Movado Group Inc.

Good day, everybody, and welcome to the Mambato Group Incorporated First Quarter 2027 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Alison Malkin of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call today are Ephraim Grinberg, Chairman and Chief Executive Officer of and Sally DeMarcellis, Executive Vice President 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 would like to turn the call over to Ephraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Alison. Good morning, everyone. Thank you for joining us. With me today is Sally DeMarcellis, our Executive Vice President and Chief Financial Officer. After these prepared remarks, we'll be happy to answer your questions. We're very pleased with our start to the year. Our first quarter performance demonstrates meaningful momentum across our business and continued consumer strength despite a dynamic external environment. Sales increased 8.1% as reported, or 4.5% on a constant currency basis, reaching $142.4 million. Adjusted operating profit increased to $7.5 million from $900,000 in Q1 of last year. Adjusted earnings per share increased to 32 cents from 8 cents, driven by strong execution against our strategic priorities. Continued strong U.S. momentum and improving trends in Europe led the way. This was supported by increased retailer replenishment activity, currency tailwinds, and robust direct-to-consumer growth across both Movado.com and our company stores. The Middle East region was extremely challenging due to the ongoing conflict. Excluding this region, our growth would have been even more significant, underscoring the strength of our core markets. On the profitability front, gross margin improved 320 basis points due to a favorable mix of business despite a stronger Swiss franc. Our teams executed well against the strategic priorities we've outlined. We ended the quarter with $225 million in cash and no debt, providing us with significant financial flexibility. In recognition of our solid financial position and believe in the long-term health of our business, I am also pleased to share that our board approved a 5 cent per share increase in our quarterly cash dividend to 40 cents per share. I'd now like to discuss our performance in the context of our key strategic priorities. Our first priority is to put our customers at the center of everything we do. In that regard, we continue to strengthen consumer engagement across digital platforms while delivering trend-right product that honors each brand's unique identity. We're particularly encouraged by the resurgence of the fashion watch category, especially among younger consumers globally who are increasingly attracted to traditional watches. Let me share some brand highlights. Movado delivered strong performance with renewed interest in both innovative new designs and iconic classics. Several best-selling styles sold out during the quarter, and we expect to replenish these key items by summer. Movado.com sales increased 12.8%, reflecting strong direct consumer demand and our improved digital capabilities. Our company stores achieved a 10.2% sales increase, while our enhanced analytics and customer engagement tools are helping us better understand consumer preferences and optimize assortments across all our channels. Our second strategic priority is to deliver consumer and brand-focused innovation. In that regard, the Movado brand sales growth was driven by retailer replenishment and continued consumer response to our Bangle collection, Museum Veloura, and the new Mini Bold Evolution tank. The Heritage 1917 collection for both men and women continues to exceed expectations, and our new curved jewelry collection is resonating strongly on Movado.com, validating our strategy to expand jewelry within the Movado portfolio. Looking ahead to Father's Day and the second quarter, we're excited about two launches. The new sporty, bold Verso S collection and the vintage-inspired Kingmatic collection, both experiencing strong early demand. Additionally, our limited drop of the new 23-millimeter Babyface watch in spring colors sold out quickly, validating consumer appetite for smaller, distinctive sizes. Across our licensed brands, we're seeing strong momentum. Net sales were up 6.5% for the first quarter over last year, Excluding the Middle East, licensed brand sales increased 9.2% on a constant currency basis, with new shapes and sizes driving results across multiple markets and categories. Coach is seeing strong Gen Z engagement, particularly with the iconic signature C dial on our Sammy oval family, the new 22 millimeter iris family, is off to a strong start, further validating demand for innovation in smaller women's watches. Lacoste is building strong momentum with new LC33 executions, including a square version in signature khaki green. The Rene collection, named after Rene Lacoste himself, is resonating well. Our Metropole bracelets, continues to drive jewelry sales globally. Hugo Boss Performance is led by the Grand Prix Chronograph family and the new Grand Prix Vitesse with expanding men's classic assortments. The North Pendant, our latest men's jewelry innovation, has quickly become a bestseller. Tommy Hilfiger's Bruce family continues to drive global performance. We're increasingly penetrating the women's market with strong demand for new shapes and sizes, particularly the MIA and the newly introduced McKinsey collections. In Calvin Klein, the Mini Pulse family continues its strong performance, while the new Sophisticated Square is quickly becoming a bestseller. Men's is gaining traction with the new 39 millimeter Motion family. And finally, Olivia Burton's retail sell-through in the US and the UK remains strong, both in-store and online, driven by the Mini Grove and the Mini Grosvenor collections. Our third strategic priority is to deliver compelling consumer storytelling. We recently launched digital content celebrating the 145th anniversary of Movado, inviting consumers to experience not only our rich heritage, but also the quality and craftsmanship behind every Movado watch. Engagement has been exceptionally strong across digital platforms. Our brand ambassadors, Ludacris, Christian McCaffrey, Julianne Moore, Jessica Alba, and Tyrese Halliburton, continue to authentically represent our collections. Across the portfolio, we're deepening consumer connections through strategic storytelling including our association with Checo Perez and the Cadillac Formula One team for Tommy Hilfiger. We will continue amplifying these initiatives across our brand portfolio throughout the year. Our fourth strategic priority is to expand margins and increase profitability. In that regard, we improved gross margin by 320 basis points in Q1, primarily due to a favorable sales mix and continuing to elevate our full price selling. Our focus remains on three key drivers, introducing higher margin products, driving full price selling through stronger brand positioning while reducing promotional activity, and improving efficiency across our value chain and operations. While progress may vary quarter to quarter, we believe these initiatives position us to deliver meaningful, long-term margin improvement. As we look ahead, we remain encouraged by the improving trends across the business and by demonstrated consumer resilience. While the external environment remains dynamic, we believe our strong portfolio of brands, disciplined execution, healthy balance sheet, and commitment to innovation position as well for the remainder of the year. We're particularly optimistic about the renewed momentum in the fashion watch category, the strength in our direct-to-consumer business, and the positive reception to our new product introductions across both owned and licensed brands. While we're not providing guidance due to the current economic and geopolitical uncertainty, including the unpredictable impact of the current Middle East conflict, we expect sales growth to moderate in the second quarter, particularly on a constant currency basis, following the strong replenishment activity we experienced in Q1. Our focus remains on controlling what we can control, investing behind our brands,