance accrual remains in Accrued payroll and benefits related to the cost-savings initiative, expected to be paid during the remainder of fiscal 2026.
During the six months ended July 31, 2025, the Company repurchased 100,000 shares of common stock for $1.6 million at an average price of $15.94 per share. As of July 31, 2025, $48.4 million remained available under the $50.0 million repurchase program authorized on December 5, 2024. The Company paid two quarterly cash dividends of $0.35 per share, totaling $15.6 million. Capital expenditures were $2.8 million, or 1.0% of net sales. No debt was issued or repaid during the period.
The Company operates in two segments: Watch and Accessory Brands and Company Stores. For the six months ended July 31, 2025, Watch and Accessory Brands generated $250.5 million in net sales (85.3% of total) and reported an operating loss of $0.2 million, impacted by $18.7 million in unallocated corporate expenses and $28.6 million in intercompany profits. Company Stores generated $43.1 million in net sales (14.7% of total) and reported operating income of $4.5 million. Geographically, International operations accounted for 57.7% of total net sales, with Europe representing 33.4%, the Americas (excluding U.S.) 11.3%, Asia 6.6%, and the Middle East 6.4%.
Movado Group's cash flow from operations was negative $(11.0) million for the six months ended July 31, 2025, a significant improvement from $(35.9) million in the prior year period. The improvement was driven by a $4.4 million net income and favorable working capital changes, particularly a $4.8 million decrease in trade receivables and a $16.0 million increase in accrued liabilities. However, a large inventory build of $44.4 million consumed substantial cash.
Capital expenditures of $2.8 million were modest, resulting in negative free cash flow of $(13.8) million. The company returned $17.2 million to shareholders through dividends ($15.6 million) and share repurchases ($1.6 million), exceeding free cash flow. The negative free cash flow and reliance on debt or cash reserves to fund capital returns highlight a strained cash generation profile, despite the year-over-year improvement in operating cash flow.