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Movado Group, Inc. Announces Third Quarter Results

Movado Group, Inc. (NYSE: MOV) today announced third quarter results for the period ended October 31, 2012.

Efraim Grinberg, Chairman and Chief Executive Officer, stated, “Our strong performance continued in the third quarter with double digit growth in sales and a 46% increase in adjusted operating income, continuing the positive momentum in our business over the past 11 quarters. We continue to provide compelling styles across our watch portfolio fueled by innovation and quality craftsmanship. We were pleased with the initial response to our new ESQ Movado and EBEL assortments, which were introduced in the latter part of the third quarter. As we begin the fourth quarter, we believe we remain well positioned with strong marketing programs in place to support each of our brands for the upcoming holiday season.”

During the third quarter of fiscal 2013, the Company recorded a net tax benefit of $9.9 million, which included the release of a $19.4 million, or $0.75 per diluted share, domestic valuation allowance. Offsetting this unusual item, in part, was a $3.0 million, or $0.08 per diluted share, pre-tax contribution to the Movado Group Foundation, which is reflected in operating expenses for the quarter.

Third Quarter Fiscal 2013
  • Net sales increased 12.3% to $160.2 million compared to $142.6 million in the third quarter of fiscal 2012 led by growth in both the accessible luxury and licensed brand categories. On a constant dollar basis, net sales increased 14.3% compared to the prior year period.
  • Gross profit was $90.4 million, or 56.4% of sales, compared to $81.0 million, or 56.8% of sales, in the third quarter last year. The 40 basis point decrease in gross margin percentage was primarily the result of an unfavorable shift in channel and product mix partially offset by the favorable effect of fluctuations in foreign currency exchange rates and leverage gained on certain fixed costs.
  • Operating expenses increased $3.5 million, or 5.7%, to $65.4 million compared to $61.9 million in the third quarter last year. Included in operating expenses was a $3.0 million charitable contribution to the Movado Group Foundation. Adjusted operating expenses, which exclude this contribution, were $62.4 million, or 39.0% of net sales compared to $61.9 million, or 43.4% of net sales in the third quarter of fiscal 2012. This $0.5 million increase was primarily the result of higher compensation expense and performance-based compensation, and higher marketing expense, partially offset by the favorable effect of fluctuations in foreign currency exchange rates.
  • Operating income increased to $25.0 million compared to operating income of $19.1 million in the same period last year. Excluding the aforementioned charitable contribution, adjusted operating income for the third quarter of fiscal 2013 was $28.0 million. (See attached table for reconciliation of GAAP to non-GAAP measures.) There were no special items in the third quarter of fiscal 2012.
  • The Company recorded a tax benefit of $9.9 million, which was impacted by the release of a $19.4 million domestic valuation allowance as well as the aforementioned charitable contribution. The adjusted effective tax rate for the third quarter was 37.1% which compares to 11.0% in the third quarter of fiscal 2012. (See attached table for GAAP and Non-GAAP measures.) The fluctuation in the adjusted effective tax rate was primarily due to the effects of accounting for valuation allowances in the third quarter of fiscal 2012 as well as the application of guidelines related to accounting for income taxes in interim periods in the third quarter of both fiscal 2012 and 2013.
  • Net income was $34.5 million, or $1.34 per diluted share compared to net income of $16.4 million, or $0.65 per diluted share, in the third quarter of fiscal 2012.
  • EBITDA increased to $27.3 million compared to EBITDA of $22.0 million in the third quarter of fiscal 2012. Excluding the aforementioned charitable contribution, adjusted EBITDA was $30.3 million in the third quarter of fiscal 2013. (See attached table for reconciliation of GAAP to non-GAAP measures.) There were no special items in the third quarter of fiscal 2012.

Nine Month Results Fiscal 2013
  • Net sales increased 10.5% to $381.9 million compared to $345.7 million in the same period of fiscal 2012 driven by growth in both the accessible luxury and licensed brand categories. On a constant dollar basis, net sales increased by 12.7% compared to the prior year period.
  • Gross profit was $215.2 million, or 56.4% of sales, compared to $190.6 million, or 55.1% of sales in the same period last year. The 130 basis point increase in gross margin percentage was primarily the result of a favorable shift in channel and product mix, as well as leverage gained on certain fixed costs. This improvement was partially offset by the unfavorable effect of fluctuations in foreign currency exchange rates.
  • Operating expenses increased $6.1 million, or 3.7%, to $171.0 million versus $164.9 million in the same period last year. Included in operating expenses for the first nine months of fiscal 2013 was a $3.0 million charitable contribution to the Movado Group Foundation. Excluding this charitable contribution, adjusted operating expenses for the nine month period of fiscal 2013 were $168.0 million, or 44.0% of net sales compared to $164.9 million, or 47.7% of net sales for the nine month period of fiscal 2012. This $3.1 million increase was primarily the result of higher compensation and performance-based compensation expense, and higher marketing expense to drive sales growth, partially offset by the favorable effect of fluctuations in foreign currency exchange rates.
  • Operating income increased to $44.2 million compared to operating income of $25.7 million in the same period last year. Excluding the aforementioned charitable contribution in the third quarter of fiscal 2013, adjusted operating income for the nine month period of fiscal year 2013 was $47.2 million. (See attached table for reconciliation of GAAP to non-GAAP measures.)
  • The Company recorded a tax benefit of $5.7 million, which was impacted by the release of a $19.4 million domestic valuation allowance as well as the aforementioned charitable contribution. The adjusted effective tax rate for the nine month period was 30.9% which compares to 14.3% in the nine month period in 2012. (See attached table for GAAP and Non-GAAP measures.) The effective tax rate for both periods was impacted by the application of guidelines related to accounting for income taxes in interim periods as well as accounting for valuation allowances in the nine month period of fiscal 2012.
  • Net income was $49.2 million, or $1.92 per diluted share, compared to net income for the nine month period of fiscal 2012 of $21.3 million, or $0.85 per diluted share.
  • EBITDA was $52.3 million compared to EBITDA of $34.5 million in the same period of fiscal 2012. Excluding the aforementioned charitable contribution, adjusted EBITDA for the nine month period was $55.3 million (See attached table for reconciliation of GAAP to non-GAAP measures.) There were no special items in the third quarter of fiscal 2012.

Rick Coté, President and Chief Operating Officer, stated, “The sustained positive momentum of our business is a testament to the strength of our product, marketing and expansion strategies, as well as the continued focus on our balance sheet. Our cash flow generation provides us with the flexibility to invest in our future growth and at the same time return value to our shareholders. The $0.75 special dividend we announced today represents our second this year. We remain committed to our strategies which we believe will result in another year of significant growth for Movado Group.”

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