Movado Lowers Guidance Amid Q2 Sales Struggles

The company noted a “challenging environment for consumer discretionary products.”

Lenore Fedow lenore.fedow@nationaljeweler.com

These 36 mm square-dial watches are part of a Movado capsule collection in collaboration with the late artist Carmen Herrera. The company reported declining sales in its recent second quarter results.

Paramus, N.J.—Movado Group had a rocky second quarter, with sales falling double digits in the quarter and in the first half of its fiscal year.

The New Jersey-based company said it faced a “challenging environment for consumer discretionary products,” which it expects to continue, leading the company to significantly lower its full-year guidance.

“We managed our business well, delivering second quarter net sales and earnings within our range of expectations despite operating in a challenging retail environment for our category, particularly in the United States and Europe, our largest markets,” said CEO Efraim Grinberg in a statement.

Here are five takeaways from Movado’s recent earnings report.

Second-quarter sales fell as consumer demand weakened.

In the second quarter ending July 31, net sales fell 12 percent year-over-year to $160.4 million.

For the first half of the year, sales were down 12 percent to $305.3 million.

The first-half sales came at the high-end of Movado’s prior guidance of a 9 to 12 percent sales decline.

The company attributed the drop in sales to a decline in both its wholesale and retail businesses amid “a challenging environment for consumer discretionary products.”

“While economic numbers have remained stable, discretionary purchases have been challenged by inflation and a greater allocation of consumers’ resources to travel and dining,” said Grinberg during an earnings call Thursday morning.

Gross profit in the second quarter was $89.3 million, or 56 percent of net sales, compared with $106.9 million, or 59 percent of net sales in the previous second quarter.

For the first half of the year, gross profit was $171.3 million, or 56 percent of net sales, compared with $203.6 million, or 59 percent of net sales in the previous second quarter.

The decline in gross margin was due to “decreased leverage of higher fixed costs on lower sales,” said Movado, as well as “unfavorable” changes in channel and product mix and the impact of foreign currency exchange rates, though it was partially offset by reduced shipping costs.

Grinberg highlighted the company’s nearly $219 million in cash with no debt, allowing for continued investment.

U.S. sales continued to struggle amid inflation woes.

In the U.S., Movado’s sales were down 12 percent year-over-year in the second quarter and fell 14 percent in the first half.

Grinberg noted a difficult retail environment in North America, with single digit declines in the quarter in its outlet stores.

“We have also intentionally slowed down the growth of our digital outlet channel, where we believe we were opening with products that were too sharply priced,” he said.

Internationally, net sales were down 12 percent in the second quarter and fell 10 percent in the first half.

Sales in Europe “remained challenging,” he said, though the company saw strong results in India and the Middle East, as well as “a return to growth” in China.