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Category: Stock Market and Movado
Date: 28 August 2019 Stock Price: $20.41 We take a look at the 2nd quarter earnings report of 2019 fiscal year of watch designer and manufacturer Movado. The group owns the rights to Movado, Tommy Hilfiger watches, HUGO BOSS, and LACOSTE to name a few.
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About Movado
Movado Group, Inc. designs, manufactures and distributes for Movado, Ebel, Concord, ESQ Movado, Coach, Tommy Hilfiger, HUGO BOSS, Juicy Couture, LACOSTE and Scuderia Ferrari watches worldwide and operates Movado company stores in the United States.
Financial overview of Movado's latest earnings report
Numbers we are interested in: (for the quarter):
- Net sales $ 157.816 million (up from $ 144.093 million for the same quarter of the previous year)
- Cost of sales: $72.477 (up from $66.259 million for the same quarter of the previous year)
- Gross profit 85,339 77,834 million for the same quarter of the previous year)
- Operating income 8,776 12,860 million for the same quarter of the previous year)
- Net income attributable to Movado Group, Inc. $ 17,505 (up from $9.140 million for the same quarter of the previous year)
- Net income attributable to Movado Group, Inc per share: $ 0.75 (up from $ 0.39 for the same quarter of the previous year)
- Weighted diluted average shares outstanding 23.292 million (down from 23.712 million for the same quarter of the previous year)
- Cash and cash equivalents $ 134.890 million (down from $ 175,583 million for the same quarter of the previous year)
- Cash and cash equivalents per share: $5.79
- Cash and equivalents makes up 28.4% of the group's market capital
- Trade receivables, net: $93.699 million (up from $83.818 million for the same quarter of the previous year)
- Trade receivables makes up 11.1% of the group's total assets (we see more than 20% as worrying)
- Trade receivables makes up 11.1% of the group's total assets (we see more than 20% as worrying)
- Inventories: $200.953 million (up from $171.417 million for the same quarter of the previous year)
- Inventories makes up 23.9% of the group's total assets (it is a concern for us that the group's inventories makes up such a large part of their total assets. Although it is better than a year ago when inventories made up 27.3% of the group's total assets
- Inventories makes up 23.9% of the group's total assets (it is a concern for us that the group's inventories makes up such a large part of their total assets. Although it is better than a year ago when inventories made up 27.3% of the group's total assets
- Dividend declared for the quarter: $0.20
- Dividend yield: 3.9% (assuming this dividend is maintained for the full fiscal year)
- Dividend yield: 3.9% (assuming this dividend is maintained for the full fiscal year)
- Cash generated from operations (for 6 months): $21.43 million
- Cash generated from operations for the quarter (note this is estimated by us): $0.46
- The estimated cash generated from operations per share is used in our valuation models.
Movado management commentary on the results and earnings guidance
Efraim Grinberg, Chairman and Chief Executive Officer, stated, “Overall, we delivered sales growth of 9.5% and adjusted operating income of $10.3 million in the second quarter, despite an increasingly challenging environment for our category, planned incremental investments and currency headwinds. We are pleased with the market share gains of our licensed brand portfolio both internationally and domestically and saw strong digital sales growth on our movado.com site during the quarter. In a difficult marketplace, we are well positioned given the investments we’ve made over the last few years including building out our international markets, acquiring Olivia Burton and MVMT, developing important product innovation and establishing our digital center of excellence. As we look ahead, we will continue to make planned strategic investments across the business to support our brands as we focus on delivering long-term sustainable growth.” Mr. Grinberg continued,
"As we begin the second half of the year, we believe the innovation in our offerings and our strategic initiatives strengthen our position. Importantly, our product pipeline, including Movado Connect 2.0 and Movado Bold Evolution, will give us the opportunity to expand market share during the fall and holiday seasons. That said, we believe it is prudent to update our outlook given unfavorable currency rates, ongoing challenges in our category, the impact of tariffs and the increasingly volatile global environment.”
Updated Fiscal 2020 Outlook
Given the challenging retail environment, currency headwinds and reduced visibility into the global retail and economic landscape, the Company is updating its outlook for fiscal 2020. As such, the Company now anticipates that net sales will be in a range of $725.0 million to $740.0 million and operating income will be in a range of $67.0 million to $70.0 million.
The Company expects net income in fiscal 2020 to be in a range of $52.5 million to $55.0 million, or $2.25 to $2.35 per diluted share, reflecting a 21% effective tax rate. The outlook excludes approximately $8.0 million of amortization of the acquired intangible assets and other expenses for fiscal 2020 related to the acquisitions of MVMT and Olivia Burton, the $13.6 million remeasurement of the contingent consideration liability related to the MVMT acquisition and the $0.3 million change in the estimate for the remaining accrual for the fiscal 2018 cost savings initiatives. The Company's outlook assumes no significant fluctuations from prevailing foreign currency exchange rates and no further changes in prevailing tariff rates.
Quarterly Dividend and Share Repurchase Program
The Company announced that on August 28, 2019, the Board of Directors approved the payment on September 24, 2019 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 held by shareholders of record as of the close of business on September 10, 2019.
"As we begin the second half of the year, we believe the innovation in our offerings and our strategic initiatives strengthen our position. Importantly, our product pipeline, including Movado Connect 2.0 and Movado Bold Evolution, will give us the opportunity to expand market share during the fall and holiday seasons. That said, we believe it is prudent to update our outlook given unfavorable currency rates, ongoing challenges in our category, the impact of tariffs and the increasingly volatile global environment.”
Updated Fiscal 2020 Outlook
Given the challenging retail environment, currency headwinds and reduced visibility into the global retail and economic landscape, the Company is updating its outlook for fiscal 2020. As such, the Company now anticipates that net sales will be in a range of $725.0 million to $740.0 million and operating income will be in a range of $67.0 million to $70.0 million.
The Company expects net income in fiscal 2020 to be in a range of $52.5 million to $55.0 million, or $2.25 to $2.35 per diluted share, reflecting a 21% effective tax rate. The outlook excludes approximately $8.0 million of amortization of the acquired intangible assets and other expenses for fiscal 2020 related to the acquisitions of MVMT and Olivia Burton, the $13.6 million remeasurement of the contingent consideration liability related to the MVMT acquisition and the $0.3 million change in the estimate for the remaining accrual for the fiscal 2018 cost savings initiatives. The Company's outlook assumes no significant fluctuations from prevailing foreign currency exchange rates and no further changes in prevailing tariff rates.
Quarterly Dividend and Share Repurchase Program
The Company announced that on August 28, 2019, the Board of Directors approved the payment on September 24, 2019 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 held by shareholders of record as of the close of business on September 10, 2019.
Movado (NYSE: MOV) stock price history
The image below, obtained from Google, shows the stock price history of Movado for the last 5 years. And as the image shows its been a pretty disappointing time for Movado shareholders. With the group's stock trading at close to $40 a share 5 years ago and currently trading at just over $20. Its had short bursts of strong growth but the overall trend over the 5 years has been negative.
Movado (NYSE: MOV) latest stock valuation
Based on Movado's latest financial results and the earnings guidance provided we value the group's stock at $46.30 a share. We do believe the market has been harsh on the stock and it offers long term fundamental investors a good entry point into a stock with a solid balance sheet (especially the amount of cash that is on their balance sheet, which makes up 28.4% of the group's stock price. So buying the stock at the current $20.41 (of that price $5.79 is made up cash, so you buy the rest of the business for $14.62 a share). Our target price for Movado might seem high but towards the end of 2018 and early 2019 it traded at levels closer to $55 a share.