MOVADO GROUP INC - FORM 10-Q

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EX-31.1 - EX-31.1 - MOVADO GROUP INC	mov-ex311_201504308.htm
EX-32.1 - EX-32.1 - MOVADO GROUP INC	mov-ex321_201504306.htm
EX-31.2 - EX-31.2 - MOVADO GROUP INC	mov-ex312_201504309.htm
EX-32.2 - EX-32.2 - MOVADO GROUP INC	mov-ex322_201504307.htm
EX-10.3 - EX-10.3 - MOVADO GROUP INC	mov-ex103_20150430224.htm
EX-10.1 - EX-10.1 - MOVADO GROUP INC	mov-ex101_20150430223.htm
EX-10.2 - EX-10.2 - MOVADO GROUP INC	mov-ex102_20150430225.htm
EXCEL - IDEA: XBRL DOCUMENT - MOVADO GROUP INC	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-16497

MOVADO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

New York		13-2595932
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

650 From Road, Ste. 375 Paramus, New Jersey		07652-3556
(Address of Principal Executive Offices)		(Zip Code)

(201) 267-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,’’ “accelerated filer’’ and “smaller reporting company’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of May 21, 2015 were 17,114,255 and 6,644,105, respectively.

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

April 30, 2015

			Page
Part I	Financial Information (Unaudited)
	Item 1.	Consolidated Balance Sheets at April 30, 2015, January 31, 2015 and April 30, 2014	3
		Consolidated Statements of Operations for the three months ended April 30, 2015 and April 30, 2014	4
		Consolidated Statements of Comprehensive (Loss) \ Income for the three months ended April 30, 2015 and April 30, 2014	5
		Consolidated Statements of Cash Flows for the three months ended April 30, 2015 and April 30, 2014	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	23
Part II	Other Information		23
	Item 1.	Legal Proceedings	23
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 6.	Exhibits	25
Signature			26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	April 30,			January 31,			April 30,
	2015			2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	185,828		$	199,852		$	137,827
Short-term investments		—			—			34,063
Trade receivables		73,472			74,106			77,395
Inventories		183,904			170,788			184,443
Other current assets		43,960			40,532			47,228
Total current assets		487,164			485,278			480,956

Property, plant and equipment, net		44,354			46,673			46,806
Deferred income taxes		13,536			13,550			15,058
Other non-current assets		39,483			37,522			32,064
Total assets	$	584,537		$	583,023		$	574,884
LIABILITIES AND EQUITY
Current liabilities:
Loans payable to bank	$	25,000		$	—		$	—
Accounts payable		25,647			27,767			25,644
Accrued liabilities		37,899			30,933			36,854
Deferred and current income taxes payable		1,352			7,372			5,777
Total current liabilities		89,898			66,072			68,275

Deferred and non-current income taxes payable		3,505			3,470			3,792
Other non-current liabilities		30,484			29,196			27,244
Total liabilities		123,887			98,738			99,311

Commitments and contingencies (Note 8)
Equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares issued		—			—			—
Common Stock, $0.01 par value, 100,000,000 shares authorized; 26,926,331,26,849,080 and 26,753,324 shares issued, respectively		269			268			268
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,644,105,6,642,184 and 6,638,262 shares issued and outstanding, respectively		66			66			66
Capital in excess of par value		176,524			174,826			168,067
Retained earnings		358,992			358,006			321,176
Accumulated other comprehensive income		95,221			98,854			111,832
Treasury Stock, 9,662,176, 8,784,497 and 8,081,423 shares, respectively, at cost		(172,515	)		(149,811	)		(128,657	)
Total Movado Group, Inc. shareholders' equity		458,557			482,209			472,752
Noncontrolling interests		2,093			2,076			2,821
Total equity		460,650			484,285			475,573
Total liabilities and equity	$	584,537		$	583,023		$	574,884

See Notes to Consolidated Financial Statements

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended April 30,
	2015			2014
Net sales	$	120,461		$	120,921
Cost of sales		58,012			55,770
Gross profit		62,449			65,151
Selling, general, and administrative		55,574			54,230
Operating income		6,875			10,921
Interest expense		(152	)		(94	)
Interest income		53			35
Income before income taxes		6,776			10,862
Provision for income taxes (Note 9)		3,135			3,433
Net income		3,641			7,429
Less: Net income attributed to noncontrolling interests		19			64
Net income attributed to Movado Group, Inc.	$	3,622		$	7,365

Basic income per share:
Weighted basic average shares outstanding		24,279			25,325
Net income per share attributed to Movado Group, Inc.	$	0.15		$	0.29

Diluted income per share:
Weighted diluted average shares outstanding		24,569			25,696
Net income per share attributed to Movado Group, Inc.	$	0.15		$	0.29

Dividends declared per share	$	0.11		$	0.10

See Notes to Consolidated Financial Statements

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) \ INCOME

(In thousands)

(Unaudited)

	Three Months Ended April 30,
	2015			2014
Comprehensive (loss) \ income, net of taxes:
Net income including noncontrolling interests	$	3,641		$	7,429
Net unrealized gain on investments, net of tax of $4 and $39, respectively		10			70
Net change in effective portion of hedging contracts, net of tax benefit of $100 and $0, respectively		(508	)		-
Foreign currency translation adjustments		(3,137	)		8,131
Comprehensive income including noncontrolling interests		6			15,630
Less: Comprehensive income attributable to noncontrolling interests		17			135
Total comprehensive (loss) \ income attributable to Movado Group, Inc.	$	(11	)	$	15,495

See Notes to Consolidated Financial Statements

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended April 30,
	2015			2014
Cash flows from operating activities:
Net income including noncontrolling interests	$	3,641		$	7,429
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation and amortization		2,981			3,022
Transactional (gains) \ losses		(774	)		1,097
Write-down of inventories		330			302
Deferred income taxes		283			155
Stock-based compensation		1,520			1,180
Excess tax benefit from stock-based compensation		(42	)		(858	)
Operating efficiency initiatives and other items		2,670		-
Changes in assets and liabilities:
Trade receivables		685			(8,092	)
Inventories		(14,205	)		(1,034	)
Other current assets		(3,959	)		(2,775	)
Accounts payable		(2,079	)		(8,228	)
Accrued liabilities		4,044			(5,950	)
Income taxes payable		(5,914	)		1,473
Other non-current assets		(1,641	)		(1,477	)
Other non-current liabilities		1,286			1,703
Net cash (used in) operating activities		(11,174	)		(12,053	)
Cash flows from investing activities:
Capital expenditures		(1,461	)		(1,523	)
Trademarks		(94	)		(20	)
Net cash (used in) investing activities		(1,555	)		(1,543	)
Cash flows from financing activities:
Stock options exercised and other changes		(513	)		(1,324	)
Excess tax benefit from stock-based compensation		42			858
Proceeds from bank borrowings		25,000		-
Dividends paid		(2,636	)		(2,523	)
Stock repurchase		(22,154	)		(5,312	)
Net cash (used in) financing activities		(261	)		(8,301	)

Effect of exchange rate changes on cash and cash equivalents		(1,034	)		2,065
Net (decrease) in cash and cash equivalents		(14,024	)		(19,832	)
Cash and cash equivalents at beginning of period		199,852			157,659
Cash and cash equivalents at end of period	$	185,828		$	137,827

See Notes to Consolidated Financial Statements

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (the “2015 Annual Report on Form 10-K”). In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2015 is derived from the audited annual financial statements, which are included in the Company’s 2015 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

NOTE 1 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

●	Level 1 – Quoted prices in active markets for identical assets or liabilities.

●	Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

●	Level 3 – Unobservable inputs based on the Company’s assumptions.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands) as of April 30, 2015 and 2014 and January 31, 2015:

		Fair Value at April 30, 2015
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	327	$	—	$	—	$	327
Long-term investment	Other non-current assets		—		—		1,264		1,264
SERP assets - employer	Other non-current assets		1,520		—		—		1,520
SERP assets - employee	Other non-current assets		26,047		—		—		26,047
Hedge derivatives	Other current assets		—		866		—		866
Total		$	27,894	$	866	$	1,264	$	30,024
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	26,047	$	—	$	—	$	26,047
Hedge derivatives	Accrued liabilities		—		690		—		690
Total		$	26,047	$	690	$	—	$	26,737

		Fair Value at January 31, 2015
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	314	$	—	$	—	$	314
Long-term investment	Other non-current assets		—		—		1,240		1,240
SERP assets - employer	Other non-current assets		1,351		—		—		1,351
SERP assets - employee	Other non-current assets		24,811		—		—		24,811
Hedge derivatives	Other current assets		—		1,298		—		1,298
Total		$	26,476	$	1,298	$	1,240	$	29,014
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	24,811	$	—	$	—	$	24,811
Hedge derivatives	Accrued liabilities		—		71		—		71
Total		$	24,811	$	71	$	—	$	24,882

		Fair Value at April 30, 2014
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	687	$	—	$	—	$	687
Time deposits	Short-term investments		34,063		—		—		34,063
SERP assets - employer	Other non-current assets		1,273		—		—		1,273
SERP assets - employee	Other non-current assets		22,478		—		—		22,478
Hedge derivatives	Other current assets		—		772		—		772
Total		$	58,501	$	772	$	—	$	59,273
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	22,478	$	—	$	—	$	22,478
Hedge derivatives	Accrued liabilities		—		10		—		10
Total		$	22,478	$	10	$	—	$	22,488

The fair values of the Company’s available-for-sale securities are based on quoted prices. The fair value of the long-term investment is based on the purchase price plus eight percent calculated annually. Time deposits are classified as short-term investments and held to original maturity. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss franc and Euro currency exchange rate risk. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates, quoted interest rates and market volatility factors.

The following table presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of April 30, 2015 and 2014 and January 31, 2015. Level 3 consists of a long-term investment.

	April 30, 2015		January 31, 2015		April 30, 2014
Balance, beginning of fiscal year	$	1,240	$	—	$	—
Purchase of long-term investment		—		1,200		—
Interest income		24		40		—
Balance, end of period	$	1,264	$	1,240	$	—

NOTE 2 – EQUITY

The components of equity for the three months ended April 30, 2015 and 2014 are as follows (in thousands):

	Movado Group, Inc. Shareholders' Equity
	Common Stock (1)		Class A Common Stock (2)		Capital in Excess of Par Value		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total
Balance, January 31, 2015	$	268	$	66	$	174,826	$	358,006		$	(149,811	)	$	98,854		$	2,076		$	484,285
Net income								3,622									19			3,641
Dividends								(2,636	)											(2,636	)
Stock repurchase											(22,154	)								(22,154	)
Stock options exercised, net of tax benefit of $42		1				78					(550	)								(471	)
Supplemental executive retirement plan						100														100
Stock-based compensation expense						1,520														1,520
Net unrealized gain on investments, net of tax of $4														10						10
Net change in effective portion of hedging contracts, net of tax benefit of $100														(508	)					(508	)
Foreign currency translation adjustment (3)														(3,135	)		(2	)		(3,137	)
Balance, April 30, 2015	$	269	$	66	$	176,524	$	358,992		$	(172,515	)	$	95,221		$	2,093		$	460,650

	Common Stock (1)		Class A Common Stock (2)		Capital in Excess of Par Value		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total
Balance, January 31, 2014	$	266	$	66	$	165,342	$	316,334		$	(122,406	)	$	103,702		$	2,686		$	465,990
Net income								7,365									64			7,429
Dividends								(2,523	)											(2,523	)
Stock repurchase											(5,312	)								(5,312	)
Stock options exercised, net of tax benefit of $858		2				856					(1,324	)								(466	)
Supplemental executive retirement plan						18														18
Stock-based compensation expense						1,180														1,180
Net unrealized gain on investments, net of tax of $39														70						70
Stock donation						671					385									1,056
Foreign currency translation adjustment (3)														8,060			71			8,131
Balance, April 30, 2014	$	268	$	66	$	168,067	$	321,176		$	(128,657	)	$	111,832		$	2,821		$	475,573

(1) Each share of common stock is entitled to one vote per share.

(2) Each share of class A common stock is entitled to 10 votes per share on all matters submitted to a vote of the shareholders. Each holder of class A common stock is entitled to convert, at any time, any and all of such shares into the same number of shares of common stock. Each share of class A common stock is converted automatically into common stock in the event that the beneficial or record ownership of such shares of class A common stock is transferred to any person, except to certain family members or affiliated persons deemed “permitted transferees” pursuant to the Company’s Restated Certificate of Incorporation as amended. The class A common stock is not publicly traded and consequently, there is currently no established public trading market for these shares.

(3) The currency translation adjustment is not adjusted for income taxes to the extent that it relates to permanent investments of earnings in international subsidiaries.

NOTE 3 – SEGMENT INFORMATION

The Company follows accounting guidance related to disclosures about segments of an enterprise and related information. This guidance requires disclosure of segment data based on how management makes decisions about allocating resources to segments and measuring their performance.

The Company conducts its business in two operating segments: Wholesale and Retail. The Company’s Wholesale segment includes the designing, manufacturing and distribution of watches of quality luxury brands or licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Retail segment includes the Company’s outlet stores.

The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all other Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 18.6%, 11.0%, 8.7% and 8.1%, respectively, of the Company’s total net sales for the three months ended April 30, 2015. For the three months ended April 30, 2014, the Company’s International operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 20.3%, 12.8%, 8.1% and 7.4%, respectively, of the Company’s total net sales. Substantially all of the Company’s International assets are located in Switzerland and Hong Kong.

Operating Segment Data for the Three Months Ended April 30, 2015 and 2014 (in thousands):

	Net Sales
	2015		2014
Wholesale:
Luxury brands category	$	44,903	$	44,220
Licensed brands category		60,842		61,729
After-sales service and all other		3,852		3,736
Total Wholesale		109,597		109,685
Retail		10,864		11,236
Consolidated total	$	120,461	$	120,921

	Operating Income
	2015		2014
Wholesale	$	5,925	$	9,375
Retail		950		1,546
Consolidated total	$	6,875	$	10,921

	Total Assets
	April 30, 2015		January 31, 2015		April 30, 2014
Wholesale	$	563,947	$	562,462	$	553,833
Retail		20,590		20,561		21,051
Consolidated total	$	584,537	$	583,023	$	574,884

Geographic Location Data for the Three Months Ended April 30, 2015 and 2014 (in thousands):

	Net Sales				Operating Income / (Loss)
	2015		2014		2015	2014
United States (1)	$	64,584	$	62,279

MOVADO GROUP INC - FORM 10-Q - May 27, 2015

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