Movado Group Inc.

Good day, everyone, and welcome to the Movado Group, Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in whole or in part without permission from the company. At this time, I'd like to turn the conference over to Rachel Schachter of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call is Ephraim Grimberg, Chairman and Chief Executive Officer, and Sally DeMarcillas, executive vice president, chief operating officer, and chief financial officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements, due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release. If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release. Now, I'd like to turn the call over to Ephraim Grimberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Rachel. Good morning, everyone, and welcome to Movado Group's fourth quarter and year-end conference call. Joining me today is Sally DeMarcellis, our Chief Operating Officer and Chief Financial Officer. I will provide an overview of our performance and our progress against our strategic initiatives, and then Sally will review our fourth quarter and fiscal 2022 financial performance in greater detail. We would then be glad to answer any questions you have for us today. We're extremely pleased with our performance in fiscal 2022, as our actions over the past several years enabled us to accelerate growth with powerful brands, compelling innovation, and an elevated omni-channel experience. As we enter fiscal 2023, the world is in a precarious position. While we saw the effects emanating from the pandemic begin to improve over the last six months and into the early part of this year, we are now operating in a world that is being greatly affected by the devastation in Ukraine. Our hearts and prayers go out to all those affected by this untenable situation. We're not sure how this war will end, but we know that millions of innocent Ukrainians are being impacted. The Movado Group Foundation made a donation of $100,000 evenly split between the International Rescue Committee and the United Nations Refugee Fund to aid in rescue efforts and to support Ukrainian refugees. As we began fiscal 2023, we knew the world was being affected by the heightened concerns around inflation and increased energy costs. We now can see that these issues are being compounded by the effects of the war. These economic and geopolitical events add heightened uncertainty to the macro backdrop as we continue to navigate a dynamic operating environment. We are fortunate to possess a strong balance sheet and an agile organization that has proven ability to navigate during uncertain times. Now let's turn to our own performance for fiscal 2022. First, I would like to recognize our teams around the world for a stellar performance. Not only did we surpass pre-pandemic results, but we set many records for the year across a variety of metrics, from sales to operating profits to adjusted earnings per share. We ended the year on a strong note with sales for the fourth quarter of $206 million, up 15.5% over last year, and up 7.8% versus pre-pandemic fiscal 2020. This resulted in record sales of $732.4 million for the year, up 44.6% over last year and 4.5% versus two years ago. Our gross profit percentage for the quarter was 58.7% versus an adjusted gross profit of 54.9% last year. For the year, our gross profit percentage was 57.2% versus an adjusted gross profit of 53.6% last year. Our adjusted operating profit was $37.9 million in the fourth quarter and reached a record $119.7 million for the year, driving increases of 59% and 290%, respectively. We were extremely pleased that we delivered 18.4% adjusted operating margin for the quarter and a record 16.3% adjusted operating margin for the year. Our adjusted earnings per share were $1.32 for the quarter versus 84 cents in the prior year period. This brought adjusted earnings per share to $3.94 for the year, more than triple last year's earnings of 92 cents. In terms of our balance sheet and cash flow, we generated $130.8 million in cash flow from operations for the year. Our net cash position at year end was $277.1 million versus $202.6 million last year, despite having reinstated our dividend and purchased $22.6 million in stock. We're delighted to announce today that our board has decided to increase our quarterly dividend by 40% to 35 cents per share. In addition, we expect to continue to create value for our shareholders through our share repurchase program. While we believe that operating in the current economic and global environment will certainly present its challenges, We feel that our teams are well prepared. Over the last few years, we have navigated extremely well during a global pandemic and have done an excellent job at rationalizing expenses while investing in the areas that provide the highest return for the company and building for the future. We will continue to be nimble and adapt to the current environment while staying focused on delivering for the long term. For the quarter, our international business grew by 12.7%, led by strong performance in key European markets, Latin America, and India. For the year, our international sales grew 32.5% from the prior year, but were slightly down by 3.1% from pre-pandemic levels. In the U.S., our sales for the quarter increased by 18.5%, with double-digit growth in our most important brand, Movado. For the year, our domestic business grew by 61.1% and 14.4% versus two years ago. As we have continued to grow, we are pleased to have a diversified and balanced business model with slightly more than half of our sales coming from international markets. From a brand perspective, we are pleased to see that our Movado elevation strategy continues to resonate with consumers. with our average price increased almost 15% during the holiday season. We continue to see improved performance in our brick-and-mortar distribution, while seeing stellar performance in our e-com business, Movado.com, which is now a significant business, grew by 33.7% for the quarter, with the average unit retail increasing by 17%. For the year, our Movado.com sales grew by 61.2%. For the quarter, watches that retail for over $1,000 accounted for over 20% of Movado sales. Movado jewelry that is only available on Movado.com was 12% of the brand's e-commerce sales during the quarter and more than doubled compared to last year. While we would expect our dot-com growth to moderate as consumers shift back to buying more in store, we are excited about the important role that it plays in the overall brand experience. During the holiday season, our iconic Movado SE continued to perform very well with increased penetration of our SE automatic. Our Bold Evolution and Verso collections continue to perform both online and at brick and mortar. Our series 800 sport collections continue to drive sales at retail. This spring, we will continue to support Movado with both digital and television marketing programs. Our licensed brands performed extremely well for both the quarter and the year. Sales grew by 11.6% for the quarter and 40.4% for the year. Licensed brands also grew against pre-pandemic sales, both for the quarter and the year. In Tommy Hilfiger, we continue to drive very strong growth, particularly in key European markets in both jewelry and watches. We continue to collaborate with key influencers and athletes like Premier League star Leon Goretzka. We also continue to support our growing India market with Bollywood star Saeed Kapoor. For the spring, we'll introduce two new multi-eye collections in Matthew for him and Layla for her. In Hugo Boss, we saw strong results and are excited that we have a strong foundation as the parent-friend continues to gain momentum as they implement their Claim 5 growth strategy. For about the quarter in the year, we grew over pre-pandemic levels in Hugo Boss. We drove the key markets of Germany, France, and the UK with strong digital support, as well as strong billboard marketing programs in major cities in those important markets. We have strong results for our leading Grand Master family for HIM. This spring, we will introduce our new BOSS Admiral model, constructed from ocean plastic and featuring a solar movement catering to a younger, environmentally conscious consumer. Last week, we renewed our license agreement with Hugo BOSS through December 31, 2026, with certain rights to extend for an additional five years thereafter. We are delighted to continue this very successful partnership, which has been expanded beyond watches to also include Boss-branded jewelry. In coach, we continue to see strong results in both the US and China. Leading iconic families like Arden and Preston continue to perform well. We're excited to collaborate with Jennifer Lopez, featured in our spring marketing campaign, and introducing our new Grayson ceramic watch. Lacoste also performed extremely well against both last year and two years ago, led by new executions in our two leading families, Lacoste 1212 and Tiebreaker. This spring, we will introduce our new Minecraft collaboration in Lacoste, as well as our first active lifestyle collections in Swing for Her and Replay for Him. We are very excited to begin the introduction of the Calvin Klein brand in both watches and jewelry. We are targeting about 2,500 retail doors around the world, with Europe and the Middle East representing our biggest markets. We're also excited about the opportunities in Asia. We're expecting the jewelry will represent 15% to 20% of total sales on an annual basis. We are seeing strong response from all of our markets thus far, and we are already seeing some promising initial sell-through. We continue to believe that CK can be a significant long-term growth driver, both in jewelry and watches. We're very pleased with the results in our outlet stores. We drove improved profitability by maintaining pricing discipline and improving gross margin. Our average selling price grew by 19.6% over last year and almost 32% over two years ago. In Olivia Burton, we were down single digits for the year with challenges in our key market, the UK. We believe strongly in the medium-term prospects for Olivia Burton and have reinvigorated both the leadership and the design talent in the Olivia Burton brand. Olivia Burton has continued opportunities in unique watch and jewelry designs with a British sensibility, and we are committed to support this evolution. In movement, we also saw a single-digit decline for the brand for the year, as we moderated customer acquisition costs due to decreased marketing efficiencies. We were pleased to see continued strong performance in our higher price point families, like our unique ceramic gloss white, which will be expanded into other colorways this year. As announced last night, we're excited to have a seasoned marketing and product executive join our team to lead the movement brand in Iran Cohen, who was previously the CEO of St. John Knit. As part of his initial priorities, Iran will establish a comprehensive growth strategy for movement. In summary, fiscal 2022 is an exceptional year for Movado Group. I could not be prouder of our teams around the world as they executed against our strategic plan and delivered record-breaking results, both in sales and profitability. As we remain focused on executing against our strategic goals, we will continue to make sure that we remain disciplined in our investments and continue to support our biggest opportunities. Additionally, as we operate in these uncertain times, we will continue to make our marketing and expense commitments as close to the time of execution as possible. As we look ahead, we are excited about the prospects for the future. but understand that there are inflationary pressures, including wage and labor pressures, along with additional inflationary cost increases. We hope to offset some of these pressures through price increases that we have begun to implement. We will stay focused on improving our gross margins and continuing to operate efficiently to offset these increased costs in our operations. We also expect that we will see headwinds in the US as we lapse stimulus programs and consumers are able to spend on travel, dining, and other activities. Despite this, for the coming years reflected in our outlook for fiscal 2023, we expect to grow sales in the mid to high single digits while continuing to deliver growth and operating profit. I would now like to turn the call over to Sally.