May 12, 2022
Dear Shareholders,
As I concluded last year’s letter to you, we were still in the midst of a global pandemic with the hope
that vaccines would put COVID-19 in the rear-view mirror. We have now learned that while vaccines will
help protect us from serious illness, we may be living with variations of COVID-19 for a long time.
Despite the continued effects of the pandemic, including erratic retail markets, supply chain disruptions
and reduced global tourism, Movado Group built on its momentum from the second half of fiscal 2021
and delivered record performance in fiscal 2022. Our teams around the world executed against our
strategic plan and enabled us to exceed expectations in both revenues and profits. I couldn’t be more
proud of our employees’ dedication and perseverance as they adapted to significant uncertainty and
maintained an unwavering commitment to our customers.
For fiscal 2022, our sales increased by 44.6% to $732.4 million and our adjusted operating profiti
increased to $119.7 million compared to $30.7 million in the prior year. For the second half, our sales
and adjusted operating profit grew by 21.7% and 63.8%, respectively, as compared to the solid second
half we achieved in fiscal 2021. Our $732.4 million in annual revenues was a record, surpassing our prior
all-time high of $701.0 million. For the year we also delivered strong gross margins of 57.2% and
adjusted operating profit of 16.3% of sales, also a record for the company. We also continued to manage
our balance sheet with discipline, achieving operating cash flow of $130.8 million and ending the year
with $277.1 million in cash and no debt. We were pleased that our strong position allowed our Board of
Directors to approve a 40% increase in our quarterly dividend to $0.35 per share.
Fiscal 2022 was a year that demonstrated the strength of our great brand portfolio as well as our
geographic diversity. The investments that we have made over the last few years in enhancing our
ability to communicate with consumers digitally has truly paid off, and that can best be demonstrated by
the success of our flagship MOVADO brand last year. MOVADO sales grew by 70.5% from the previous
year and by 15.2% versus pre-pandemic fiscal 2020. Our increased marketing support both in digital
content and television proved to help deliver these strong results while elevating the brand in
accordance with our elevation strategy centered around product offerings and innovation. Led by
products like the new MOVADO SE automatic, we were able to drive higher selling prices with our
average retail price increasing by almost 15% during the holiday season. Connecting directly with
consumers was also a key part of our strategy that accelerated during the last two years, and we were
pleased to see Movado.com sales grow by 61.2% against the prior year with over 20% of the site’s watch
sales coming from timepieces that retail over $1,000. Movado.com is the only place where a consumer
can buy MOVADO jewelry, and it was exciting to see jewelry grow at an even faster pace while
accounting for 12% of our Movado.com sales during the very important holiday quarter.
Our licensed brands portfolio benefits from partnering with some of the best fashion brands in the
world: brands like COACH, TOMMY HILFIGER, HUGO BOSS, LACOSTE and CALVIN KLEIN, which we were
excited to begin rolling out globally during the first quarter of fiscal 2023. We are already beginning to
see strong sell throughs in CALVIN KLEIN watches and jewelry and believe that CALVIN KLEIN will be a
significant brand for Movado Group in the months and years to come. Over the last 12 months we were
also quite pleased to renew our licensing agreements with both Coach and Hugo Boss, showing the
confidence that these brands have in our partnership. For the year our licensed brands division
delivered $368.4 million in sales, an increase of 40.4% from the prior year and 6.9% from pre-pandemic
fiscal 2020. We are truly excited by the innovation that our design teams have been able to execute in
each of our brands.
In our Movado Company Stores division, we also delivered record results in both sales and profitability
as we focused on reducing promotions and driving gross margins while monitoring expenses. Outlet
stores were once a path to eliminate discontinued products. Today, it is a well-developed distribution
channel designed to bring value-oriented consumers into premium brands. We believe that this is an
important and growing channel.
In both OLIVIA BURTON and MVMT, we were not satisfied with our results as the effectiveness of social
media marketing was hampered by rising costs and changes to the various platforms’ privacy policies.
For the year both brands had single digit sales decreases. We continue to believe in the great potential
of OLIVIA BURTON and MVMT and have reinvigorated the leadership teams by putting OLIVIA BURTON
under the direction of Allison Robbins, who also heads up our licensed brands, and appointing a new
CEO for MVMT in seasoned leader Eran Cohen, who was previously the CEO of St. John Knits. We are
eager to see the strategies that these teams develop over the balance of the year.
From a geographic perspective, we were able to deliver strong growth in our biggest markets - the
United States and Europe. Our sales in the US grew by 61.1% last year while surpassing pre-pandemic
fiscal 2020 by 14.4%. In Europe we grew sales by 29.5% from the previous year while also surpassing
fiscal 2020 sales by 5.2%. We saw strong performances in our business in Mexico, Latin America, the
Middle East and India as well. Late last year we launched a joint venture in India with a local partner that
will help us grow in this emerging market.
Last year we issued our first Corporate Responsibility Report and we recently finalized our second report
where we have begun to set goals for the company across various metrics. Our teams have embraced
our ESG initiatives around the world and we believe that going down this path - focusing on diversity
and inclusion, giving back to local communities and respecting the planet we live on and will pass down
to our children - will make us a better company for our employees, our consumers and our
shareholders. I was delighted that the Movado Group Foundation’s philanthropic efforts included
donating $100,000 in support of Ukrainian refugees devastated by Russia’s aggression.
As we enter the new year, we will be challenged to navigate increased uncertainty and disruption from
continued outbreaks of COVID and closures in China, a terrible war in Ukraine, and inflationary pressures
and rising interest rates that can affect the consumer. While the economic environment has been
strong, we believe that there is more limited visibility in the short term as consumers grapple with
increased costs and reduced government stimulus, particularly in the United States. Our associates
around the world are personally facing the reality of these pressures. We are therefore pleased that we
were able to share the benefits of last year’s strong results with our employees and to reward them for
their hard work in overcoming the significant challenges that they encountered.
I am convinced that over the last two years we have become a better, stronger, more resilient company
with a highly engaged and dedicated team. We are focused on continuing to deliver for our consumers,
our retail partners, our associates, our vendor partners and our shareholders. While the environment is
evolving rapidly, we take great comfort in the strength and resilience of our company and our people.
We remain focused on controlling the controllable and executing against our strategic objectives while
continuing to carefully monitor our expense structure. I would like to thank our employees, our
customers, our vendors, and our shareholders for their continued support.
Sincerely Yours,
Efraim Grinberg, Chairman/CEO
i Adjusted operating income is operating income under U.S. Generally Accepted Accounting Principles, adjusted to eliminate the
following for fiscal 2022: $1.1 million (none of which impacted the first half of the year) benefit due to a change in estimate
related to corporate initiative charges recorded primarily in response to the COVID-19 pandemic; $2.9 million ($1.4 million of
which impacted the first half of the year) of expenses associated with the amortization of acquired intangible assets related to
Olivia Burton; and $0.4 million ($0.2 million of which impacted the first half of the year) in adjustments associated with the
amortization of acquired intangible assets and deferred compensation related to the MVMT acquisition.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended January 31, 2022
OR
☐
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
(State or Other Jurisdiction
of Incorporation or Organization)
650 From Road, Ste. 375
Paramus, New Jersey
(Address of Principal Executive Offices)
13-2595932
(IRS Employer
Identification No.)
07652-3556
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (201) 267-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common stock, par value $0.01 per share
Trading Symbol(s)
MOV
Name of Each Exchange on which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
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 the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
☐
☐
Accelerated filer
Emerging growth company
☒
☐
Non-accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report . ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 31, 2021, was approximately $495 million (based on the closing sale price of
the registrant’s Common Stock on that date as reported on the New York Stock Exchange). For purposes of this computation, each share of Class A Common Stock is assumed to have
the same market value as one share of Common Stock into which it is convertible and only shares of stock held by directors, executive officers and holders of greater than 10% of the
registrant’s total voting power were excluded.
The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of March 21, 2022, were 16,238,767 and 6,524,805, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to registrant’s 2022 annual meeting of shareholders (the “Proxy Statement”) are incorporated by reference in Part III hereof.
FORWARD-LOOKING STATEMENTS
Statements in this annual report on Form 10-K, including, without limitation, statements under Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and elsewhere in this report, as well as statements in future filings by the Company with the Securities and Exchange
Commission (“SEC”), in the Company’s press releases and oral statements made by or with the approval of an authorized executive officer of the
Company, which are not historical in nature, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, forecasts and projections
about the Company, its future performance, the industry in which the Company operates and management’s assumptions. Words such as “expects”,
“anticipates”, “targets”, “goals”, “projects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “should” and variations of such words and
similar expressions are also intended to identify such forward-looking statements. The Company cautions readers that forward-looking statements include,
without limitation, those relating to the Company’s future business prospects, projected operating or financial results, revenues, working capital, liquidity,
capital needs, inventory levels, plans for future operations, expectations regarding capital expenditures, operating efficiency initiatives and other items, cost
savings initiatives, and operating expenses, effective tax rates, margins, interest costs, and income as well as assumptions relating to the foregoing.
Forward-looking statements are subject to certain risks and uncertainties, some of which cannot be predicted or quantified. Actual results and future events
could differ materially from those indicated in the forward-looking statements, due to several important factors herein identified, among others, and other
risks and factors identified from time to time in the Company’s reports filed with the SEC, including, without limitation, the following: general economic
and business conditions which may impact disposable income of consumers in the United States and the other significant markets (including Europe) where
the Company’s products are sold; uncertainty regarding such economic and business conditions, including inflation, increased commodity prices and
tightness in the labor market; trends in consumer debt levels and bad debt write-offs; general uncertainty related to possible terrorist attacks, natural
disasters and pandemics, including the effect of the COVID-19 pandemic and other diseases on travel and traffic in the Company’s retail stores and the
stores of its wholesale customers; supply disruptions, delivery delays and increased shipping costs; adverse impact on the Company’s wholesale customers
and customer traffic in the Company’s stores as a result of increased uncertainty and economic disruption caused by the COVID-19 pandemic; the impact
of international hostilities, including the Russian invasion of Ukraine, on global markets, economies and consumer spending, on energy and shipping costs
and on the Company's supply chain and suppliers; defaults on or downgrades of sovereign debt and the impact of any of those events on consumer
spending; changes in consumer preferences and popularity of particular designs, new product development and introduction; decrease in mall traffic and
increase in e-commerce; the ability of the Company to successfully implement its business strategies, competitive products and pricing, including price
increases to offset increased costs; the impact of “smart” watches and other wearable tech products on the traditional watch market; seasonality; availability
of alternative sources of supply in the case of the loss of any significant supplier or any supplier’s inability to fulfill the Company’s orders; the loss of or
curtailed sales to significant customers; the Company’s dependence on key employees and officers; the ability to successfully integrate the operations of
acquired businesses without disruption to other business activities; the possible impairment of acquired intangible assets; risks associated with the
Company's minority investments in early-stage growth companies and venture capital funds that invest in such companies; the continuation of the
Company’s major warehouse and distribution centers; the continuation of licensing arrangements with third parties; losses possible from pending or future
litigation and administrative proceedings; the ability to secure and protect trademarks, patents and other intellectual property rights; the ability to lease new
stores on suitable terms in desired markets and to complete construction on a timely basis; the ability of the Company to successfully manage its expenses
on a continuing basis; information systems failure or breaches of network security; complex and quickly-evolving regulations regarding privacy and data
protection; the continued availability to the Company of financing and credit on favorable terms; business disruptions; and general risks associated with
doing business outside the United States including, without limitation, import duties, tariffs (including retaliatory tariffs), quotas, political and economic
stability, changes to existing laws or regulations, and success of hedging strategies with respect to currency exchange rate fluctuations.
These risks and uncertainties, along with the risk factors discussed under Item 1A. “Risk Factors” in this Annual Report on Form 10-K, should be
considered in evaluating any forward-looking statements contained in this report or incorporated by reference herein. All forward-looking statements speak
only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral
forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements in this section. The
Company undertakes no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in
expectations after the date of this report.
1
Item 1. Business
GENERAL
In this Form 10-K, all references to the “Company” or “Movado Group” include Movado Group, Inc. and its subsidiaries, unless the context requires
otherwise. The Company’s common stock is traded on the NYSE under the trading symbol MOV.
Movado Group designs, sources, markets and distributes quality watches globally. Its portfolio of watch brands is currently comprised of owned brands
MOVADO®, CONCORD®, EBEL®, OLIVIA BURTON® and MVMT® as well as licensed brands COACH®, TOMMY HILFIGER®, HUGO BOSS®,
LACOSTE®, CALVIN KLEIN® and SCUDERIA FERRARI®. The Company is a leader in the design, development, marketing and distribution of watch
brands sold in almost every major category comprising the watch industry. The Company also designs, sources, markets and distributes jewelry and other
accessories under certain of its brands.
The Company was incorporated in New York in 1967 under the name North American Watch Corporation to acquire Piaget Watch Corporation and Corum
Watch Corporation, which had been, respectively, the exclusive importers and distributors of Piaget and Corum watches in the United States since the
1950’s. Since then, strategic acquisitions of watch brands and their subsequent growth, along with license agreements, have played an important role in the
expansion of the Company’s brand portfolio. Over time, the Company has developed its brand-building reputation and distinctive image across an
expanding number of brands and geographic markets.
In 1970, the Company acquired the Concord brand and the Swiss company that had been manufacturing Concord watches since 1908. In 1983, the
Company acquired the U.S. distributor of Movado watches and substantially all of the assets related to the Movado brand from the Swiss manufacturer of
Movado watches. The Company changed its name to Movado Group, Inc. in 1996. The Company sold its Piaget and Corum distribution businesses in 1999
and 2000, respectively, to focus on its own portfolio of brands. In March 2004, the Company completed its acquisition of Ebel, one of the world’s premier
luxury watch brands which was established in La Chaux-de-Fonds, Switzerland in 1911. In July 2017, the Company completed its acquisition of Olivia
Burton, which was one of the United Kingdom’s fastest-growing fashion watch and jewelry brands since its founding in 2011. In October 2018, the
Company completed its acquisition of MVMT, which was founded in 2013, offering watches and accessories designed for the millennial consumer largely
through a direct-to-consumer business model.
The Company is highly selective in its licensing strategy and chooses to enter into long-term agreements with only powerful brands which we deem to have
strong positions in their respective businesses.
The following table sets forth the brands licensed by the Company and the year in which the Company launched each licensed brand for watches.
Brand
COACH
Licensor
Tapestry, Inc.
TOMMY HILFIGER
Tommy Hilfiger Licensing LLC
HUGO BOSS
LACOSTE
SCUDERIA FERRARI
CALVIN KLEIN
Hugo Boss Trade Mark Management GmbH & Co
Lacoste S.A., Sporloisirs S.A. and Lacoste Alligator
S.A.
Ferrari Brand S.p.A.
Calvin Klein, Inc.
2
Calendar Year Launched
1999
2001
2006
2007
2013
2022
INDUSTRY OVERVIEW
The largest markets for watches are North America, Europe, Latin America and Asia. The Company divides the watch market into five principal categories
as set forth in the following table.
Market Category
Exclusive
Luxury
Accessible Luxury
Moderate and Fashion
Suggested Retail Price Range
$10,000 and over
$1,300 to $9,900
$500 to $3,295
$75 to $595
Mass Market
Less than $75
Primary Category of Movado Group,
Inc. Brands
—
Concord and Ebel
Movado
Coach, Hugo Boss, Lacoste,
Olivia Burton, MVMT, Scuderia
Ferrari, Tommy Hilfiger and Calvin Klein
—
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold or platinum, and are often set with precious gems. These watches are
primarily mechanical or quartz-analog watches. Mechanical watches keep time with intricate mechanical movements consisting of an arrangement of
wheels, jewels and winding and regulating mechanisms. Quartz-analog watches have quartz movements in which time is precisely calibrated to the regular
frequency of the vibration of quartz crystal. Exclusive watches are manufactured almost entirely in Switzerland. Well-known brand names of exclusive
watches include Audemars Piguet, Rolex, Patek Philippe, Piaget and Vacheron Constantin. The Company does not compete in the exclusive watch
category.
Luxury Watches
Luxury watches are either quartz-analog or mechanical watches. These watches typically are made with either 14 or 18 karat gold, stainless steel, ceramic
or a combination of gold and stainless steel, and are occasionally set with precious gems. Luxury watches are primarily manufactured in Switzerland. In
addition to a majority of the Company’s Ebel and Concord watches, well-known brand names of luxury watches include Baume & Mercier, Breitling,
Cartier, Omega and TAG Heuer.
Accessible Luxury Watches
The majority of accessible luxury watches are quartz-analog watches, some of which may also include connected technology for transmitting data
wirelessly between the watch and a smartphone or other device. These watches typically are made with gold finish, stainless steel, ceramic or a
combination of gold finish and stainless steel. Accessible luxury watches are manufactured primarily in Switzerland, although some are manufactured in
Asia. In addition to a majority of the Company’s Movado watches, well-known brand names of accessible luxury watches include Gucci, Rado, Michele
and Raymond Weil.
Moderate and Fashion Watches
Most moderate and fashion watches are quartz-analog watches, some of which may also include connected technology for transmitting data wirelessly
between the watch and a smartphone or other device. These watches typically are made with gold finish, stainless steel, brass, plastic or a combination of
gold finish and stainless steel. Moderate and fashion watches are manufactured primarily in Asia and Switzerland. In addition to the Company’s Calvin
Klein, Coach, Hugo Boss, Lacoste, Olivia Burton, MVMT, Scuderia Ferrari, and Tommy Hilfiger brands, well-known brand names of watches in the
moderate and fashion category include Anne Klein, Bulova, Citizen, Fossil, Guess, Seiko, Michael Kors, Daniel Wellington and Swatch. Market leaders for
smartwatches include Apple, Samsung and Garmin.
Mass Market Watches
Mass market watches typically consist of digital watches and analog watches made from stainless steel, brass and/or plastic and are manufactured in Asia.
Well-known brands include Casio, Pulsar, Seiko and Timex. The Company does not compete in the mass market watch category.
3
BRANDS
The Company designs, develops, sources, markets and distributes products under the following watch brands:
Owned Brands
Concord
Concord was founded through the harmonious collaboration of five Swiss visionaries in 1908. In 1979, Concord spearheaded the Swiss quartz revolution
with one of the most important watches of the twentieth century: the Concord Delirium. This was the first watch ever produced to be less than one
millimeter thick – a world record to this day. To mark its 110th anniversary, Concord introduced a new logo depicting a knot. The knot signifies the brand’s
foundation through harmonious unity and its laudable technical achievements and distinctive designs. The current Mariner SL watch captures this spirit and
helps carry on Concord’s strong legacy.
Ebel
Ebel’s success has been built upon the fusion of technical excellence and a passion for aesthetically daring and timeless, distinctive design. A passion for
innovation and excellence in watch design has always been at the heart of the Ebel brand. Ebel was founded in 1911 by husband and wife Eugène Blum
and Alice Lévy, in La Chaux-de-Fonds, Switzerland. Since its inception, Ebel has remained true to its core values, manufacturing fine Swiss watches that
marry beauty and function. Ebel successfully relaunched its most iconic collection, the Ebel Sports Classic in 2017, which is renowned for its iconic
bracelet design with signature wave-shaped links that helped to establish the sport-chic category in the late 70’s. Ebel continues to create timepieces that
embody luxury and contemporary elegance.
Movado
The Movado brand is renowned for its iconic Museum® dial and modern design aesthetic. Since its founding in La Chaux-de-Fonds, Switzerland in 1881,
Movado has earned more than 100 patents and 200 international awards for artistry and innovation in watch design and technology, and Movado timepieces
have won world renown for their unique beauty and timeless design.
Movado is a hallmark of some of the most famous timepieces ever created, most notably, the Movado Museum® Watch. Designed in 1947 by Bauhaus-
influenced artist Nathan George Horwitt, the watch dial defined by a solitary dot at 12 o’clock, symbolizing the sun at high noon, has been acclaimed for
purity of design unrivaled in the history of time-keeping. When Horwitt’s dial was selected for the permanent design collection of the Museum of Modern
Art, New York, in 1960, it became the first watch dial ever awarded this distinction. This legendary dial is regarded as an icon of Modernism. A
trademarked and award-winning design, the celebrated single dot dial now distinguishes a wide range of Movado timepieces.
Along with its long, rich heritage of design innovation, the Movado brand experience is also defined by a close, enduring association with the arts.
Expressions of Movado’s commitment to the fine and cultural arts encompass commissioned watch designs by famed artists, affiliations with talented
brand ambassadors, sponsorship of major arts institutions and support of emerging artists.
Innovative in design and materials, Movado BOLD is for the fashion-savvy, on-trend, young at heart consumer. The Movado Heritage collection launched
in the spring of 2016 and is inspired by Movado’s rich history dating back before the iconic Museum dial. The collection includes new designs that are
modern and relevant today by utilizing Movado’s archives.
MVMT
The MVMT brand was founded in a Southern California apartment in 2013 by two entrepreneurs. Originally empowered by crowdfunding and built
digitally with a community of social media followers, their philosophy was to create a brand offering quality, sleek watches that are accessible to young
consumers. MVMT’s designs and messaging embody the spirit of adventuring, creating, and daring to disrupt the norm. The brand’s design catalogue has
since expanded into more than 20 unique watch collections, sunglasses, blue light eyewear and jewelry.
Olivia Burton
Olivia Burton is a brand founded by two friends who started out as fashion buyers who recognized a gap in the market for unique and feminine women’s
watch styles. Inspired by vintage, fashion trends and nature, the Olivia Burton design team blends contemporary and vintage styles to conceive new
collections periodically. As well as innovative timepieces, including vegan, eco-friendly and unisex collections, Olivia Burton has a growing collection of
jewelry styles that exhibit the same attention to detail seen in its watches.
4
Licensed Brands
Below is a description of the Company’s licensed brands.
Coach Watches
Coach watches reflect the Coach brand image and classic American style. The Coach brand stands for authenticity, innovation, and relevance, as well as
effortless New York style. It is an integral part of the American luxury landscape. With an expanding presence globally, the Coach brand exemplifies
modern luxury. As an extension of the brand, Coach watches offer a fresh and compelling assortment of timepieces for women and men, with a wide
variety of metal bracelets and genuine Coach leather straps.
Tommy Hilfiger Watches and Jewelry
Reflecting the fresh, fun all-American style for which Tommy Hilfiger is known, Tommy Hilfiger watches are water resistant and feature quartz, digital or
analog-digital movements, with stainless steel, aluminum, silver-tone, two-tone or gold-tone cases and bracelets. Straps feature genuine leather, vegan
leather, fabric, plastic, silicone or recycled plastics. The watch line includes fashion and sport models and the Company also produces and markets jewelry
under the brand as well.
Hugo Boss Watches and Jewelry
Hugo Boss is one of the market leaders in the global apparel market. Hugo Boss focuses on developing and marketing premium fashion and accessories for
men and women under the Hugo and the Boss brands. Licensed products such as watches, jewelry and other accessories complement the apparel
collections. Boss watches and jewelry reflect the sophisticated character and craftsmanship for which all Boss products are known. Hugo watches
accessorize the open-minded, fashion-forward consumer.
Lacoste Watches and Jewelry
The Lacoste watch and jewelry collections embrace the Lacoste lifestyle proposition which encompasses French elegance and sporting spirit, as well as
innovation for style and freedom of movement. Mirroring key attributes of the Lacoste brand, the collection features stylish timepieces and jewelry with a
contemporary and urban flair inspired by sport, free movement and French elegance.
Calvin Klein Watches and Jewelry
The Calvin Klein collection of watches and jewelry was created with the modern customer in mind. Featuring timeless, minimalist designs that highlight
Calvin Klein's globally-recognized aesthetic, the collection of men's and women's accessories reflects the sensuality and boldness that has come to define
the brand for over 50 years.
Scuderia Ferrari Watches
Asserting Scuderia Ferrari’s proud racing heritage and Italian pedigree, Movado Group’s Scuderia Ferrari watch collection offers stylish timepieces for
adults and youths, bringing the excitement and distinctive style of the time-honored racing team to fans around the world. The Company's collaboration
with Scuderia Ferrari will end on June 30, 2022, although the Company has the right to sell any then-remaining inventory through December 31, 2022.
DESIGN AND PRODUCT DEVELOPMENT
The Company’s offerings undergo two phases before they are produced for sale to customers: design and product development. The design phase includes
the creation of artistic and conceptual renderings while product development involves the construction of prototypes. The Company’s licensed brand
watches, Olivia Burton watches, MVMT watches and certain Movado brand watch styles are designed by in-house design teams in cooperation with
outside sources, including (in the case of the licensed brands) licensors’ design teams. Watch product development for these brands takes place in the
Company’s Asia operations. For the Company’s Ebel and Concord watch brands and various Movado brand watch styles, the watch design phase is
performed by a combination of in-house and freelance designers in Europe and the United States while product development is carried out in the
Company’s Swiss operations. The Company’s jewelry and other accessories are designed by in-house design teams in cooperation with outside sources and
are manufactured by independent contractors in Asia and, to a lesser extent, the United States.
5
MARKETING
The Company’s marketing strategy is to communicate a consistent, brand-specific message to the consumer. As the consumer footprint continues to evolve,
the Company is increasingly focused on its digital marketing and online reach, including expanding and improving its social media channels and its
messaging through individuals with significant social media followings (i.e., “influencers”). In 2018, the Company established a Digital Center of
Excellence to help elevate its customers’ digital experience globally through innovative technologies and consumer-facing initiatives. Recognizing that
advertising is an integral component to the successful marketing of its product offerings, the Company devotes significant resources to advertising and
maintains its own in-house advertising department which focuses primarily on the implementation and management of global marketing and advertising
strategies for each of the Company’s brands, ensuring consistency of presentation. The Company develops advertising campaigns individually for each of
the Company’s brands, utilizing outside agencies as deemed appropriate. These campaigns are directed primarily to the end consumer rather than to trade
customers. The Company’s advertising takes into account the image and price range of each brand. Company advertising is placed in magazines and other
print media, on radio and television, online, including websites and social media platforms, in catalogs, on outdoor signs and through other promotional
materials. Marketing expenses totaled 16.3%, 16.9%, and 19.3% of net sales in fiscal 2022, 2021 and 2020, respectively.
OPERATING SEGMENTS
The Company conducts its business primarily in two operating segments: Watch and Accessory Brands and Company Stores. For operating segment data
and geographic segment data for the years ended January 31, 2022, 2021 and 2020, see Note 20 to the Consolidated Financial Statements regarding
Segment and Geographic Information.
The Company’s Watch and Accessory Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry
and other accessories, of quality owned and licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company
Stores segment includes the Company’s physical retail outlet locations in the United States and Canada.
The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all non-
U.S. Company operations. The vast majority of the Company’s tangible International assets are owned by the Company’s Swiss and Hong Kong
subsidiaries. For a discussion of the risks associated with the Company’s operations conducted outside the United States, see “A significant portion of the
Company’s business is conducted outside of the United States. Many factors affecting business activities outside the United States could adversely impact
this business” under Item 1A. Risk Factors, below.
Watch and Accessory Brands
Watch and Accessory Brands Business in the United States
The Company sells all of its brands in the U.S. Watch and Accessory Brands market primarily to department stores, such as Macy’s and Nordstrom; major
jewelry store chains, such as Signet Jewelers, Ltd. and Helzberg Diamonds Corp.; independent jewelers; and third-party e-commerce retailers, such as
Amazon; as well as directly to consumers through the Company’s owned e-commerce websites, such as www.movado.com and www.mvmtwatches.com.
Sales to trade customers in the United States are made directly by the Company’s U.S. sales force and, to a lesser extent, independent sales representatives.
Sales representatives are responsible for a defined geographic territory, generally specialize in a particular brand and sell to and service independent
jewelers within their territory. The sales force also consists of account executives and account representatives who, respectively, sell to and service chain
and department store accounts.
Watch and Accessory Brands Business in International Markets
Internationally, the Company’s brands are sold to department stores, jewelry chains, independent jewelers and third-party e-commerce retailers, as well as
directly to consumers through the Company’s owned e-commerce websites, such as www.oliviaburton.com and www.mvmt.com. The Company employs
its own international sales force operating at the Company’s sales and distribution offices in Australia, Canada, Mainland China, France, Germany, Hong
Kong, India, Spain, Switzerland, the United Kingdom, Mexico and the United Arab Emirates. In addition, the Company sells all of its brands through a
network of independent distributors operating in numerous countries around the world. A majority of the Company’s arrangements with its international
distributors are long-term, generally require certain minimum purchases and minimum advertising expenditures and impose restrictions on the distributor’s
sale of competitive products.
6
Company Stores
The Company’s subsidiary, Movado Retail Group, Inc., operates 47 retail outlet locations in outlet centers across the United States and four retail outlet
locations in outlet centers in Canada, as well as an online outlet store at www.movadocompanystore.com. These stores serve as effective channels to sell
current and discontinued models and factory seconds of all of the Company’s watches.
SEASONALITY
The Company’s sales are traditionally greater during the Christmas and holiday season. Consequently, the Company’s net sales historically have been
higher during the second half of its fiscal year. The amount of net sales and operating profit generated during the second half of each fiscal year depends
upon the general level of retail sales during the Christmas and holiday season, as well as economic conditions and other factors beyond the Company’s
control. Major selling seasons in certain international markets center on significant local holidays that occur in late winter or early spring. The second half
of each of the fiscal years ended January 31, 2022, 2021 and 2020 accounted for 57.9%, 68.8% and 56.6% of the Company’s net sales, respectively. The
first half of fiscal year 2021 was negatively impacted by the COVID-19 pandemic.
BACKLOG
At March 21, 2022, the Company had unfilled orders of $60.9 million compared to $46.0 million at March 22, 2021 and $45.0 million at March 23, 2020.
Unfilled orders include both confirmed orders and orders that the Company believes will be confirmed based on the historical experience with the
customers. It is customary for many of the Company’s customers not to confirm their future orders with formal purchase orders until shortly before their
desired delivery dates.
CUSTOMER SERVICE, WARRANTY AND REPAIR
The Company assists in the retail sales process of its wholesale customers by monitoring their sales and inventories by product category and style. The
Company also assists in the conception, development and implementation of customers’ marketing vehicles. The Company places considerable emphasis
on cooperative advertising programs with its wholesale customers. The Company’s assistance in the retail sales process has resulted in close relationships
with its principal customers, often allowing for influence on the mix and quantity. The Company believes that customers’ familiarity with its sales approach
has facilitated, and should continue to facilitate, the introduction of new products through its distribution network.
The Company permits the return of damaged or defective products. In addition, although the Company generally has no obligation to do so, it accepts other
returns from customers in certain instances.
The Company has service facilities around the world, including four Company-owned service facilities and a number of independent service centers which
are authorized to perform warranty repairs. A list of authorized service centers can be accessed online at www.mgiservice.com. In order to maintain
consistency and quality at its service facilities and authorized independent service centers, the Company conducts training sessions and distributes technical
information and updates to repair personnel. All watches sold by the Company come with limited warranties covering the movement against defects in
material and workmanship for periods ranging from two to three years from the date of purchase. In addition, the warranty period is five years for the gold
plating on certain Movado watch cases and bracelets. Products that are returned under warranty to the Company are generally serviced by the Company’s
employees at its service facilities.
The Company retains adequate levels of component parts to facilitate both the manufacturing of its watches as well as the after-sales service of its watches
for an extended period of time after the discontinuance of the manufacturing of such watches.
The Company makes available a web-based system at www.mgiservice.com providing immediate access for the Company’s retail partners to information
they may want or need about after sales service issues. The website allows the Company’s retailers to track their repair status online 24 hours a day. The
system also permits customers to authorize repairs, track repair status through the entire repair life cycle, view repair information and obtain service order
history.
SOURCING, PRODUCTION AND QUALITY
The Company does not manufacture any of the products it sells. The Company employs a flexible manufacturing model that relies on independent
manufacturers to meet shifts in marketplace demand and changes in consumer preferences. All product sources must achieve and maintain the Company’s
high-quality standards and specifications. With strong supply chain organizations predominantly in Switzerland, Mainland China and Hong Kong, the
Company maintains control over the quality of its products, wherever they are manufactured. Compliance is monitored with strictly enforced quality
control standards, including on-site quality inspections.
7
The Swiss watch movements used in the manufacture of Movado, Ebel and Concord watches are purchased from three suppliers, with all mechanical
movements coming from a single supplier. The Company obtains other watch components for all of its brands, including, cases, hands, dials, bracelets,
straps and non-Swiss movements from a number of other suppliers. The Company generally does not have long-term supply commitments with any of its
component parts suppliers.
Movado (with the exception of certain Movado collections), Ebel and Concord watches, as well as certain Calvin Klein watch styles, are manufactured in
Switzerland by independent third-party assemblers using Swiss movements and other parts sourced by the Company’s Swiss operations. Movado smart
watches include connected technology licensed from third parties that also provide end users with the necessary applications and cloud services. All of the
Company’s products are manufactured using components obtained from third party suppliers. Certain Movado collections of watches are manufactured by
independent contractors in Asia using Swiss movements. Coach, Hugo Boss, Lacoste, Olivia Burton, MVMT, Scuderia Ferrari, Tommy Hilfiger and most
Calvin Klein watches are manufactured by independent contractors in Asia.
TRADEMARKS, PATENTS AND LICENSE AGREEMENTS
The Company owns the trademarks CONCORD®, EBEL®, MOVADO®, MVMT® and OLIVIA BURTON®, as well as trademarks for the Movado
Museum® dial design, and related trademarks for watches and jewelry in the United States and in numerous other countries.
The Company licenses the trademark COACH® and related trademarks on an exclusive worldwide basis for use in connection with the manufacture,
distribution, advertising and sale of watches pursuant to an amended license agreement with Tapestry, Inc. which expires on June 30, 2025.
Under an amended and restated license agreement with Tommy Hilfiger Licensing LLC entered into on March 20, 2020 and effective as of January 1, 2020
(the “Tommy Hilfiger License Agreement”), the Company has the exclusive license to use the trademark TOMMY HILFIGER® and related trademarks in
connection with the manufacture, marketing, advertising, sale and distribution of watches and jewelry worldwide (excluding sales to certain accounts in
Japan). The Tommy Hilfiger License Agreement expires December 31, 2024 and may be extended by the Company for an additional five years ending on
December 31, 2029, subject to the satisfaction of minimum sales requirements and approval of a new business plan in the licensor’s reasonable discretion.
On March 17, 2022, the Company entered into an amended and restated license agreement with Hugo Boss Trade Mark Management GmbH & Co. that
extended the term and made certain other changes to the license agreement originally entered into by the parties on December 15, 2004, as previously
amended, under which the Company received a worldwide exclusive license to use the trademark HUGO BOSS® and any other trademarks containing the
names “HUGO” or “BOSS”, in connection with the production, promotion and sale of watches. The current license agreement expands the arrangement to
include BOSS-branded jewelry and continues the relationship through December 31, 2026, subject to certain rights of the Company to extend for an
additional five years upon satisfaction of specified conditions.
On March 28, 2014, the Company entered into an amended and restated license agreement with Lacoste S.A., Sporloisirs S.A. and Lacoste Alligator S.A.
(the “Lacoste License Agreement”), extending the term and making certain other changes to the license agreement originally entered into by the parties in
2006, under which the Company received a worldwide exclusive license to use the LACOSTE® name and the distinctive “crocodile” logo to design,
produce, market and distribute watches. Effective January 1, 2022, the Company has also been authorized to produce and sell jewelry under the LACOSTE
brand name. The term of the Lacoste License Agreement continues through December 31, 2022. The parties are in the process of finalizing an agreement to
extend the license through December 31, 2031.
On November 23, 2017, the Company entered into an amended and restated license agreement with Ferrari S.p.A. to continue to use certain well known
trademarks of Ferrari including SCUDERIA FERRARI, the S.F. and Prancing Horse device in shield and FERRARI OFFICIAL LICENSED PRODUCT,
in connection with the manufacture, advertising, merchandising, promotion, sale and distribution of watches with a suggested retail price not exceeding
€2,500 (the “Amended Ferrari License Agreement”). The Amended Ferrari License Agreement expires on June 30, 2022, although the Company has the
right to sell any then-remaining inventory through December 31, 2022.
Effective August 19, 2020, the Company and Calvin Klein, Inc. (“CKI”) entered into a trademark license agreement under which CKI granted the
Company a worldwide license to use the trademarks CALVIN KLEIN and CK/CALVIN KLEIN in connection with the development, manufacture,
distribution, advertising, promotion and sale of watches and jewelry commencing January 1, 2022. The license is exclusive, subject to limited exceptions.
The term of the Agreement continues until December 31, 2026 and may be renewed by the Company for an additional five years, subject to certain
conditions, including the achievement of specified minimum sales.
8
The Company also owns, and has pending applications for, a number of design patents in the United States and internationally for various watch designs, as
well as designs of watch dials, cases, bracelets and jewelry.
The Company actively seeks to protect and enforce its intellectual property rights by working with industry associations, anti-counterfeiting organizations,
private investigators and law enforcement authorities, including customs authorities in the United States and internationally, and, when necessary, suing
infringers of its trademarks, patents and other intellectual property rights. Consequently, the Company is involved from time to time in litigation or other
proceedings to determine the enforceability, scope and validity of these rights. The Company has registered the trademarks CONCORD®, EBEL®,
MOVADO®, MVMT®, OLIVIA BURTON® and certain other related trademarks with customs authorities in the United States and certain other countries
in order to assist such authorities in their efforts to prevent the importation of counterfeit goods or goods bearing confusingly similar trademarks. Customs
regulations generally do not, however, protect against the unauthorized importation of genuine products.
COMPETITION
The markets for each of the Company’s watch brands are highly competitive. With the exception of Swatch Group, Ltd., a large Swiss-based competitor, no
single company directly competes with the Company across all of its brands. Multiple companies, however, compete with Movado Group with respect to
one or more of its watch brands. Certain of these companies have, and other companies that may enter the Company’s markets in the future may have,
greater financial, distribution, marketing and advertising resources than the Company. The Company’s future success will depend, to a significant degree,
upon its continued ability to compete effectively with regard to, among other things, the style, quality, price, advertising, marketing, distribution and
availability of supply of the Company’s watches and other products.
HUMAN CAPITAL
The Company believes that trust, respect, passion, and teamwork are critical to achieving its goals and therefore promotes a culture built around these
values.
Demographics
The following table summarizes the Company’s global workforce as of January 31, 2022:
Global
Americas
Asia-Pacific
Europe, Middle East & Africa
Full-Time
Employees
Part-Time
Employees
Temporary
Employees
Total
940
573
133
234
306
279
-
27
51
42
2
7
1,297
894
135
268
Attraction and Retention of Employees
The Company strives to attract and retain a highly talented and engaged workforce and believes that its supportive culture, dedication to employee safety
and well-being, competitive compensation and benefits programs, employee development and training offerings, diversity and inclusion initiatives, and
philanthropic and community engagement help in this endeavor. Approximately 33% of the Company’s non-retail employees have been with the Company
for more than 10 years, and approximately 51% have been with the Company for at least five years.
Employee Safety and Well-Being
The Company offers programs and benefits to support its employees’ physical, financial, and emotional well-being, including medical coverage, domestic
partner benefits, dental and vision coverage, health savings and flexible spending accounts, paid time off, employee assistance programs, voluntary short-
term and long-term disability insurance, and supplemental life insurance, among others. Programs vary by location and are designed to meet or exceed
local laws and to be competitive in the marketplace.
In response to the COVID-19 pandemic, the Company implemented changes that it determined were in the best interest of its employees and the
communities in which they operate. This included temporarily closing offices and/or encouraging employees to work remotely whenever feasible and
implementing additional safety measures for employees conducting on-site work. The Company has encouraged all of its employees to be vaccinated, and
for certain new-hire categories, the Company has required vaccination. The Company has also established added protocols for those who were not able to
be vaccinated. As conditions have improved, the Company has generally returned to a hybrid office schedule. For a detailed discussion of the impact of the
COVID-19 pandemic on our business, see Item 7,
9
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments and Initiatives – COVID-19.”
Compensation and Financial Benefits
The Company strives to offer competitive compensation packages. The Company uses a combination of fixed and variable pay including base salary,
bonus, commissions, and merit increases that vary across the business. The Company also offers defined contribution savings plans to eligible employees.
In addition, as part of its long-term incentive plan for executives and key employees, the Company provides share-based compensation to foster its pay-for-
performance culture and to attract, retain, and motivate participants.
Other financial benefits available to eligible employees include financial wellness planning and pre-retirement workshops, discounts on insurance and other
products and services, and friends and family sales. Non-management employees may also receive bonuses for referring prospective new employees.
Benefits vary by location and are designed to meet or exceed local legal requirements and to be competitive in the marketplace.
Employee Education, Training and Development
The Company encourages employees to be responsible for managing their own career goals and provides support and resources to aid employee
progression. These resources vary by location and generally include annual development reviews, ongoing courses and resources, corporate development
programs, and departmental development programs. The Company also partners with local colleges to promote deeper learning on specific topics. Tuition
reimbursement is available to full-time employees in the United States.
Diversity & Inclusion
The Company seeks to provide a work environment in which all employees are treated with dignity and respect and receive equal treatment regardless of
age, color, disability, marital or parental status, national origin, race, religious beliefs, sexual orientation, gender identity, veteran status, or any other legally
protected status. The Company recognizes that embracing an inclusive workforce leads to greater innovation, increased productivity, and higher job
satisfaction. Accordingly, the Company strives to welcome and foster ideas and to create workplaces that bring together people with diverse backgrounds.
Diversity and inclusion is a cornerstone of the Company's corporate social responsibility strategy. The Company aims to expand the diversity of its
workforce, especially among senior leadership. To help achieve this objective, the Company signed the parity pledge, demonstrating its intention to
interview at least one woman and one underrepresented minority for each open position, Vice President and above, going forward. The Company also
strives to further emphasize diversity considerations in its product design process and is focused on increasing the diversity of the Company's marketing
chain. The Company continues to present programs that educate its employees on diversity, inclusion and belonging, to participate in the CEO Action for
Diversity & Inclusion and the Open to All campaign and to support external organizations' efforts in these areas.
As of January 31, 2022, the Company had a seven-member Board of Directors, including one female Board member and two Hispanic Board members.
As of January 31, 2022, women represented approximately 63% of the Company's global employees, and underrepresented minorities (defined as those
who identify as Black/African American, Hispanic/Latinx, Native American, Asian, Pacific Islander and/or two or more races) represented approximately
54% of the Company's U.S. employees.
10
Community Engagement
The Company is committed to engaging with and giving back to its communities. The Company is the corporate sponsor of The Movado Group
Foundation, a nonprofit organization that supports philanthropic campaigns in the United States with particular emphasis on sustaining the arts. Programs
and support vary by year, need and available resources.
REGULATION
We are subject to laws and regulations regarding customs (including tariffs and retaliatory tariffs), tax, employment, privacy, truth-in-advertising, consumer
product safety, zoning and occupancy and other laws and regulations that regulate and/or govern the importation, promotion and sale of consumer products
and our corporate, retail and distribution operations. Changes in such laws and regulations could have a material adverse effect on our results of operations
and financial condition, although the Company is not aware of any such pending changes that would have a material adverse effect on the Company's
capital expenditures, including capital expenditures for environmental control facilities, earnings or competitive position. For a discussion of certain risks
related to compliance with laws and regulations, see “A significant portion of the Company’s business is conducted outside of the United States. Many
factors affecting business activities outside the United States could adversely impact this business”, “The Company’s e-commerce business is subject to
numerous risks that could have an adverse effect on the Company’s business and results of operations”, “Changes to laws or regulations impacting the
industries in which the Company operates could require it to alter its business practices which could have a material adverse effect on its results of
operations”, “Changes to tax laws or regulations could have a material adverse effect on the Company’s financial condition and results of operations” and
“The Company is subject to complex and evolving laws and regulations regarding privacy and data protection that could result in legal claims, changes to
business practices and increased costs that could materially and adversely affect the Company’s results of operations”, under Item 1A. Risk Factors, below.
AVAILABLE INFORMATION
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Company’s website,
located at www.movadogroup.com, as soon as reasonably practicable after the same are electronically filed with, or furnished to, the SEC. The SEC
maintains a website that contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.
The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including the Company’s Chief
Executive Officer, Chief Financial Officer and principal accounting and financial officers, which is posted on the Company’s website. The Company will
post any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by SEC regulations on the Company’s
website. In addition, the committee charters for the audit committee, the compensation committee and the nominating, governance and corporate
responsibility committee of the Board of Directors of the Company and the Company’s corporate governance guidelines have been posted on the
Company’s website.
Item 1A. Risk Factors
The following risk factors should be read carefully in connection with evaluating Movado Group’s business. These risks and uncertainties could cause
actual results and events to differ materially from those anticipated. Additional risks which the Company does not presently consider material, or of which
it is not currently aware, may also have an adverse impact on the business. Please also see “Forward-Looking Statements” on page 1.
Risks Related to Macroeconomic Conditions and our International Operations
The COVID-19 pandemic has materially affected how we and our customers and suppliers operate, and the duration and extent to which COVID-
19, new strains or variants, or other public health threats and epidemics will impact our future results of operations and overall financial
performance remains uncertain.
The COVID-19 pandemic and related public health measures have materially affected how we and our customers and suppliers are operating our business
and have adversely affected our operating results. Various containment and mitigation measures that have at times been imposed by governmental and other
authorities around the world (such as quarantines and other social distancing requirements) have adversely affected sales of our products, given that those
sales are heavily dependent on customer traffic in traditional retail stores, such as those of our wholesale partners, and our Company stores. Such measures
have also adversely impacted our supply chain, resulted in late deliveries and have increased shipping costs. The reinstitution, continuation or tightening of
such containment and mitigation measures could continue or exacerbate the adverse effect on our results of operations and financial condition. These trends
could worsen if either COVID-19 infections increase as new variants and strains emerge or treatments and vaccines are not as effective as expected.
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Adverse general economic conditions arising from the COVID-19 outbreak could also adversely affect consumer spending and result in an increase in
bankruptcies or insolvencies involving our suppliers and wholesale customers, which could also have a materially adverse effect on our operations and
financial condition. The impact of the outbreak of COVID-19 on the Company’s liquidity, revenues and results of operations cannot be predicted at this
time due to the high level of uncertainty, unknown future developments and duration of containment measures. The foregoing risks which apply to COVID-
19 would also arise from any future outbreak of infectious disease.
In keeping with health and safety recommendations, during the fiscal year 2021 the Company first implemented remote work policies while temporarily
closing offices and/or encouraging employees to work remotely whenever feasible. Although all of the Company's offices were reopened before or during
fiscal 2022, certain of these policies and practices have continued into the current fiscal year. The increase in remote work may exacerbate the
cybersecurity and data privacy concerns discussed elsewhere in this Item 1A and may cause strain for, and may adversely impact the productivity of,
certain employees, and these conditions may persist and harm our business, including future operating results. Our efforts to keep our offices open may not
be successful, could expose our employees, customers, and partners to health risks, and us to associated liability, and may involve additional financial
burdens. The pandemic may have long-term effects on the nature of the office environment and remote working, and this may present operational
challenges that may adversely affect our business. In addition, reinstitution of stay-at-home orders could reduce demand for our products as customers may
have fewer occasions to use and wear our products.
Adverse economic conditions in key markets, and the resulting declines in consumer confidence and spending, could have a material adverse effect
on the Company’s operating results.
The Company’s results are dependent on a number of factors impacting consumer confidence and spending in the U.S. and other key markets, including,
but not limited to, general economic and business conditions; wages and employment levels; volatility in the stock market; home values and housing costs;
inflation; consumer debt levels; availability and cost of consumer credit; economic uncertainty; solvency concerns of major financial institutions;
fluctuations in foreign currency exchange rates; commodity prices; fuel and energy costs and/or shortages; tax issues; and general political conditions, both
domestic and abroad.
Adverse economic conditions, including declines in employment levels, disposable income, consumer confidence and economic growth could result in
decreased consumer spending that would adversely affect sales of consumer goods, particularly those, such as the Company’s products, that are viewed as
discretionary items. In addition, events such as war, terrorism, natural disasters or outbreaks of disease may further suppress consumer spending on
discretionary items. For example, Russia's recent invasion of Ukraine and the subsequent retaliatory measures taken by the U.S., NATO and other countries
may negatively impact our revenue derived from sales to this region. If any of these events should occur or intensify, the Company’s future sales could
decline and the Company’s results of operations could be materially adversely affected. This could also result in the potential for impairment surrounding
our long-lived assets.
“Brexit” has created significant uncertainty for the Company’s U.K. business operations which could have a material adverse effect on the
Company’s financial condition and results of operations.
On June 23, 2016, the results of the United Kingdom (“U.K”) European Union (“E.U.”) Membership Referendum (“Brexit”) were announced approving
the withdrawal of the U.K. from the E.U. In January 2020, the U.K. parliament approved the terms of an agreement with the E.U. to determine the future
terms of the parties’ relationship, including the terms of trade between the U.K. and the E.U. and other nations, following the U.K.’s exit from the E.U.,
which occurred on January 31, 2020. After a transition period that ended on December 31, 2020, the U.K. formally left the E.U. customs union and single
market on January 1, 2021. Although no tariffs were levied and no restrictive quotas were imposed on the flow of goods between the U.K and the E.U.,
there are various new customs and regulatory checks that must be followed, including rules of origin and local content requirements. Freedom of movement
between the U.K. and E.U. has ended, and temporary visas for work-related purposes have been reintroduced. While the full scope of implementation of
Brexit is still unclear, the Company may face significant regulatory and other changes and may incur additional costs and expenses as it adapts to
potentially divergent legal and regulatory frameworks. Because the Company’s U.K. subsidiary imports watches from other Company subsidiaries, Brexit
could potentially disrupt the Company’s ability to service the U.K. market. Any such disruption and uncertainty could affect the Company’s relationships
with customers, suppliers and employees, which could have an adverse effect on the Company’s results of operations and financial condition.
A significant portion of the Company’s business is conducted outside of the United States. Many factors affecting business activities outside the
United States could adversely impact this business.
Over 80% of the Company's products originate from Asia, with the vast majority coming from China. Substantially all of the remaining products originate
from Europe.
The Company also generates approximately 52.7% of its revenue from international sources.
12
Factors that could affect this business activity vary by region and market and generally include, without limitation:
•
•
•
•
•
•
•
•
instability or changes in social, political, public health and/or economic conditions that could disrupt the trade activity in the countries where the
Company’s manufacturers, suppliers and customers are located;
supply chain disruptions related to global, regional or local circumstance that fall outside of the Company's control;
the imposition of additional duties, taxes and other charges on imports and exports;
changes in foreign laws and regulations;
inflation and increases in commodity prices (including energy);
the adoption or expansion of trade sanctions;
recessions in foreign economies; and
a significant change in currency valuation in specific countries or markets.
For example, Russia’s recent invasion of Ukraine and the subsequent retaliatory measures taken by the U.S., NATO and other countries may negatively
impact our revenue to the extent the conflict and the sanctions significantly impact the economic conditions in or our ability to sell products to customers in
the affected region. In response to the invasion, the Company decided in March 2022 to suspend all sales to Russia and Belarus. In addition, the conflict
could have broader implications on economies outside the region, such as the global inflationary impact of a potential boycott of Russian oil and gas by
other countries. It is not possible to predict the broader consequences of this conflict, but the continuation or escalation of the conflict, along with any
expansion to surrounding areas, could have a significant effect on our results of operations.
The Company’s business is subject to foreign currency exchange rate risk.
A significant portion of the Company’s inventory purchases are denominated in Swiss Francs and, to a lesser extent, the Japanese Yen. The Company also
sells to third-party customers in a variety of foreign currencies, most notably the Euro and the British Pound. The Company reduces its exposure to the
Swiss Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rate risks through a hedging program. Under the hedging program, the
Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural
offsets. In the event these exposures do not offset, the Company has the ability under a hedging program to utilize forward exchange contracts and
purchased foreign currency options to mitigate foreign currency risk. If the Company does not utilize hedge instruments or if such instruments are
unsuccessful at minimizing the risk or are deemed ineffective, any fluctuation of the Swiss Franc, Euro, British Pound, Chinese Yuan, Hong Kong Dollar or
Japanese Yen exchange rates could impact the future results of operations. Changes in currency exchange rates may also affect relative prices at which the
Company and its foreign competitors sell products in the same market. Additionally, a portion of the Company’s net sales are recorded in its foreign
subsidiaries in a currency other than the local currency of that subsidiary. This predominantly occurs in the Company’s Hong Kong and Swiss subsidiaries
when they sell to Euro and British Pound based customers. The Company utilizes forward exchange contracts to mitigate this exposure. To the extent not
hedged, any fluctuation in the Euro and British Pound exchange rates in relation to the Hong Kong dollar and Swiss Franc would have an effect on these
sales that are recorded in Euros and British Pounds. The currency effect on these sales has an equal effect on their recorded gross profit since the costs of
these sales are recorded in the entities’ respective local currency. As a result of these and other foreign currency sales, certain of the Company’s subsidiaries
have outstanding foreign currency receivables. Furthermore, since the Company’s consolidated financial statements are presented in U.S. dollars, revenues,
income and expenses, as well as assets and liabilities of foreign currency denominated subsidiaries must be translated into U.S. dollars at exchange rates in
effect during or at the end of each reporting period. Fluctuations in foreign currency exchange rates could adversely affect the Company’s reported
revenues, earnings, financial position and the comparability of results of operations from period to period.
U.S. Special Tariffs or other restrictions placed on imports from China, and any retaliatory trade measures taken by China, may have a material
adverse impact on the Company’s financial condition and results of operations.
Starting in July 2018, the Trump Administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential
U.S. special tariffs of 10% to 25% of import value, in addition to the regular tariffs that have historically applied to such products. Certain of the
Company’s packaging products became subject to a U.S. special 10% tariff in September 2018, which was increased to 25% effective May 10, 2019. In
addition, all of the Company’s smart watches became subject to a U.S. special 15% tariff on September 1, 2019, and in a third-party ruling, U.S. Customs
and Border Patrol (“CBP”) originally took the position that this U.S. special 15% tariff applies broadly to China-sourced cases and bands on watches
assembled in China and other countries. CBP later revised its position to exclude China-sourced cases from the special tariff so long as the associated
watch movement was not sourced in China. Under CBP's current position, most of the bands used in the production of the Company’s traditional watches
imported into the
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U.S. became subject to the U.S. special 15% tariff effective September 1, 2019, although the tariff rate was decreased to 7.5% effective February 14, 2020
in connection with the “Phase One” trade agreement between the United States and China signed on January 15, 2020.
If the U.S. special tariffs were to increase, the Company may seek to raise prices for watches sold in the United States, which is the Company’s single
largest market, which could result in the loss of customers and harm its operating performance. Alternatively, the Company may seek to shift production
outside of China, resulting in significant costs and disruption to the Company’s operations and materially and adversely affecting its sales, costs and results
of operations. In addition, the Company’s business may be impacted by retaliatory trade measures taken by China or other countries in response to existing
or future tariffs, causing the Company to raise prices or make changes to its operations, any of which could materially harm its financial condition and
results of operations.
Risks Related to our Business
The Company’s wholesale business could be negatively affected by the consumer shift toward online shopping, as well as by further changes of
ownership, contraction and consolidation in the retail industry.
Consumers’ growing preference for purchasing products online may continue to reduce foot traffic at traditional retail stores and increase price competition
for the Company’s products, which could discourage traditional retailers from investing in sales support for those products. This could reduce consumer
demand for the Company’s products and thereby materially adversely affect the Company’s wholesale business. Stay-at-home orders and social distancing
practices resulting from the COVID-19 pandemic have accelerated the trend toward online purchases.
In addition, a large portion of the Company’s U.S. wholesale business is based on sales to major jewelry store chains and department stores. The retail
industry has experienced changes in ownership, contraction and consolidations. Future reorganizations, changes of ownership and consolidations could
further reduce the number of retail doors in which the Company’s products are sold and increase the concentration of sales among fewer national or large
regional retailers, which could materially adversely affect the Company’s wholesale business.
The Company faces intense competition in the worldwide watch industry not only from competitors selling traditional watches but also from those
selling smart watches and other smart wearables.
The watch industry is highly competitive and the Company competes globally with numerous manufacturers, importers, distributors and Internet-based
retailers, some of which are larger than the Company and have greater financial, distribution, advertising and marketing resources. The Company’s
products compete on the basis of price, features, brand image, design, perceived desirability and reliability. However, there can be no assurance that the
Company’s products will compete effectively in the future and, unless the Company remains competitive, its future results of operations and financial
condition could be adversely affected. The Company also faces increasing competition from companies introducing and selling smart wearable devices
including smart watches. Many of these companies have significantly greater financial, distribution, advertising and marketing resources than does the
Company. The sale of these new smart products could materially adversely impact the traditional watch market and the Company’s results of operations
and financial condition unless the Company is able to effectively compete in this new product area. The Company’s ability to successfully design, produce,
market and sell products which are competitive with smart watches and other similar wearables depends, among other things, on its ability to obtain and
maintain the necessary expertise in this area by enhancing its internal capabilities or by entering into and maintaining business relationships with third
parties that have such expertise. The Company may not be able to launch commercially successful smart watch models or other such products with
sufficient frequency to remain competitive or with the level of unit volumes needed to achieve viable economies of scale. Any of these events could have a
material adverse effect on the Company’s results of operations and financial condition or could result in the Company’s products not achieving market
acceptance or becoming obsolete.
The design, sourcing, marketing, distribution and after-sales servicing of smart watches involve additional challenges to those applicable to
traditional watches.
To the extent the Company elects to launch or maintain smart watch offerings, important differences in the way smart watches are designed, sourced,
marketed, distributed, and serviced as compared to traditional watches may make it more difficult to compete successfully in the smart watch market,
particularly for competitors such as the Company that do not have significant experience with similar consumer technology products. For example, smart
watches’ significant reliance on technology increases the risk of allegations of infringement on the intellectual property rights of others. Smart watch
product development entails greater fixed costs than those for traditional watches, which means that higher unit sales of smart watches are generally needed
in order to achieve reasonable gross margins. In addition, consumers may expect that smart watches, particularly the more expensive models, will for many
years continue to function and be compatible with the smartphone operating systems with which they were intended to interface, including future updates
to such operating systems. Since the Company has no control over such operating system updates, it cannot assure such
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continued compatibility. If the Company fails to meet consumers’ expectations regarding the long-term functioning of its smart watches, the Company may
suffer reputational damage that could adversely affect its business, results of operations and financial condition.
Maintaining favorable brand recognition is essential to the Company’s success, and failure to do so could materially and adversely affect the
Company’s results of operations.
Favorable brand recognition is an important factor to the future success of the Company. The Company sells its products under a variety of owned and
licensed brands. Factors affecting brand recognition are often outside the Company’s control, and the Company’s efforts to create or enhance favorable
brand recognition, such as making significant investments in marketing and advertising campaigns (including increased exposure through social media,
influencer messaging and other digital advertising channels), product design and anticipation of fashion trends, may not have their desired effects.
Additionally, the Company relies on its licensors to maintain favorable brand recognition of their respective brands, and the Company has little or no
control over the brand management efforts of its licensors. Finally, although the Company’s independent distributors are subject to contractual requirements
to protect the Company’s brands, it may be difficult to monitor or enforce such requirements, particularly in foreign jurisdictions.
Any decline in perceived favorable recognition of the Company’s owned or licensed brands and any negative response to social media, influencer or other
digital media campaigns could materially and adversely affect future results of operations and profitability. If the Company is unable to respond to changes
in consumer demands and fashion trends in a timely manner, sales and profitability could be adversely affected.
Fashion trends and consumer demands and tastes often shift quickly. The Company attempts to monitor these trends in order to adapt its product offerings
to suit customer demand. There is a risk that the Company will not properly perceive changes in trends or tastes, which may result in the failure to adapt the
Company’s products accordingly. In addition, new model designs are regularly introduced into the market for all brands to keep ahead of evolving fashion
trends as well as to initiate new trends. The public may not favor these new models or the models may not be ready for sale until after the trend has passed.
If the Company fails to respond to and keep up to date with fashion trends and consumer demands and tastes, its brand image, sales, profitability and results
of operations could be materially and adversely affected.
Regulatory restrictions and a changing marketing environment could materially and adversely affect the Company's ability to penetrate key
market segments, resulting in the loss of market share and revenue.
The Company utilizes various marketing service providers and technologies, including third-party cookies, pixels, and other automated means (“Third-
Party Cookies”), to provide a data-driven, personalized consumer experience. In April 2021, Apple released changes to its operating system asking users if
they want to opt-out of apps tracking them across the Internet. In January 2020, Google announced plans to phase out Third-Party Cookies on Chrome, the
most-used desktop browser, in 2022. In June 2021, Google announced that these plans would be delayed until mid-2023 as Google continues to work with
regulators to identify new technologies to replace Third-Party Cookies. Other web browsers have begun implementing certain cookie-blocking measures.
This shift to a “cookieless future” is changing how the Company markets to and engages with consumers. If the Company’s adjustments are delayed or are
not as effective as current advertising and marketing strategies, the Company’s conversion rate may be adversely affected, brand recognition may decline,
market share may be negatively impacted, and sales, profitability and results of operations could be materially and adversely affected. In addition, a small
number of large digital advertising companies control a majority of the digital advertising market in many countries, and continued consolidation in the
industry could further increase those companies' market share. Digital advertising has become more expensive in recent years and further industry
consolidation could accelerate this trend. Increased advertising costs could materially and adversely affect the Company's profitability and results of
operations.
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If the Company loses any of its license agreements, there may be significant loss of revenues and a negative effect on business.
The Company currently has the right to produce, market and distribute watches and, in certain cases, jewelry, under the brand names of Coach, Tommy
Hilfiger, Hugo Boss, Lacoste, Calvin Klein and, through June 30, 2022, Scuderia Ferrari pursuant to license agreements with the respective owners of those
trademarks. There are certain minimum royalty payments as well as other requirements associated with the Company’s license agreements. Failure to meet
any of these requirements could result in the loss of the license. Additionally, after the term of any license agreement has concluded, the licensor may
decide not to renew with the Company. The Company's current license with the owner of the Lacoste brand expires on December 31, 2022. While the
Company is in the process of renewing that license, there can be no assurance that the Company will be able to execute an extension before the expiration
date. For the fiscal year ended January 31, 2022, the Company's licensed brands represented 50.3% of the Company’s net sales. While the Company is not
substantially dependent on any one licensed brand, the loss of a single licensed brand could have a material adverse effect on the Company’s results of
operations and financial condition. In addition, the Company’s revenues and profitability under its various license agreements may change from period to
period due to various factors, including the maturity of the Company's relationship with the respective licensor, changes in consumer preferences, brand
repositioning activities and other factors, some of which are outside of the Company's control.
Changes in the sales or channel mix of the Company’s products could impact gross profit margins.
The individual brands that are sold by the Company are sold at a wide range of price points and yield a variety of gross profit margins. In addition, sales of
excess and/or discontinued inventory into liquidation channels generate a lower gross profit margin than non-liquidation sales. Thus, the mix of sales by
brand as well as by distribution channel can have an impact on the gross profit margins of the Company. If the Company’s sales mix shifts unfavorably
toward brands with lower gross profit margins than the Company’s historical consolidated gross profit margin or if a greater proportion of liquidation sales
are made, it could have an adverse effect on the results of operations.
The Company’s business is seasonal, so events and circumstances that adversely affect holiday consumer spending will have a disproportionately
adverse effect on the Company’s results of operations.
The Company’s sales are seasonal by nature. The Company’s U.S. sales are traditionally greater during the Christmas and holiday season. Internationally,
major selling seasons center on significant local holidays that occur in late winter or early spring. The amount of net sales and operating income generated
during these seasons depends upon the general level of retail sales at such times, as well as economic conditions and other factors beyond the Company’s
control. The second half of each of the fiscal years ended January 31, 2022, 2021 and 2020 accounted for 57.9%, 68.8% and 56.6% of the Company’s net
sales, respectively. The first half of fiscal year 2021 was significantly negatively impacted by the COVID-19 pandemic. If events or circumstances were to
occur that negatively impact consumer spending during such holiday seasons, it could have a material adverse effect on the Company’s sales, profitability
and results of operations.
Sales in the Company’s retail outlet locations are dependent upon customer foot traffic.
The success of the Company’s retail outlet locations is, to a certain extent, dependent upon the amount of customer foot traffic generated by the outlet
centers in which those stores are located.
Factors that can affect customer foot traffic include:
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changes in consumer discretionary spending;
the location of the outlet center;
the location of the Company’s store within the outlet center;
the other tenants in the outlet center;
the occupancy rate of the outlet center;
the success of the outlet center and tenant advertising to attract customers;
changes in competition in areas surrounding the outlet center;
increased competition from shopping over the internet and other alternatives such as mail-order; and
desirability of the Company’s brands and products.
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Additionally, since most of the Company’s retail outlets are located near vacation destinations, factors that affect travel could decrease outlet center traffic.
Such factors include the price and supply of fuel, travel concerns and restrictions (including those due to disease outbreaks), international instability,
terrorism and inclement weather. For example, the COVID-19 pandemic led to travel restrictions and a reduction in voluntary travel. As a result, the
Company experienced temporary closures of all of its retail outlets for portions of fiscal 2021. Such closures adversely affected our results of operations.
Future closures of the Company’s retail stores or reductions in foot traffic could have a material adverse effect on retail sales and the profitability of the
Company Stores segment.
If the Company is unable to maintain existing space or to lease new space for its retail outlets in prime outlet center locations or is unable to
complete construction on a timely basis, the Company’s ability to achieve favorable results in its retail business could be adversely affected.
The Company’s outlet stores are strategically located in top outlet centers in the United States and Canada, most of which are located near vacation
destinations. Due to significant industry consolidation in recent years, the remaining outlet center operators use their significant market power to increase
rents in prime locations when existing leases are renewed or new leases are executed.
If the Company cannot maintain and secure locations in prime outlet centers for its outlet stores on acceptable lease terms, it could jeopardize the
operations of the stores and business plans for the future. Additionally, if the Company cannot complete construction in new stores within the planned
timeframes, cost overruns and lost revenue could adversely affect the profitability of the Company Stores segment.
The Company’s e-commerce business is subject to numerous risks that could have an adverse effect on the Company’s business and results of
operations.
Although sales through the Company’s e-commerce channels have constituted a minority of its net sales historically, such sales are growing quickly, and
the Company expects to continue to grow its e-commerce business in the future. Though direct-to-consumer sales generally have higher profit margins and
provide the Company with useful insight into the impact of its marketing campaigns, further development of the Company’s e-commerce business also
subjects the Company to a number of risks. The Company’s online sales may negatively impact the Company’s relationships with wholesale customers and
distributors and their willingness to invest in the Company’s brands if they perceive that the Company is competing with them. In addition, the Company's
sales via major online marketplaces have grown significantly in recent years, and these sales could be adversely impacted by changes in the marketplace
operators' strategies regarding the sale of the Company's products or product categories. There also is a risk that the Company’s e-commerce business may
divert sales from the Company’s own brick and mortar stores. The Company’s failure to successfully respond to these risks might adversely affect sales in
the Company’s e-commerce business as well as damage its reputation and brands.
In addition, online commerce is subject to increasing regulation by states, the U.S. federal government, and various foreign jurisdictions. Compliance with
these laws may increase the Company’s costs of doing business, and the Company’s failure to comply with these laws may subject the Company to
potential fines, claims for damages and other remedies, any of which would have an adverse effect on the Company’s financial condition and results of
operations.
If the technology-based systems that give the Company’s customers the ability to shop online do not function effectively, the Company’s operating
results could be materially adversely affected.
Customers shop with the Company through its online platforms. Increasingly, customers use mobile devices to shop online and to do comparison shopping.
The Company is increasingly using social media and proprietary mobile applications to interact with the Company’s customers and as a means to enhance
their shopping experience. Any failure on the Company’s part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer a wide
assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place the Company at
a competitive disadvantage, result in the loss of e-commerce and other sales, harm the Company’s reputation with customers, and have a material adverse
impact on the growth of the Company’s e-commerce business globally and its results of operations.
Furthermore, the Company’s e-commerce operations subject the Company to risks related to the computer systems that operate the Company’s websites
and related support systems, such as system failures, viruses, computer hackers and similar disruptions. If the Company is unable to continually add
software and hardware, effectively upgrade its systems and network infrastructure and take other steps to improve the efficiency of its systems, system
interruptions or delays could occur that adversely affect the Company’s operating results and harm the Company’s brands. The Company depends on its
technology vendors to manage “up time” of the front-end e-commerce stores, manage the intake of orders, and export orders for fulfillment. Any failure on
the part of the Company’s third-party e-commerce vendors or in the Company’s ability to transition third-party services effectively could result in lost sales
and harm the Company’s brands.
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Environmental factors, including climate change, and related regulatory action and consumer response, could substantially and negatively affect
the Company's financial results.
The intensifying effects of climate change present physical, liability, and transition risks with both macro and micro implications for companies and
financial markets. Public sentiment is shifting, as more consumers expect the products they buy to be more sustainable. Extreme weather events may cause
shipping delays, result in property damage, and affect supply chains. As countries seek to address risks associated with climate change, laws and
regulations may be adopted or strengthened. The Company’s failure to identify climate and other environmental risks, to mitigate these risks, or to meet
consumer expectations regarding sustainability may adversely affect the Company’s ability to attract and retain top talent, negatively impact the Company’s
and its brands’ reputation and consumer loyalty, disrupt the Company’s supply chain, and result in lost sales. In addition, implementing changes to mitigate
these risks may result in substantial short and long-term additional operational expenses, which may materially affect the Company’s profitability.
If the Company misjudges the demand for its products, high inventory levels could adversely affect future operating results and profitability.
Consumer demand for the Company’s products can affect inventory levels. If consumer demand is lower than expected, inventory levels can rise causing a
strain on operating cash flows. If the inventory cannot be sold through the Company’s wholesale channel or retail outlet locations, additional write-downs
or write-offs to future earnings could be necessary. Conversely, if consumer demand is higher than expected, insufficient inventory levels could result in
unfilled customer orders, loss of revenue and an unfavorable impact on customer relationships. In particular, volatility and uncertainty related to macro-
economic factors make it difficult for the Company to forecast customer demand in its various markets. Failure to properly judge consumer demand and
properly manage inventory could have a material adverse effect on profitability and liquidity.
If the Company were to lose its relationship with any of its key customers or distributors or any of such customers or distributors were to
experience financial difficulties, there may be a significant loss of revenue and operating results.
The Company’s customer base covers a wide range of distribution including national jewelry store chains, department stores, independent regional
jewelers, online marketplaces, licensors’ retail stores and a network of independent distributors in many countries throughout the world. Except for its
agreements with independent distributors, the Company does not have long-term sales contracts with its customers. Customer purchasing decisions could
vary with each selling season. A material change in customers’ purchasing decisions could have an adverse effect on the Company’s revenue and operating
results.
The Company extends credit to its customers based on an evaluation of each customer’s financial condition, usually without requiring collateral. Should
any of the Company’s larger customers experience financial difficulties, it could result in the Company curtailing business with them, an increased rate of
product returns or an increase in the Company’s accounts receivable exposure. The inability to collect on these receivables could have an adverse effect on
the Company’s financial results and cash flows.
In many countries, independent distributors are entitled to seek compensation from the entity that granted them distribution rights upon termination of the
parties’ contractual relationship. Such compensation can equal or exceed one year’s worth of the distributor’s profits attributable to the distribution of the
relevant goods. Although the Company generally renews its agreements with most of its distributors at the end of the then-current contractual term, if the
Company elects not to renew its distribution agreements with large distributors or with multiple smaller distributors, it may be required to make material
termination payments to such distributors, which would have an adverse effect on its operating results.
The inability or difficulty of the Company’s customers, suppliers and business partners to obtain credit could materially and adversely affect its
results of operations and liquidity.
Many of the Company’s customers, suppliers and business partners rely on a stable, liquid and well-functioning financial system to fund their operations,
and a disruption in their ability to access liquidity could cause serious disruptions to or an overall deterioration of their businesses which could impair their
ability to meet their obligations to the Company, including delivering product ordered by the Company and placing or paying for future orders of the
Company’s products, any of which could have a material adverse effect on the Company’s results of operations and liquidity. The current tightening of
monetary policies of countries throughout the world in response to inflationary pressures could result in interest rate increases and reduced availability of
credit.
An increase in product returns could negatively impact the Company’s operating results and profitability.
The Company permits the return of damaged or defective products and accepts limited amounts of non-defective product returns in certain instances.
Accordingly, the Company provides allowances for the estimated amounts of these returns at the time of revenue recognition based on historical
experience. While such returns have historically been relatively consistent with management’s
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expectations and the provisions established, future return rates may differ from those experienced in the past, in particular with respect to smart watches.
Any significant increase in damaged or defective products or expected returns could have a material adverse effect on the Company’s operating results for
the period or periods in which such returns materialize.
The Company relies on independent parties to manufacture its products. Any loss of an independent manufacturer, or the Company’s inability to
deliver quality goods in a timely manner, could have an adverse effect on customer relations, brand image, net sales and results of operations.
The Company employs a flexible manufacturing model that relies on independent manufacturers to meet shifts in marketplace demand. Most of these
manufacturers rely on third-party suppliers for the various component parts needed to assemble finished watches sold to the Company. All such
independent manufacturers and suppliers must achieve and maintain the Company’s high-quality standards and specifications. Their inability to do so could
cause the Company to miss committed delivery dates with customers, which could result in cancellation of the customers’ orders. In addition, delays in
delivery of satisfactory products could have a material adverse effect on the Company’s profitability, particularly during the fourth quarter. The Company
generally does not have long-term supply commitments with its manufacturers and thus competes for production facilities with other organizations, some
of which are larger and have greater resources. Any loss of an independent manufacturer or disruption in the supply chain with respect to critical
component parts may result in the Company’s inability to deliver quality goods in a timely manner and could have an adverse effect on customer relations,
brand image, net sales and results of operations.
The Company contractually obligates its independent manufacturers to adhere to the Company’s vendor code of conduct and similar codes of conduct
adopted by the Company’s trademark licensors, and the Company monitors compliance with those codes by conducting periodic factory audits. There can
be no assurance, however, that all of the Company’s manufacturers and licensors will consistently comply with labor and other laws and operate in
accordance with ethical standards. Deviations from these laws and standards could interrupt the shipment of finished products and damage the Company’s
reputation and could have a material adverse effect on the Company’s financial condition and results of operations.
Interruptions at any of the Company’s major warehouse and distribution centers could materially adversely affect its business.
The Company operates one distribution facility in New Jersey that is responsible for importing and warehousing products as well as fulfilling and shipping
most orders by the Company’s customers in the United States, Canada and the Caribbean and by many of the Company’s customers in Latin America. The
Company operates a smaller, similar facility in Bienne, Switzerland for the distribution of its Swiss watch brands throughout Europe and the Middle East.
In addition, the Company has contracted with third-party warehouse and fulfillment providers as follows: in the Netherlands for the distribution of its
licensed brands in Europe; in Hong Kong for the distribution of its licensed brands in Asia; in the U.K. for the distribution of a significant portion of Olivia
Burton brand sales; in Mexico for the distribution of the Company’s products to customers in that country; and in the State of Kentucky for the distribution
of MVMT brand products directly to consumers primarily in the United States. The complete or partial loss or temporary shutdown of any of the
Company’s or third-parties’ warehouse and distribution facilities (including as a result of fire or other casualty or labor or other disturbances) could have a
material adverse effect on the Company’s business. In addition, the Company’s New Jersey warehouse and distribution facility is operated in a special
purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board and is highly regulated by U.S. Customs and Border
Protection, which, under certain circumstances, has the right to shut down the entire sub-zone and, therefore, the entire warehouse and distribution facility.
If that were to occur, the Company’s ability to fill orders for its U.S., Canadian, Latin American and Caribbean customers would be significantly impacted,
which could have a material adverse effect on the Company’s results of operations and financial condition.
Fluctuations in the pricing of commodities or the cost of labor could adversely affect the Company’s ability to produce products at favorable
prices.
Some of the Company’s higher-end watch offerings are made with materials such as diamonds, precious metals and gold. The Company relies on
independent contractors to manufacture and assemble its watch brands. A significant change in the prices of these commodities or the cost of third-party
labor could materially adversely affect the Company’s business by reducing gross profit margins and/or forcing an increase in suggested retail prices, which
could lead to a decrease in consumer demand and higher inventory levels.
Current or future cost reduction, streamlining, restructuring or business optimization initiatives could result in the Company incurring significant
charges.
In adapting to changing economic and industry conditions, the Company may be required to incur severance and relocation expenses, write-offs or write-
downs of assets, impairment charges, facilities closure costs or other business optimization costs. These costs will reduce the Company’s operating income
and net income (along with the associated per share measures) and could have a material adverse effect on the Company’s results of operations.
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The Company depends on its information systems to run its business and any significant breach of or disruption to those systems could materially
disrupt the Company’s business.
The Company relies on its information systems to operate all aspects of its business, including, without limitation, order processing, inventory and supply
chain management, customer communications, purchasing and financial reporting. Although the Company attempts to take reasonable steps to mitigate the
risks to its computer hardware and software systems, including such measures as the use of firewalls, automatically expiring passwords, encryption
technology and periodic vulnerability tests, no system can be completely secure, particularly given the increasing threat posed by computer hackers and
cyber terrorists. These risks may increase as the Company continues to expand its reliance on cloud services. The Company’s information systems could
experience system failures, viruses, security breaches, power outages, network and telecommunications failures, usage errors by our employees, or other
events which could disable or significantly impair the systems’ functionality. Additionally, the Company’s systems may fail to operate properly or
effectively, experience problems transitioning to upgraded or replacement systems or difficulties in integrating new systems. Any material disruption or
slowdown of the Company’s information systems could result in the loss of critical data, the inability to process and properly record transactions and the
material impairment of the Company’s ability to conduct business, leading to cancelled orders and lost sales. In addition, the Company’s e-commerce
business is vulnerable to additional risks associated with the Internet, including changes in required technology interfaces, website downtime and other
technical failures, security breaches and consumer privacy concerns. A breach and loss of data could also subject the Company to liability to its customers
or suppliers and could also cause competitive harm if sensitive information is publicized. In the event the Company is not successful in responding to these
risks and uncertainties, its online sales may decline, the associated costs with its e-commerce activity may increase and its reputation may be damaged.
Although the Company maintains an information security risk insurance policy to address many of these risks, such policy may not suffice to prevent a
cyber-incident from resulting in a material adverse effect on our business, financial condition and operating results due to various policy limitations and
exclusions.
If the Company is unable to successfully implement its growth strategies, its future operating results could suffer.
There are risks associated with the Company’s expansion through acquisitions, license agreements, joint ventures and similar initiatives. New brands may
not complement the brands in the Company’s existing portfolio and may not be viewed favorably by the consuming public. In addition, the integration of a
new business or licensed brand into the Company’s existing business can strain the Company’s resources and infrastructure, and there can be no assurance
that the integration will be successful or generate sales increases. The inability to successfully implement its growth strategies could adversely affect the
Company’s future financial condition and results of operations.
Acquisitions inherently involve significant risks and uncertainties.
We continually review acquisition opportunities that will enhance our market position, expand our product lines and provide synergies. Any of the
following risks associated with our past acquisitions or future acquisitions, individually or in aggregate, may have a material adverse effect on our business,
financial condition and operating results:
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difficulties in realizing anticipated financial or strategic benefits of such acquisition;
diversion of capital from other uses and potential dilution of stockholder ownership;
risks related to increased indebtedness;
significant capital and other expenditures may be required to integrate the acquired business into our operations;
disruption of our ongoing business or the ongoing acquired business, including impairment or loss of existing relationships with our employees,
distributors, suppliers or customers or those of the acquired companies;
diversion of management’s attention and other resources from current operations, including potential strain on financial and managerial controls
and reporting systems and procedures;
difficulty in integrating acquired operations, including restructuring and realigning activities, personnel, technologies and products;
assumption of known and unknown liabilities, some of which may be difficult or impossible to quantify; and
non-cash impairment charges or other accounting charges relating to the acquired assets.
Impairment charges could have an adverse impact on our results of operations.
We are required to test property plant and equipment and other long-lived assets for impairment as facts and circumstances warrant. Such long-lived assets
include significant minority investments by the Company in early-stage growth companies and venture capital funds that invest in such companies, which
investments are highly unpredictable. Impairment may result from any number of factors, including adverse changes in assumptions used for valuation
purposes, such as actual or projected net sales, growth rates, profitability
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or discount rates, or other variables. If testing indicates that impairment has occurred, we are required to record a non-cash impairment charge. Should the
value of our finite-lived intangible assets, property, plant and equipment and other long-lived assets become impaired, it could have a material adverse
effect on our results of operations.
The loss or infringement of the Company’s trademarks or other intellectual property rights could have an adverse effect on future results of
operations.
The Company’s trademarks and other intellectual property rights are vital to the competitiveness and success of its business and it therefore takes actions to
register and protect them. Such actions may not be adequate to prevent imitation of the Company’s products or infringement of its intellectual property
rights, or to assure that others will not challenge the Company’s rights, or that such rights will be successfully defended. Moreover, the laws of some
foreign countries, including some in which the Company sells its products, do not protect intellectual property rights to the same extent as do the laws of
the United States, which could make it more difficult to successfully defend such challenges to them. The Company’s inability to obtain or maintain rights
in its trademarks, or the inability of the Company’s licensors to obtain or maintain rights in their trademarks, could have an adverse effect on brand image
and future results of operations.
Changes to laws or regulations impacting the industries in which the Company operates could require it to alter its business practices which could
have a material adverse effect on its results of operations.
The Company conducts business, either directly or indirectly, in numerous countries and accordingly is subject to a multitude of legal requirements
impacting the industries in which it operates. Changes to existing laws and regulations or new laws and regulations could impose new requirements and
additional costs on the Company and its suppliers, making the Company’s products more costly to produce, forcing the Company to change its existing
business practices. Any resulting costs increases could place the Company at a competitive disadvantage as compared to other watch brands and sales of its
products could decline, adversely affecting its financial condition and results of operations.
Changes to tax laws or regulations could have a material adverse effect on the Company’s financial condition and results of operations.
Changes in U.S. federal, state and international tax laws and regulations, including changes suggested by the new U.S. presidential administration, could
have an adverse impact on our tax liabilities and effective tax rate. In addition, the overall tax environment has made it increasingly challenging for
multinational corporations to operate with certainty around taxation in many jurisdictions. For example, the Organization for Economic Cooperation and
Development, which represents a coalition of western countries, is supporting changes to numerous long-standing tax principles through its base erosion
and profit shifting project, which is focused on a number of issues, including the shifting of profits among affiliated entities located in different tax
jurisdictions. Furthermore, a number of countries where the Company does business, including many European countries, are considering changes in
relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to multinational corporations. Foreign
countries may decide to enact tax laws that may negatively affect the Company’s foreign tax liabilities in response to any real or perceived negative effects
of the U.S. tax changes on their countries, and/or states or local governments may decide to enact additional tax laws that may increase tax liabilities for
companies doing business in those jurisdictions as they see opportunities to capitalize on the reduction in the federal corporate tax rate. Finally, while the
Company believes its tax positions are consistent with the tax laws in the jurisdictions in which the Company conducts business, the final outcome of tax
audits or disputes could result in adjustments to the Company’s tax liabilities which could have a material adverse effect on the Company’s effective tax
rate, results of operations, cash flows and financial condition.
The Company is subject to complex and evolving laws and regulations regarding privacy and data protection that could result in legal claims,
changes to business practices and increased costs that could materially and adversely affect the Company’s results of operations.
The Company is subject to a variety of U.S and foreign laws and regulations governing privacy and data protection. The shift in our business toward e-
commerce, and the expansion of our business in certain jurisdictions, and our greater reliance on cloud services may subject us to additional such laws and
regulations. These U.S. federal and state and foreign laws and regulations are evolving, and the restrictions imposed thereby may increase and are not
always clear. There are currently a number of proposals pending before federal, state, and foreign legislative and regulatory bodies that may increase
restrictions relating to the receipt, transfer and processing of personal data. In addition, foreign court decisions and regulatory actions could impact our
ability to receive, transfer and process personal data relating to our employees and direct and indirect customers. For example, in June 2021, the European
Commission adopted new standard contractual clauses (“SCCs”) for the transfer of personal data to non-EU countries whose data privacy regimes have not
been deemed adequate, including the Unites States. The UK Information Commissioner’s Office is in the process of finalizing UK equivalents
21
to the European SCCs. The Company is in the process of updating its data map to comply with these requirements, a process that is complex and
complicated by rapidly evolving and expanding cloud services and solutions. These and other existing and proposed privacy and data protection laws and
regulations around the world result and may continue to result in significant compliance risks, operating costs, diverted resources from other initiatives and
projects, marketing restrictions, limitations on service offerings, and negative publicity for the Company and may subject it to remedies that may harm its
business, including fines, regulatory penalties, orders to modify or cease existing business practices, and significant legal liability. Any of the foregoing
could materially adversely affect the Company’s results of operations and financial condition.
If the Company were to experience a significant privacy breach, it could be subject to costly government enforcement actions and private
litigation and suffer significant negative publicity which could materially and adversely affect the Company’s results of operations.
As part of the normal course of business the Company is involved in the receipt and storage of electronic information about customers and employees, as
well as proprietary financial and non-financial data. Practices regarding the collection, use, storage, transmission and security of personal information by
companies operating over the internet and mobile platforms have recently been subject to increased public scrutiny. Although the Company believes it has
taken reasonable and appropriate actions to protect the security of this information, if the Company were to experience a security breach, acts of vandalism,
computer viruses, misplaced or lost data, programming and/or human errors or other similar events, it could result in government enforcement actions and
private litigation, attract a substantial amount of media attention, and damage the Company’s reputation and its relationships with its customers and
employees, materially adversely affecting the Company’s sales and results of operations. This risk has increased with the sale of the Company’s smart
watches, which collect and transmit personal data about the consumers who purchase and use them, and with the Company’s increased focus on direct-to-
consumer sales.
From time to time the Company is subject to legal proceedings that could result in significant expenses, fines and reputational damage.
The Company is involved in legal proceedings and other disputes from time to time, including those involving consumers, employees and contractual
counterparties, as well as governmental audits and investigations. The most significant of these proceedings are described in Item 3 “Legal Proceedings” of
this report. The Company cannot predict the ultimate outcome of legal disputes. The Company could in the future be required to pay significant amounts as
a result of settlements, judgments or fines in these matters, potentially in excess of accruals. The resolution of, or increase in accruals for, one or more of
these matters could have a material adverse effect on the Company's results of operations and cash flows.
If the Company were to lose key members of management or be unable to attract and retain the talent required for the business, operating results
could suffer.
The Company’s ability to execute key operating initiatives as well as to deliver product and marketing concepts appealing to target consumers depends
largely on the efforts and abilities of key executives and senior management’s competencies. The unexpected loss of one or more of these individuals could
have an adverse effect on the future business. The Company cannot guarantee that it will be able to attract and retain the talent and skills needed in the
future.
If the Company cannot secure and maintain financing and credit on favorable terms, the Company’s financial condition and results of operations
may be materially adversely affected.
Credit and equity markets remain sensitive to world events and macro-economic developments. Therefore, the Company’s cost of borrowing may increase
and it may be more difficult to obtain financing for the Company’s operations or to refinance long-term obligations as they become payable. In addition, the
Company’s borrowing costs can be affected by independent rating agencies’ short and long-term debt ratings which are based largely on the Company’s
performance as measured by credit metrics including interest coverage and leverage ratios. A decrease in these ratings would likely also increase the
Company’s cost of borrowing and make it more difficult for it to obtain financing. A significant increase in the costs that the Company incurs to finance its
operations may have a material adverse impact on its business results and financial condition. In addition, any failure by the Company to comply with the
various covenants contained in its corporate credit facility, including financial maintenance covenants, could result in the termination of the facility and the
acceleration of the Company’s repayment obligations thereunder, which could have a material adverse effect on the Company’s financial condition and
liquidity.
22
Risks Related to an Investment in our Common Stock
The Grinberg family owns a majority of the voting power of the Company’s stock.
Each share of common stock of the Company is entitled to one vote per share while each share of class A common stock of the Company is entitled to ten
votes per share. While the members of the Grinberg family do not own a majority of the Company’s outstanding common stock, by their significant
holdings of class A common stock they control a majority of the voting power represented by all outstanding shares of both classes of stock. Consequently,
the Grinberg family is in a position to determine or significantly influence any matters that are brought to a vote of the shareholders including, but not
limited to, the election of the Board of Directors, any amendments to the Company’s certificate of incorporation, mergers or sales of all or substantially all
of the Company’s assets. This concentration of ownership also may delay, defer or even prevent a change in control of the Company and make some
transactions more difficult or impossible without the support of the Grinberg family. These transactions might include proxy contests, tender offers,
mergers or other purchases of shares of common stock that could give stockholders the opportunity to realize a premium over the then-prevailing market
price for shares of the Company’s common stock.
The Company’s stock price could fluctuate and possibly decline due to changes in revenue, operating results and cash flows.
The Company’s revenue, results of operations and cash flows can be affected by several factors, some of which are not within its control. Those factors
include, but are not limited to, those described as risk factors in this Item 1A. and under “Forward-Looking Statements” on page 1.
Any or all of these factors could cause a decline in revenues or an increase in expenses, either of which would have an adverse effect on the results of
operations. If the Company’s earnings failed to meet the expectations of the investing public in any given period, the Company’s stock price could fluctuate
and decline.
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
The Company leases various facilities in North America, Europe, the Middle East and Asia for its corporate, watch assembly, distribution and sales
operations. As of January 31, 2022, the Company’s leased facilities individually comprising more than 20,000 square feet were as follows:
Location
Moonachie, New Jersey
Paramus, New Jersey
Hong Kong
Bienne, Switzerland
Bienne, Switzerland
Function
Watch distribution and repair
Executive offices
Watch distribution
Corporate functions and watch sales
Watch distribution, assembly and repair
Square
Footage
100,000
90,100
44,800
31,700
20,700
Lease
Expiration
February 2025
June 2030
April 2024
June 2023
October 2022
The foregoing facilities, as well as 16 additional leased facilities worldwide averaging approximately 5,000 square feet, are used exclusively in connection
with the Watch and Accessory Brands segment of the Company’s business except that a portion of the Company’s executive office space in Paramus, New
Jersey is used in connection with management of its retail business.
Since acquiring Ebel in 2004, the Company owns an architecturally significant building in La Chaux-de-Fonds, Switzerland.
The Company also leases retail space averaging 1,700 square feet per store with leases expiring with various dates through October 2031 for the operation
of the Company’s 51 retail outlet locations.
The Company believes that its existing facilities are suitable and adequate for its current operations.
Item 3. Legal Proceedings
The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in
accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance
sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of,
such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the
Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result
that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a
statement that such an estimate cannot be made.
In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to
allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the
reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply $5.1 million in underpaid duties
over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative
duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. Since February
2017, the Company has been providing U.S. Customs with supplemental analyses and information in response to U.S. Customs’ information requests. Most
recently, the Company received summonses from U.S. Customs in December 2020 requesting additional information regarding component parts costs and
the Company’s procedures for allocating the value of imported watches among the component parts. The Company responded to these summonses in
January 2021. Although the Company disagrees with U.S. Customs’ position and believes that the information it has provided supports the reasonableness
of its historical allocation formulas, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S.
Customs to reach a mutually-satisfactory resolution.
Starting in July 2018, the Trump administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential
U.S. special tariffs, including watches. U.S. Customs subsequently issued various rulings regarding, among other things, the application of the special
tariffs to China-sourced components of watches containing non-Chinese movements. A U.S. Customs ruling effective August 1, 2021 holds that while the
special tariff applies to all China-sourced watch bands, the special tariff does not apply to China-sourced watch cases imported as part of a watch
containing a non-Chinese movement. Pending greater clarity on the retroactive effect of this ruling, for the time being the Company continues to maintain
an accrual for Chinese watch case imports prior to August 1, 2021.
24
In addition to the above matters, the Company is involved in other legal proceedings and contingencies, the resolution of which is not expected to
materially affect its financial condition, future results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
25
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of March 21, 2022, there were 45 holders of record of the Company’s class A common stock and 308 holders of record of the Company’s common
stock (including nominee holders such as banks and brokerage firms who hold shares for beneficial owners), although we believe that the number of
beneficial owners is much higher. The Company’s common stock is traded on the New York Stock Exchange under the symbol “MOV” and on March 21,
2022, the closing price of the Company’s common stock was $35.87. Each share of common stock is entitled to one vote per share and 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 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.
During each quarter of fiscal 2022, the Company declared cash dividends on its common stock and class A common stock. Although the Company
currently expects to continue to declare cash dividends in the future, the decision as to whether to declare any future cash dividend, including the amount of
any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board of Directors, in its sole discretion.
For dividends declared and paid during fiscal 2022, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
On March 25, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to $25.0 million of its
outstanding common stock from time to time through September 30, 2022, depending on market conditions, share price and other factors. On November
23, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to an additional $50.0 million of its
outstanding common stock from time to time through November 23, 2024, depending on market conditions, share price and other factors. Under both
current share repurchase programs, the Company is permitted to purchase shares of its common stock through open market purchases, repurchase plans,
block trades or otherwise. During the fiscal year ended January 31, 2022, the Company repurchased a total of 686,559 shares of its common stock at a total
cost of $22.6 million, or an average of $32.92 per share.
At the election of an employee, upon the vesting of a stock award or the exercise of a stock option, shares of common stock having an aggregate value on
the vesting of the award or the exercise date of the option, as the case may be, equal to the employee’s withholding tax obligation may be surrendered to the
Company by netting them from the vested shares issued. Similarly, shares having an aggregate value equal to the exercise price of an option may be
tendered to the Company in payment of the option exercise price and netted from the shares of common stock issued upon the option exercise. An
aggregate of 87,828 shares were repurchased during the fiscal year ended January 31, 2022 as a result of the surrender of shares of common stock in
connection with the vesting of certain restricted stock awards and stock options.
The following table summarizes information about the Company’s purchases of shares of its common stock in the fourth quarter of fiscal 2022.
Issuer Repurchase of Equity Securities
Period
November 1, 2021 – November 30, 2021
December 1, 2021 – December 31, 2021
January 1, 2022 – January 31, 2022
Total
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Amount
that May Yet Be
Purchased Under
the Plans or
Programs
20,958 $
91,262
59,045
171,265 $
44.14
40.98
40.53
41.21
5,256 $
73,856
59,045
138,157 $
57,800,681
54,793,843
52,400,746
52,400,746
26
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total shareholder return of the Company’s shares of common stock for the last five fiscal
years through the fiscal year ended January 31, 2022 with that of the S&P SmallCap 600 Index, the Broad Market (NYSE Stock Market – U.S. Companies)
and the Russell 2000 Index. Each index assumes an initial investment of $100 on January 31, 2017 and the reinvestment of dividends (where applicable).
Company Name / Index
Movado Group, Inc.
S&P SmallCap 600 Index
NYSE (U.S. Companies)
Russell 2000 Index
Item 6. [Reserved].
Comparison of Cumulative Five Year Total Return $250 $200 $150 $100 $50 $0 01/31/16 01/31/17 01/31/18 01/31/19 01/31/20 01/31/21 Movado Group, Inc. S&P SmallCap 600 Index NYSE Composite Index Russell 2000 Index
1/31/17
1/31/18
1/31/19
1/31/20
1/31/21
1/31/22
100.00
100.00
100.00
100.00
115.03
116.56
122.07
117.18
122.47
115.11
115.21
113.05
68.21
122.67
130.84
123.47
82.23
151.11
141.76
160.72
151.38
167.20
167.51
158.78
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Net Sales
The Company operates and manages its business in two principal business segments: Watch and Accessory Brands and Company Stores. The Company
also operates in two geographic locations: United States and International.
The Company divides its watch and accessory business into two principal categories: the owned brands category and the licensed brands category. The
owned brands category consists of the Movado®, Concord®, Ebel®, Olivia Burton® and MVMT® brands. Products in the licensed brands category
include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, Tommy Hilfiger®, Hugo
Boss®, Lacoste®, Calvin Klein® and Scuderia Ferrari®.
The primary factors that influence annual sales are general economic conditions in the Company’s U.S. and international markets, new product
introductions, the level and effectiveness of advertising and marketing expenditures and product pricing decisions.
52.7% of the Company’s total sales are from international markets (see Note 20 to the Consolidated Financial Statements), and therefore reported sales
made in those markets are affected by foreign exchange rates. The Company’s international sales are primarily billed in local currencies (predominantly
Euros, British Pounds and Swiss Francs) and translated to U.S. dollars at average exchange rates for financial reporting purposes.
The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all other
non-U.S. Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in
Europe, the Middle East, the Americas (excluding the United States), and Asia account for 33.9%, 7.8%, 6.5% and 4.5%, respectively, of the Company’s
total net sales for fiscal 2022. A vast majority of the Company’s tangible International assets are owned by the Company’s Swiss and Hong Kong
subsidiaries.
The Company’s business is seasonal. There are two major selling seasons in the Company’s markets: the spring season, which includes school graduations
and several holidays; and, most importantly, the Christmas and holiday season. Major selling seasons in certain international markets center on significant
local holidays that occur in late winter or early spring. The Company’s net sales historically have been higher during the second half of the fiscal year. The
second half of each fiscal year accounted for 57.9% and 68.8% of the Company’s net sales for the fiscal years ended January 31, 2022 and 2021,
respectively.
The Company’s retail operations consist of 47 retail outlet locations in the United States and four locations in Canada.
The significant factors that influence annual sales volumes in the Company’s retail operations are similar to those that influence U.S. wholesale sales. In
addition, most of the Company’s retail outlet locations are near vacation destinations and, therefore, the seasonality of these stores is driven by the peak
tourist seasons associated with these locations.
In December 2019, COVID-19 emerged and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic in March
2020, resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and
other social distancing requirements. The Company’s operating results for the fiscal year ended January 31, 2021 were materially impacted by the COVID-
19 pandemic. See “The COVID-19 pandemic has materially affected how we and our customers and suppliers operate, and the duration and extent to which
COVID-19, new strains or variants, or other public health threats and epidemics will impact our future results of operations and overall financial
performance remains uncertain” under Item 1A. Risk Factors, above.
Gross Margins
The Company’s overall gross margins are primarily affected by four major factors: channel and product sales mix, product pricing strategy, manufacturing
costs and fluctuation in foreign currency exchange rates, in particular the relationship between the U.S. dollar and the Swiss Franc, British Pound and the
Euro. Gross margins for the Company may not be comparable to those of other companies, since some companies include all the costs related to their
distribution networks in cost of sales whereas the Company does not include the costs associated with its warehousing and distribution facilities nor the
occupancy costs for the Company Stores segment in the cost of sales line item. Those costs are included in selling, general and administrative expenses.
Gross margins vary among the brands included in the Company’s portfolio and also among watch models within each brand. Watches in the Company’s
owned brands category generally earn higher gross margin percentages than watches in the licensed brands category. The difference in gross margin
percentages within the licensed brands category is primarily due to the impact of royalty payments made
28
on the licensed brands. Gross margins in the Company’s e-commerce business generally earn higher gross margin percentages than those of the traditional
wholesale business. Gross margins in the Company’s outlet business are affected by the mix of product sold and may exceed those of the wholesale
business since the Company earns margins on its outlet store sales from manufacture to point of sale to the consumer.
All of the Company’s brands compete with a number of other brands not only on styling but also on wholesale and retail price. The Company’s ability to
improve margins through price increases is therefore, to some extent, constrained by competitors’ actions.
Cost of sales of the Company’s products consists primarily of costs for raw materials, component costs, royalties, depreciation, amortization, assembly
costs, shipping to customers, design costs and unit overhead costs associated with the Company’s supply chain operations predominately in Switzerland
and Asia. The Company’s supply chain operations consist of logistics management of assembly operations and product sourcing predominately in
Switzerland and Asia and minor assembly in Switzerland. The Swiss watch movements used in the manufacture of Movado, Ebel and Concord watches are
purchased from three suppliers, one of which is a wholly-owned subsidiary of one of the Company’s competitors. That competitive supplier announced in
February 2021 that it will no longer sell mechanical Swiss movements to third parties, although it continues to sell Swiss quartz movements. As a result of
this development, the Company currently sources all of its mechanical Swiss movements from a single supplier. Although mechanical movements are only
used in a relatively small number of the Company’s watch styles, the elimination of a source of supply could make it more difficult for the Company to
satisfy its requirements for mechanical movements. Through productivity improvement efforts, the Company has controlled the level of overhead costs and
maintained flexibility in its cost structure by outsourcing a significant portion of its component and assembly requirements.
Since a significant amount of the Company’s product costs are incurred in Swiss Francs, fluctuations in the U.S. dollar/Swiss Franc exchange rate can
impact the Company’s cost of goods sold and, therefore, its gross margins. The Company reduces its exposure to the Swiss Franc exchange rate risk
through a hedging program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which
allows it to net certain exposures and take advantage of natural offsets. In the event these exposures do not offset, the Company has the ability to hedge its
Swiss Franc purchases using a combination of forward contracts and purchased currency options. The Company’s hedging program mitigated the impact of
the exchange rate fluctuations on product costs and gross margins for fiscal years 2022 and 2021.
Selling, General and Administrative (“SG&A”) Expenses
The Company’s SG&A expenses consist primarily of marketing, selling, distribution, general and administrative expenses.
Marketing expenditures are based principally on overall strategic considerations relative to maintaining or increasing market share in markets that
management considers to be crucial to the Company’s continued success as well as on general economic conditions in the various markets around the world
in which the Company sells its products. Marketing expenses include salaries, various forms of media advertising, digital advertising (including social
media), customer acquisition costs and co-operative advertising with customers and distributors and other point of sale marketing and promotion spending.
Selling expenses consist primarily of salaries, sales commissions, sales force travel and related expenses, credit card fees, depreciation and amortization,
expenses associated with the Company’s annual worldwide customer conference and other industry trade shows and operating costs incurred in connection
with the Company’s retail business. Sales commissions vary with overall sales levels. Retail selling expenses consist primarily of payroll related and store
occupancy costs.
Distribution expenses consist primarily of costs of running distribution centers and customer service and include salaries, rental and other occupancy costs,
security, depreciation and amortization of furniture and leasehold improvements and shipping supplies.
General and administrative expenses consist primarily of salaries and other employee compensation including performance-based compensation, employee
benefit plan costs, office rent, management information systems costs, professional fees, bad debts, depreciation and amortization of furniture, computer
software, leasehold improvements, amortization of finite lived intangible assets, patent and trademark expenses and various other general corporate
expenses.
Impairment of Goodwill and Intangible Assets
As a result of the economic conditions caused by the response to the COVID-19 pandemic, the Company performed a quantitative assessment of its
goodwill and long-lived intangible assets at April 30, 2020. The Company recorded a goodwill impairment of $133.7 million related to the Company’s
Watch and Accessory Brands reporting unit, as the carrying value of goodwill exceeded the fair value at April 30, 2020. The Company also recorded a
$22.2 million impairment charge related to MVMT’s trade name and customer relationships as the carrying amount of these long-lived intangible assets
exceeded the fair value.
29
Other Non-Operating Income
The Company recorded other non-operating income of $0.2 million due to the final settlement related to a sale of a building in an international location in
the prior year period for the fiscal year ended January 31, 2022.
The Company recorded a gain on sale of a non-operating asset of $1.3 million related to a sale of a building in an international location for the fiscal year
ended January 31, 2021.
Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the
Company recorded a non-cash gain on remeasurement of the contingent consideration of $15.4 million for the fiscal year ended January 31, 2020. As the
remeasurement is not a direct benefit realized from operating the MVMT business, the Company has recorded the change in contingent consideration
within non-operating income.
Interest Expense
To the extent it borrows, the Company records interest expense on its revolving credit facility. Additionally, interest expense includes the amortization of
deferred financing costs, and unused commitment fees associated with the Company’s revolving credit facility.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes as prescribed under the Accounting Standards Codification guidance
for Income Taxes (“ASC Topic 740”). ASC Topic 740 requires the Company to recognize deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts and tax bases of existing assets and liabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and
those significant policies are more fully described in Note 1 to the Company’s consolidated financial statements. The preparation of these financial
statements and the application of certain critical accounting policies require management to make judgments based on estimates and assumptions that affect
the information reported. On an on-going basis, management evaluates its estimates and judgments, including those related to sales discounts and
markdowns, product returns, bad debt, inventories, income taxes, warranty obligations, useful lives of property, plant and equipment, impairments, stock-
based compensation and contingencies and litigation. Management bases its estimates and judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources on historical experience, contractual commitments and on various other factors that are believed to be
reasonable under the circumstances. Actual results could differ from these estimates. Management believes the following are the critical accounting
policies requiring significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
In the wholesale channel, revenue is recognized and recorded when a contract is in place, obligations under the terms of a contract with the customer are
satisfied and control is transferred to the customer. Such revenue is measured as the ultimate amount of consideration the Company expects to receive in
exchange for transferring goods including variable consideration. The Company considers transfer of control passes to the wholesale customer upon
shipment or upon receipt depending on the agreement with the customer and shipping terms. Control passes to outlet store customers at the time of sale and
to substantially all e-commerce upon shipment. Prior to January 1, 2021, the requirement for recognizing revenue for e-commerce was met upon delivery to
the customer. Factors considered in the transfer of control include the right to payment, transfer of legal title, physical possession and customer acceptance
of the goods and whether the significant risks and rewards for the goods belong with the customer. The Company records estimates of variable
consideration, which includes sales returns, markdowns, volume-based programs and sales and cash discount allowances as a reduction of revenue in the
same period that the sales are recorded. These estimates are based upon the expected value method considering all reasonably available information
including historical analysis, customer agreements and/or currently known factors that arise in the normal course of business. Returns, discounts and
allowances have historically been within the Company’s expectations and the provisions established. The future provisional rates may differ from those
experienced in the past. Taxes imposed by governmental authorities on the Company's revenue-producing activities with customers, such as sales taxes and
value added taxes, are excluded from net sales.
30
The Company’s sale of smart watches contains multiple performance obligations. The Company allocates revenue to each performance obligation using the
relative standalone selling price method. The Company determines the standalone selling prices based on the prices charged to customers. Amounts
allocated to the delivered smart watch collections and the related essential software are recognized at the time of sale. The Company’s smart watch
collections have been available in limited quantities and in limited distribution, and, as a result, the amounts related to cloud service and app updates were
immaterial to all periods presented and thereby recognized at time of sale.
The Company has considered each transaction to sell goods as separate and distinct, with no additional promises made. The Company uses the
understanding of what the customer expects to receive as the final product to determine whether goods or services should be combined and accounted for as
a single performance obligation. The Company does not incur significant costs to obtain or fulfill its contracts.
Goodwill
At the time of an acquisition, in accordance with applicable guidance, the Company records all acquired net assets at their estimated fair values. These
estimated fair values are based on management’s assessments and independent third-party appraisals. The excess of the purchase consideration plus the fair
value of any noncontrolling interest in the acquired company over the aggregate estimated fair values of the acquired net assets, including any contingent
consideration, is recorded as goodwill.
Goodwill is not amortized but is assessed for impairment at least annually on November 1st. Under applicable guidance, the Company generally performs
its annual goodwill impairment analysis using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less
than its carrying value. If, based on the results of the qualitative assessment, it is concluded that it is more likely than not that the fair value of goodwill is
less than its carrying value, a quantitative test is performed.
The quantitative impairment test is performed to measure the amount of impairment loss, if any. The quantitative impairment test identifies the existence of
potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If a reporting unit’s carrying amount
exceeds its fair value, the Company will record an impairment charge, as an operating expense item, based on that difference. The impairment charge will
be limited to the amount of goodwill allocated to that reporting unit.
Determination of the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is based on management’s
assessment, including the consideration of independent third-party appraisals when necessary. Furthermore, this determination is subjective in nature and
involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an
impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market
comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates,
growth rates, and determination of appropriate market comparisons.
The Company performs its annual impairment assessment of goodwill at the beginning of the fourth quarter of each fiscal year. The Company determined
that there was no impairment in fiscal 2020. During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing
of the Company’s stores and of the vast majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross
margin), a decrease in customer spending and the recent decline in the Company’s market capitalization, the Company concluded that a triggering event
had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton,
MVMT and Company Stores’ long-lived assets as well as the Watch and Accessory Brands reporting unit.
After adjusting the carrying value of MVMT’s intangible assets, the Company completed an interim quantitative impairment test of goodwill as of April
30, 2020 in which the Company compared the fair value of the Watch and Accessory Brands reporting unit to its respective carrying value. An impairment
test of goodwill was not performed for the Company Stores reporting unit as there was no goodwill at this reporting unit. The fair value estimate for the
Watches and Accessory reporting unit was based on the income and market approaches. The discounted cash flow method under the income approach
involves estimating the cash flows in a discrete forecast period and a terminal value based on the Gordon Growth Model and discounting at a rate of return
that reflects the relative risk of the cash flows. The market approach involves applying valuation multiples to the operating performance of the Watch and
Accessory Brands reporting unit derived from comparable publicly traded companies based on the relative historical and projected operations of the
reporting unit.
The key estimates and assumptions used in the discounted cash flows model included the Company’s discount rate, revenue growth rates, EBIT margins
and long-term growth rate. The Company’s assumptions were based on the actual historical performance of the reporting units and took into account the
recent severe and continued weakening of operating results as well as the anticipated rate of recovery, and implied risk premiums based on market prices of
the Company’s common stock as of the assessment date. The significant estimates in the market approach model included identifying similar companies
with comparable business factors such as size, growth,
31
profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The
excess of the Watch and Accessory Brands unit’s carrying value over the estimate of the fair value was recorded in the Watch and Accessory Brands
segment as the goodwill impairment charge in the first quarter of 2021, totaling $133.7 million which resulted in zero goodwill remaining.
Intangibles
Intangible assets consist primarily of trade names, customer relationships and trademarks. In accordance with applicable guidance, the Company estimates
and records the fair value of purchased intangible assets at the time of their acquisition. The fair values of these intangible assets are estimated based on
independent third-party appraisals. Finite-lived intangible assets are amortized over their respective estimated useful lives, which range from three to ten
years, and are evaluated for impairment periodically and whenever events or changes in circumstances indicate that their related carrying values may not be
fully recoverable. Estimates of fair value for finite-lived intangible assets are primarily determined using discounted cash flows analysis of such assets,
with consideration of market comparisons and recent transactions. This approach uses significant estimates and assumptions, including projected future
cash flows, discount rates and growth rates. The Company determined that there was no impairment in fiscal 2022.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast
majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and
the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in
the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as
well as the Watch and Accessory Brands reporting unit.
The Company performed recoverability tests for the long-lived assets of MVMT, Olivia Burton and the Company Stores as of April 30, 2020. The
Company concluded that the carrying amounts of the long-lived assets of Olivia Burton and the Company Stores were recoverable, while the long-lived
assets of MVMT may not be recoverable. Utilizing a royalty rate to determine discounted projected future cash flows in the valuation of MVMT’s trade
name and a discounted cash flow method for the valuation of MVMT’s customer relationships, the Company concluded that the fair values of MVMT’s
tradenames and customer relationships did not exceed their carrying values. As a result, the Company recorded impairment charges in the Watch and
Accessory Brands segment totaling $22.2 million in the first quarter of fiscal 2021, decreasing MVMT’s trade name to $2.4 million and MVMT’s customer
relationships to zero.
Allowance for Doubtful Accounts
In the first quarter of 2021, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (ASU 2016-13). As a result of adoption, the Company replaced its methodology in determining the allowance for doubtful accounts
which was based on an analysis of the aging of accounts receivable, assessments of collectability based on historical trends, the financial condition of the
Company’s customers and an evaluation of economic conditions with a methodology that reflects expected credit losses and requires the use of a forward-
looking expected credit loss rate for its trade accounts receivables. The adoption had no material impact on the Company’s Consolidated Financial
Statements.
Inventories
The Company values its inventory at the lower of cost or net realizable value. Cost is determined using the average cost method. The Company performs
reviews of its on-hand inventory to determine amounts, if any, of inventory that is deemed discontinued, excess, or unsaleable. Inventory classified as
discontinued, together with the related component parts that can be assembled into saleable finished goods, is sold primarily through the Company’s retail
outlet locations. The Company retains adequate levels of component parts to facilitate both the manufacturing of its watches as well as the after-sales
service of its watches for an extended period of time after the discontinuance of the manufacturing of such watches. The adjustment to reduce the value of
component parts below their cost to their net realizable value is based on the timing of when a component part is no longer associated with a watch that is
being manufactured as well as the significant assumption related to the anticipated utilization of component parts for after-sales service.
Long-Lived Assets
The Company periodically reviews the estimated useful lives of its depreciable assets based on factors including historical experience, the expected
beneficial service period of the asset, the quality and durability of the asset and the Company’s maintenance policy including periodic upgrades. Changes in
useful lives are made on a prospective basis unless factors indicate the carrying amounts of the assets may not be recoverable and an impairment is
necessary.
The Company performs an impairment review of its long-lived assets once events or changes in circumstances indicate, in management’s judgment, that
the carrying value of such assets may not be recoverable. When such a determination has been made, management compares the carrying value of the asset
groups with their estimated future undiscounted cash flows. If it is determined that an
32
impairment has occurred, the fair value of the asset group is determined and compared to its carrying value. The excess of the carrying value over the fair
value, if any, is recognized as a loss during that period. The impairment is calculated as the difference between asset carrying values and their estimated fair
values. Other than as it relates to intangibles, as described above, no impairment charge was recorded in fiscal 2022 or in fiscal 2021, respectively.
Warranties
All watches sold by the Company come with limited warranties covering the movement against defects in material and workmanship for periods ranging
from two to three years from the date of purchase. In addition, the warranty period is five years for the gold plating on certain Movado watch cases and
bracelets. The Company records an estimate for future warranty costs based on historical repair costs. Warranty costs have historically been within the
Company’s expectations and the provisions established. If such costs were to substantially exceed estimates, they could have an adverse effect on the
Company’s operating results.
Stock-Based Compensation
The Company utilizes the Black-Scholes option-pricing model which requires that certain assumptions be made to calculate the fair value of each option at
the grant date. The expected life of stock option grants is determined using historical data and represents the time period during which the stock option is
expected to be outstanding until it is exercised. The risk-free interest rate is based on the U.S. treasury note interest rate in effect on the date of grant for the
expected life of the stock option. The expected stock price volatility is derived from historical volatility and calculated based on the estimated term
structure of the stock option grant. The expected dividend yield is calculated using the Company’s expected average of annualized dividend yields and
applied over the expected term of the option. Management monitors stock option exercises and employee termination patterns to estimate forfeitures rates
within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.
In addition to stock options, the Company may also grant stock awards to employees and directors. The stock awards are generally in the form of time-
vesting restricted stock unit awards (pursuant to which unrestricted shares of Common Stock are issued to the grantee when the award vests) or
performance-based awards (under which vesting occurs only if one or more predetermined financial goals are achieved within the relevant performance
period); both are subject to the participant’s continued employment (or board service) with the Company through such vesting date. Stock awards generally
are cliff-vested after three years from the date of grant (one year in the case of directors’ awards). The fair value of stock awards is generally equal to the
closing price of the Company’s publicly-traded common stock on the grant date.
Compensation expense for all awards is accrued based on the estimated number of instruments for which the requisite service is expected to be rendered.
This estimate is reflected in the period the stock option and stock awards are either granted or canceled. Expense related to stock options and stock awards
compensation is recognized on a straight-line basis over the vesting term and only if the performance condition is probable of being achieved.
Pension Benefit Obligation
The Company sponsors a plan in Switzerland. The pension expense and obligation are developed from actuarial valuations. Two critical assumptions in
determining pension expense and obligations are discount rate and expected long-term return on plan assets. The Company evaluates these assumptions
annually. Other assumptions reflect demographic factors such as retirements, mortality and turnover and are evaluated periodically and updated to reflect
actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for high-quality AAA and AA-rated
corporate bonds with durations corresponding to the expected durations of the benefit obligations and service time and is used to calculate the present value
of the expected future cash flows for benefit obligations under the pension plan. A decrease in the discount rate increases the present value of pension
benefit obligations. The discount rate used to determine the Company’s benefit obligation at January 31, 2022 is 0%. A 25-basis point increase in the
discount rate would decrease the present value of pension obligation by approximately $0.5 million at January 31, 2022. The Company considers the
current and expected asset allocations of the pension plan, as well as historical and expected long-term rates of return on those types of plan assets, in
determining the expected long-term return on plan assets. A 25 basis point decrease in the expected long-term return on plan assets would not have resulted
in a material impact on the Company’s pension expense for fiscal 2022.
Income Taxes
The Company, under ASC Topic 740, follows the asset and liability method of accounting for income taxes under which deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and tax rates, in each jurisdiction where the Company
operates, and applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities due to a change in tax rates
33
is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be realized on a more-likely-than-not basis. The Company calculates estimated income taxes in
each of the jurisdictions in which it operates. This process involves estimating actual current tax expense along with assessing temporary differences
resulting from differing treatment of items for both book and tax purposes.
The Company follows guidance for accounting for uncertainty in income taxes. This guidance clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements and prescribes a recognition threshold and measurement standard for the financial statement recognition
and measurement of an income tax position taken or expected to be taken in a tax return. This guidance also provides guidance for de-recognition,
classification, interest and penalties, accounting in interim periods, disclosures and transitions.
The Company elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and therefore has not recorded deferred
taxes related to GILTI.
RECENT DEVELOPMENTS AND INITIATIVES
COVID-19
The COVID-19 pandemic and related public health measures materially impacted the Company’s operating results for the fiscal year ended January 31,
2021 and continue to materially affect how the Company and its customers and suppliers operate their businesses. Various containment and mitigation
measures that have at times been imposed by governmental and other authorities around the world (such as quarantines and other social distancing
requirements) have adversely affected sales of our products, given that those sales are heavily dependent on customer traffic in traditional retail stores, such
as those of our wholesale partners, and our Company stores. Such measures have also adversely impacted our supply chain and resulted in late deliveries.
In addition, during the 2021 fiscal year and continuing through fiscal 2022, the Company has implemented remote work policies and employed additional
safety measures for on-site work. These policies and measures have caused strain for, and may have adversely impacted the productivity of, certain
employees.
Although the COVID-19 pandemic's adverse impact on the Company has significantly diminished in recent quarters, the full magnitude of the effects on
the Company’s business is difficult to predict at this time, and the pandemic is expected to continue to impact the Company’s results of operations for the
foreseeable future. In addition to unpredictable regional resurgences of COVID-19 cases, which often result in the reimposition or tightening of
containment and mitigation measures, the ongoing economic impacts and health concerns associated with the pandemic will likely continue to affect supply
chains, shipping operations, consumer behavior, spending levels, shopping preferences and tourism.
Fiscal 2021 Impairments
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast
majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and
the recent decline in global equity markets, the Company concluded that a triggering event had occurred during the first quarter of fiscal 2021, resulting in
the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as
well as the Watch and Accessory Brands reporting unit.
The Company made revisions to its internal forecasts, resulting in a reduction in both current and future expected cash flows, due to the COVID-19
pandemic and the uncertain business environment. As a result, during the first quarter of fiscal 2021, the Company recorded impairment charges related to
goodwill of $133.7 million and intangible assets related to MVMT’s tradename and customer relationships of $22.2 million.
Russia's Invasion of Ukraine
On February 24, 2022, Russia launched a comprehensive invasion of Ukraine. The invasion and the subsequent economic sanctions imposed by some
countries may negatively impact the Company’s revenue to the extent the conflict and the sanctions significantly impact the economic conditions in or our
ability to sell products to customers in the affected region. In response to the invasion, the Company decided in March 2022 to suspend all sales to Russia
and Belarus. Sales to these two countries are immaterial to the Company’s results of operations. In addition, the conflict could have broader implications on
economies outside the region, such as the global inflationary impact of a potential boycott of Russian oil and gas by other countries.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for fiscal 2022 compared to fiscal 2021 along with a discussion of the changes in financial
condition during fiscal 2022. For a discussion of our results of operations in fiscal year 2021 compared to fiscal year 2020,
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please see “Results of Operations” in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual
Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on March 25, 2021.
In light of the COVID-19 pandemic, the Company’s results of operations for fiscal 2022 may not be directly comparable to results for fiscal 2021 or prior
fiscal years and may not be indicative of the results that we will experience in fiscal 2023. See “Recent Developments and Initiatives” above. See also “The
COVID-19 pandemic has materially affected how we and our customers and suppliers operate, and the duration and extent to which COVID-19, new
strains or variants, or other public health threats and epidemics will impact our future results of operations and overall financial performance remains
uncertain” under Item 1A. Risk Factors, above.
The following are net sales by business segment and geographic location (in thousands):
Watch and Accessory Brands:
United States
International
Company Stores
Net sales
The following are net sales by category (in thousands):
Watch and Accessory Brands:
Owned brands category
Licensed brands category
After-sales service and all other
Total Watch and Accessory Brands
Company Stores
Consolidated total
Fiscal Year Ended January 31,
2021
2022
244,204 $
382,019
106,170
732,393 $
157,951
289,411
59,035
506,397
Fiscal Year Ended January 31,
2021
2022
249,940 $
368,354
7,929
626,223
106,170
732,393 $
178,173
262,367
6,822
447,362
59,035
506,397
$
$
$
$
The following table presents the Company’s results of operations expressed as a percentage of net sales for the fiscal years indicated:
Net sales
Gross margin
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income/(loss)
Gain on sale of a non-operating asset
Other income
Interest expense
Provision/(benefit) for income taxes
Noncontrolling interests
Net income/(loss) attributable to Movado Group, Inc.
Fiscal 2022 Compared to Fiscal 2021
Net Sales
Fiscal Year Ended January 31,
2021
2022
100.0 %
57.2 %
41.2 %
0.0 %
16.0 %
0.0 %
0.1 %
0.1 %
3.4 %
0.1 %
12.5 %
100.0 %
53.4 %
50.7 %
30.8 %
(28.1 %)
0.3 %
0.1 %
0.4 %
(6.2 %)
0.1 %
(22.0 %)
Net sales in fiscal 2022 were $732.4 million, representing a $226.0 million or 44.6% increase above the prior year. This increase is primarily as a result of
the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand. For fiscal 2022, fluctuations in foreign
currency exchange rates positively impacted net sales by $9.2 million when compared to the prior year.
Watch and Accessory Brands Net Sales
35
Net sales in fiscal 2022 in the Watch and Accessory Brands segment were $626.2 million, an increase above the prior year period of $178.9 million, or
40.0%. The increase in net sales was primarily due to the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from
higher demand with growth in the Company's wholesale customers and in online retail, both in the Company's owned and wholesale customers' e-
commerce websites. Prior period net sales were negatively impacted by closures and restrictions affecting the stores of the Company's wholesale customers
during a portion of the period due to the COVID-19 pandemic. Some of these restrictions continued into fiscal 2022. There were increases in net sales in
both the United States and International locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands Net Sales
Net sales in fiscal 2022 in the United States locations of the Watch and Accessory Brands segment were $244.2 million, above the prior year period by
$86.3 million, or 54.6%, resulting from net sales increases across all brands in both the owned and licensed brand categories primarily due to the partial
recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand with growth in the Company's wholesale customers
and in online retail, both in the Company's owned and wholesale customers' e-commerce websites. The net sales recorded in the owned brands category
increased by $68.5 million, or 55.6%, and net sales recorded in the licensed brand category increased $17.1 million, or 54.5%.
International Watch and Accessory Brands Net Sales
Net sales in fiscal 2022 in the International locations of the Watch and Accessory Brands segment were $382.0 million, above the prior year by $92.6
million, or 32.0%, which included fluctuations in foreign currency exchange rates which favorably impacted net sales by $9.2 million when compared to
the prior year. The increase in net sales was across most brands in the owned brand category and all brands across the licensed brand category primarily due
to the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand with growth in the Company's
wholesale customers and in online retail, both in the Company's owned and wholesale customers' e-commerce websites. The net sales increase recorded in
the owned brands category was $3.3 million, or 6.0% and is due to sales increases in most regions. The net sales increase in the licensed brands category
was $88.9 million, or 38.5%, due to net sales increases across all regions.
Company Stores Net Sales
Net sales in fiscal 2022 in the Company Stores segment were $106.2 million, $47.1 million or 79.8% above the prior year period. The net sales increase is
primarily the result of all of the Company's retail stores being open during the period as compared to the closure of the Company’s retail stores during part
of the prior year period in response to the COVID-19 pandemic, lessened restrictions on the Company's retail stores during the period as compared to the
prior year period, increased volumes resulting from higher demand, the opening of four new retail outlet stores and the growth of the Company's online
outlet store at www.movadocompanystore.com. As of January 31, 2022 and 2021, the Company operated 51 and 47 retail outlet locations, respectively.
Gross Profit
Gross profit for fiscal 2022 was $419.1 million or 57.2% of net sales as compared to $270.5 million or 53.4% of net sales in the prior year. The increase in
gross profit of $148.6 million was primarily due to higher net sales combined with a higher gross margin percentage. The increase in gross margin
percentage of approximately 380 basis points for fiscal 2022 resulted primarily from a favorable impact of sales mix of approximately 280 basis points,
increased leveraging of certain fixed costs as a result of higher net sales of approximately 60 basis points, a positive impact of fluctuations in foreign
exchange rates of approximately 30 basis points and the non-recurrence of a prior year charge related to an increase in inventory reserves in response to the
COVID-19 pandemic of approximately 20 basis points, partially offset by an approximately 10 basis point impact due to increased shipping costs. The
favorable impact of sales mix is mainly due to an increase in direct-to-consumer sales channels, which produces higher margins, and an increase in net
sales of brands with higher gross margins in the owned brands category.
Selling, General and Administrative (“SG&A”)
SG&A expenses in fiscal 2022 were $301.6 million, representing an increase from the prior year of $44.9 million, or 17.5%. The prior year included
corporate initiative charges primarily in response to the COVID-19 pandemic of $11.9 million consisting of $8.3 million in severance and payroll related,
$1.5 million in the write-off of unrefunded trade show deposits, $1.2 million in other restructuring charges and $0.9 million in additional accounts
receivable reserves. The current year includes a reversal in corporate initiative charges due to a $1.1 million change in estimate primarily impacting the
accounts receivable reserve due to collection of a previously reserved receivable. Excluding these corporate initiative charges and reversals for both
periods, SG&A expenses would have increased $57.9 million primarily from the following factors: higher marketing expenses of $32.0 million; an increase
in performance-based compensation of $9.2 million; an increase in payroll related expenses of $8.6 million primarily due to the absence of the furloughing
of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19 pandemic; an increase in credit card fees
and sales commissions of $3.4 million due to higher sales in the current year; an increase in consulting and recruiting charges of $1.4 million; an increase in
rent and rent-related charges of $1.3 million primarily due to the opening of new company stores
36
and an increase of $1.2 million in donations primarily to the Movado Group Foundation. For the year ended January 31, 2022, fluctuations in foreign
currency rates related to the foreign subsidiaries increased SG&A expenses by $2.0 million when compared to the prior year.
Impairment of Goodwill and Intangible Assets
As a result of the economic conditions caused by the response to the COVID-19 pandemic, the Company performed a quantitative assessment of its
goodwill and long-lived intangible assets at April 30, 2020. The Company recorded a goodwill impairment of $133.7 million in fiscal 2021 related to the
Company’s Watch and Accessory Brands reporting unit as the carrying value of goodwill exceeded the fair value at April 30, 2020. The Company also
recorded a $22.2 million impairment charge in fiscal 2021 related to MVMT’s trade name and customer relationships as the carrying amount of these long-
lived intangible assets exceeded the fair value. The Company did not record any similar impairment charges in fiscal 2022.
Watch and Accessory Brands Operating Income/(Loss)
For fiscal 2022 the Company recorded operating income of $85.6 million in the Watch and Accessory Brands segment which includes $38.7 million of
unallocated corporate expenses as well as $80.5 million of certain intercompany profits related to the Company’s supply chain operations. For fiscal 2021,
the Company recorded an operating loss of $152.7 million in the Watch and Accessory Brands segment, which included goodwill and intangible asset
impairment charges of $133.7 million and $22.2 million, respectively. Without these charges, for the twelve months ended January 31, 2021, the Company
would have generated operating income of $3.2 million which included $29.1 million of unallocated corporate expenses as well as $63.0 million of certain
intercompany profits related to the Company’s supply chain operations. In addition to the absence of asset impairments in fiscal 2022, the increase in
operating income was the result of an increase in gross profit of $115.4 million, which included corporate initiatives costs in the prior year period of $0.7
million comprising an increase in inventory reserves, partially offset by an increase in SG&A expenses of $33.0 million when compared to the prior year.
The increase in gross profit was primarily the result of higher net sales and also a higher gross margin percentage primarily due to a favorable change in
sales mix partially offset by increased shipping costs. The favorable impact of sales mix is mainly due to an increase in direct-to-consumer sales channels,
which produces higher margins, and an increase in net sales of brands with higher gross margins in the owned brands category. The SG&A expenses for the
prior year period included corporate initiatives charges primarily in response to the COVID-19 pandemic of $11.9 million consisting of $8.3 million in
severance and payroll related charges, a $1.5 million write-off of unrefunded trade show deposits, $1.2 million in other restructuring charges and $0.9
million in additional accounts receivable reserves. The current year SG&A expenses include a reversal in certain fiscal 2021 corporate initiatives charges
due to a change in estimate of $1.1 million primarily impacting the accounts receivable reserve due to collection of a previously reserved receivable.
Excluding these corporate initiative charges and reversals for both periods, SG&A expense would have increased $46.0 million primarily due to the
following factors: higher marketing expenses of $27.3 million; an increase in performance-based compensation of $8.7 million; an increase in payroll
related expenses of $5.9 million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior
year period in response to the COVID-19 pandemic; an increase in credit card fees and sales commissions of $1.7 million due to higher sales in the current
year; an increase in consulting and recruiting charges of $1.4 million; and an increase of $1.2 million in donations primarily to the Movado Group
Foundation. For the twelve months ended January 31, 2022, fluctuations in foreign currency exchange rates positively impacted the Watch and Accessory
Brands segment operating income by $1.7 million when compared to the prior year.
U.S. Watch and Accessory Brands Operating Income/(Loss)
In the United States locations of the Watch and Accessory Brands segment, for the twelve months ended January 31, 2022, the Company recorded
operating income of $9.6 million, which includes unallocated corporate expenses of $38.7 million. For the twelve months ended January 31, 2021 the
Company recorded an operating loss of $138.4 million in the United States locations of the Watch and Accessory Brands segment which included goodwill
and intangible asset impairment charges of $77.5 million and $22.2 million, respectively. Without these impairment charges, for the twelve months ended
January 31, 2021, operating loss would have been $38.7 million, which included unallocated corporate expenses of $29.1 million. In addition to these
assets impairments in the prior year, the increase to operating income from operating loss was the result of higher gross profit of $66.2 million, which
included corporate initiative costs in the prior year of $0.7 million comprising an increase in inventory reserves, partially offset by an increase in SG&A
expenses of $17.9 million when compared to the prior year. The increase in gross profit of $66.2 million was due to higher net sales, combined with a
higher gross margin percentage primarily from a favorable impact of sales mix. The favorable impact of sales mix is mainly due to an increase in direct-to-
consumer sales channels, which produces higher margins, and an increase in net sales of brands with higher gross margins in the owned brands category.
The SG&A expenses for the prior year included $7.3 million of corporate initiatives charges primarily in response to the COVID-19 pandemic and
primarily consisting of $6.3 million in severance and payroll related charges and $1.0 million in other restructuring charges. The current year SG&A
expenses include a reversal in certain fiscal 2021 corporate initiatives charges due to a change in estimate of $0.1 million. Excluding these corporate
initiative charges and reversals from both periods, SG&A expense would have increased $25.3 million due to the following factors: higher marketing
expenses of $14.6 million; an increase in performance-based compensation of $7.3 million; an increase in payroll related expenses of $2.9 million primarily
due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19
37
pandemic; an increase of $1.2 million in donations primarily to the Movado Group Foundation; and an increase in credit card fees of $0.9 million due to
higher sales in the current year.
International Watch and Accessory Brands Operating Income/(Loss)
In the International locations of the Watch and Accessory Brands segment, for the twelve months ended January 31, 2022 the Company recorded operating
income of $76.0 million, which includes $80.5 million of certain intercompany profits related to the Company’s International supply chain operations. For
the twelve months ended January 31, 2021 the Company recorded an operating loss of $14.3 million in the International locations of the Watch and
Accessory Brands segment which included goodwill impairment charges of $56.2 million. Without this impairment charge, for the twelve months ended
January 31, 2021, the Company would have generated operating income of $41.9 million, which included $63.0 million of certain intercompany profits
related to the Company’s supply chain operations. In addition to the goodwill impairment charge, the increase in operating income was primarily related to
higher gross profit of $49.2 million, partially offset by higher SG&A expenses of $15.1 million. The increase in gross profit of $49.2 million was primarily
due to higher net sales. The SG&A expenses for the prior year included $4.6 million of corporate initiatives charges primarily in response to the COVID-19
pandemic consisting of $2.0 million in severance and payroll related charges, a $1.5 million write-off of unrefunded trade show deposits, $0.9 million in
additional accounts receivable reserves and $0.2 million in other restructuring charges. The current year SG&A expenses include a partial reversal of
certain fiscal 2021 corporate initiative charges due to a change in estimate of $1.0 million primarily impacting the accounts receivable reserve due to
collection of a previously reserved receivable. Excluding these corporate initiative charges and reversals from both periods, SG&A expense would have
increased $20.7 million primarily due to the following factors: higher marketing expenses of $12.7 million; an increase in payroll related expenses of $3.0
million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to
the COVID-19 pandemic; an increase in consulting and recruiting charges of $2.2 million; an increase in performance-based compensation of $1.4 million;
and an increase in sales commissions of $0.8 million due to higher sales in the current year. Fluctuation in foreign currency exchange rates positively
impacted operating income by $1.7 million when compared to the prior year.
Company Stores Operating Income
The Company recorded operating income of $31.9 million and $10.5 million in the Company Stores segment for fiscal 2022 and 2021, respectively. The
improvement in operating income of $21.4 million was primarily related to higher gross profit of $33.2 million mainly due to higher sales and a higher
gross margin percentage, partially offset by a $11.8 million increase in SG&A expenses. The increase in SG&A expenses was primarily due to higher
marketing expenses of $4.7 million; an increase in payroll related expenses of $2.7 million primarily due to company stores being open throughout the
period (as compared to the significant closures during the prior year); an increase in credit card fees and sales commissions of $1.7 million due to higher
sales in the current year as compared to the prior year; an increase in rent and rent-related expenses of $1.3 million due to the opening of new company
stores; and an increase in performance-based compensation of $0.5 million. As of January 31, 2022, and 2021, the Company operated 51 and 47 retail
outlet locations, respectively.
Other Non-Operating Income
The Company recorded other income of $0.5 million primarily due to the final settlement related to a sale of a building in an international location in the
prior year and the non-service components of the Company’s Swiss pension plan for fiscal 2022.
The Company recorded a gain on the sale of a non-operating asset of $1.3 million related to a sale of a building in an international location for fiscal 2021.
The Company recorded other income of $0.4 million primarily due to the non-service components of the Company’s Swiss pension plan for fiscal 2021.
Interest Expense
Interest expense was $0.7 million for fiscal 2022 as compared to $2.0 million for fiscal 2021. The decrease was primarily due to lower weighted average
borrowings outstanding under the Company’s revolving credit facility, partially offset by a higher weighted average interest rate and higher unused credit
line fees during fiscal 2022 as compared to fiscal 2021.
Income Taxes
The Company recorded an income tax provision of $24.8 million and an income tax benefit of $31.2 million for fiscal 2022 and 2021, respectively.
The effective tax rate for fiscal 2022 was 21.1% and differed from the U.S. statutory tax rate of 21.0% primarily due to U.S. state and local taxes, net of the
federal benefit, partially offset by the CARES Act NOL Carryback Provision and related tax effects and foreign
38
profits being taxed in lower taxing jurisdictions. The effective tax rate for fiscal 2021 was 21.9% and differed from the U.S. statutory tax rate of 21.0%
primarily due to the CARES Act NOL Carryback Provision and related tax effects, and U.S. state net operating loss carryforwards generated in fiscal 2021,
partially offset by impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible.
Net Income/(Loss) Attributable to Movado Group, Inc.
The Company recorded net income attributable to Movado Group, Inc. of $91.6 million and net loss attributable to Movado Group, Inc. of $111.5 million
for fiscal 2022 and 2021, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2022 and January 31, 2021, the Company had $277.1 million and $223.8 million, respectively, of cash and cash equivalents. Of this total,
$197.4 million and $150.9 million, respectively, consisted of cash and cash equivalents at the Company’s foreign subsidiaries.
During fiscal 2021 the Company’s cash generated from operations was negatively impacted due to the COVID-19 pandemic. During fiscal 2021, the
Company responded to the pandemic by taking actions to enhance its financial liquidity and flexibility, including minimizing non-essential operating
expenses and capital expenditures, applying for available government payroll subsidies, and temporarily suspending the Company’s share repurchase
program and regular quarterly dividends. The Company also committed to a restructuring plan during fiscal 2021. Although the COVID-19 pandemic is
expected to continue to impact the Company’s results of operations for the foreseeable future, the pandemic’s adverse impact on the Company has
significantly diminished in recent quarters, and the Company believes that based on the Company’s current expectations, cash flows from operations and its
credit lines and cash on-hand, the Company has adequate funds to support its operating, capital and debt service requirements and expects to maintain
compliance with its debt covenants for the next twelve months subsequent to the issuance of the accompanying Consolidated Financial Statements.
At January 31, 2022 the Company had working capital of $402.4 million as compared to $374.0 million at January 31, 2021. The increase in working
capital was primarily the result of an increase in cash of $53.3 million and an increase in accounts receivable resulting primarily from higher net sales,
partially offset by an increase in accounts payable. The Company defines working capital as the difference between current assets and current liabilities.
The Company had $130.8 million of cash provided by operating activities for fiscal 2022 as compared to $68.4 million for fiscal 2021. Cash provided by
operating activities for fiscal 2022 included net income of $92.6 million, positively adjusted by $20.8 million related to non-cash items. Cash provided by
operating activities for fiscal 2022 was impacted by an increase in accounts payable of $18.3 million primarily as a result of timing of payments, a decrease
in income taxes receivable of $17.1 million due to a receipt of a U.S. federal income tax refund and an increase in accrued payroll and benefits of $7.3
million primarily due to an increase in accrued performance-based compensation. Cash used in operating activities in fiscal 2022 was impacted by an
increase in trade receivables of $18.6 million as a result of higher net sales and an increase in investment in inventories of $15.4 million primarily to
support sales growth.
Cash used in investing was $7.9 million for fiscal 2022 as compared to $1.9 million for fiscal 2021. The cash used in fiscal 2022 was primarily related to
capital expenditures of $5.7 million primarily due to the Company’s opening of four new stores (two in Canada) and website platform upgrades and $2.0
million of long-term investments. The prior year included proceeds from a sale of a non-operating asset in Switzerland of $1.3 million.
The Company expects that capital expenditures in fiscal 2023 will be approximately $10.0 million as compared to $5.7 million in fiscal 2022. The capital
spending will be primarily for projects in the ordinary course of business including facilities improvements, shop-in-shops, website development, computer
hardware and software and tooling costs. The Company has the ability to manage its capital expenditures on discretionary projects.
Cash used by financing activities was $66.6 million for fiscal 2022 as compared to $34.4 million for fiscal 2021. The cash used in fiscal 2022 included
$22.6 million in stock repurchased in the open market, $22.0 million in dividends paid ($2.3 million of which had been declared in January 2021)
repayment of $21.1 million of bank borrowings and $3.1 million in shares repurchased as a result of the surrender of shares in connection with the vesting
of certain stock awards and options, partially offset by $3.4 million received in connection with stock options exercised. Cash used in financing activities
for fiscal 2021 included net repayment of bank borrowings of $33.6 million.
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together
with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury
Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly owned Swiss subsidiary of the
Company, entered into an Amended and Restated Credit Agreement
39
(the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit
Agreement amended and restated the Company’s prior credit agreement dated as of January 30, 2015 and extended the maturity of the $100.0 million
senior secured revolving credit facility (the “Facility”) provided thereunder to October 12, 2023. The Facility includes a $15.0 million letter of credit
subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrowers, with provisions for uncommitted
increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of April 30,
2020. Among other things, the Second Amendment provided for temporary relief with respect to the financial maintenance covenants in the Credit
Agreement starting April 30, 2020 while also temporarily tightening certain covenants and temporarily increasing the interest rate and commitment fee.
These temporary changes to the Credit Agreement ended as a result of the Company’s achievement of certain financial milestones as of and for the periods
ending January 31, 2021. In addition, the Second Amendment increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and
reduced the minimum EBITDA financial covenant level to $35.0 million starting with the four-quarter period ending July 31, 2021.
Effective October 29, 2021, the Company and its lenders entered into an additional amendment (the "Third Amendment") to the Credit Agreement. Among
other things, the Third Amendment extends the maturity of the Facility to October 28, 2026; reinstates the 0% LIBOR floor; reduces the commitment fee at
certain leverage ratio levels; allows the Company to net up to $25 million of unrestricted cash and cash equivalents held in U.S. accounts from total debt
for purposes of determining the leverage ratio for financial covenant and other purposes; and increases the Company's general basket for making
investments under the Credit Agreement's operating covenants. The foregoing summary of the Third Amendment is qualified by reference to the full text of
the amendment, which is attached as Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 2021 and incorporated
herein by reference.
As of January 31, 2022, and January 31, 2021, there was zero and $21.2 million (of which $10 million was denominated in Swiss Francs), respectively, in
loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in
connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3
million at both January 31, 2022 and January 31, 2021. At January 31, 2022, the letters of credit have expiration dates through May 31, 2022. As of
January 31, 2022, and January 31, 2021, availability under the Facility was $99.7 million and $78.5 million, respectively. For additional information
regarding the Facility, see Note 9 – Debt and Lines of Credit to the Consolidated Financial Statements.
The Company had weighted average borrowings under the facility of $4.8 million and $53.1 million, with a weighted average interest rate of 2.79% and
2.59% during fiscal 2022 and 2021, respectively.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of January 31, 2022, and 2021,
these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.0 million and $7.3 million, respectively. As of January
31, 2022, and 2021, there were no borrowings against these lines. As of January 31, 2022, and 2021, two European banks had guaranteed obligations to
third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million and $1.3 million, respectively, in various
foreign currencies, of which $0.6 million, in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $0.4 million and $1.7 million during fiscal 2022 and 2021, respectively.
From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its
business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in companies in media, entertainment,
information technology and technology-related fields and in digital assets. During fiscal 2022, the Company committed to invest up to $21.5 million in
such investments. The Company funded approximately $2.0 million of these commitments in fiscal 2022 and may be called upon to satisfy capital calls in
respect of the remaining $19.5 million in such commitments at any time during a period generally ending ten years after the first capital call in respect of a
given commitment.
On January 11, 2021, the Company’s Board of Directors declared a cash dividend of $0.10 per share, which was paid on February 5, 2021 in the amount of
$2.3 million, to shareholders of record on January 21, 2021. The Company paid additional cash dividends of $0.20 per share or $4.6 million during the
three months ended April 30, 2021, $0.20 per share or $4.7 million during the three months ended July 31, 2021, $0.20 per share or $4.6 million during the
three months ended October 31, 2021 and $0.25 per share or $5.7 million during the three months ended January 31, 2022. The Company did not pay cash
dividends during fiscal 2021. Although the Company currently expects to continue to declare cash dividends in the future, the decision of whether to
declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in
each quarter, by the Board of Directors, in its sole discretion.
40
On March 25, 2021, the Board approved a share repurchase program under which the Company is authorized to purchase up to $25.0 million of its
outstanding common stock through September 30, 2022, depending on market conditions, share price and other factors. On November 23, 2021, the Board
approved a share repurchase program under which the Company is authorized to purchase up to an additional $50.0 million of its outstanding common
stock through November 23, 2024, depending on market conditions, share price and other factors. Under both share repurchase programs, the Company is
permitted to purchase shares of its common stock from time to time through open market purchases, repurchase plans, block trades or otherwise. During
fiscal 2022, the Company repurchased a total of 686,559 shares of its common stock under the March 25, 2021 share repurchase program at a total cost of
$22.6 million, or an average of $32.92 per share. At January 31, 2022, $2.4 million remains available for purchase under the Company’s March 25, 2021
repurchase program and all $50.0 million remains available for purchase under the Company's November 23, 2021 repurchase program. During fiscal
2021, the Company did not repurchase any shares of its common stock.
CONTRACTUAL OBLIGATIONS
Payments due by period (in thousands):
Contractual Obligations:
Operating and Finance Lease Obligations (1)
Purchase Obligations (2)
Other Long-Term Obligations (3)
Transition Tax (4)
Total Contractual Obligations
Total
Less than
1 year
2-3
years
4-5
years
More than
5 years
$
$
86,549 $
118,211
294,829
19,241
518,830 $
16,423 $
118,211
71,170
2,264
208,068 $
28,823 $
—
130,743
9,903
169,469 $
19,959 $
—
92,916
7,074
119,949 $
21,344
—
—
—
21,344
(1)
(2)
(3)
(4)
Includes store operating and finance leases, which generally provide for payment of direct operating costs in addition to rent. These obligation
amounts only include future minimum lease payments and exclude direct operating costs.
The Company had outstanding purchase obligations with suppliers at the end of fiscal 2022 for raw materials, finished watches and packaging in the
normal course of business. These purchase obligation amounts do not represent total anticipated purchases but represent only amounts to be paid for
items required to be purchased under agreements that are enforceable, legally binding and specify minimum quantity, price and term.
Other long-term obligations primarily consist of minimum commitments related to the Company’s license agreements and endorsement agreements
with brand ambassadors, and also include service agreements. The Company sources, distributes, advertises and sells watches pursuant to its
exclusive license agreements with unaffiliated licensors. Royalty amounts are generally based on a stipulated percentage of revenues, although most
of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms, and some
have renewal options, provided that minimum sales levels are achieved. Additionally, the license agreements require the Company to pay minimum
annual advertising amounts.
The Transition Tax obligation is due to the enactment of the 2017 Tax Act and will be paid in installments over eight years, with the first payment
having been made in fiscal 2019.
Liabilities for unrecognized income tax benefits are excluded from the table above as the Company is unable to reasonably predict the ultimate amount or
timing of a settlement of such liabilities. See Note 14– Income Taxes for more information.
Long-term liabilities associated with the Company’s defined benefit plan in Switzerland are excluded from the table above due to the uncertainty of the
timing of these cash disbursements. The amount and timing of cash funding related to these benefit plans will generally depend on local regulatory
requirements, various economic assumptions and Company contributions.
Management’s estimate of contributions the Company will make to its Swiss pension plan for the fiscal year ending 2023 is approximately $1.2 million. In
addition, total benefit payments to be paid to participants in the Swiss pension plan for the fiscal year ending 2023 from the Company’s plan are estimated
to be approximately $0.3 million.
Accounting Changes and Recent Accounting Pronouncements
See Note 3 to the accompanying audited consolidated financial statements for a description of recent accounting pronouncements which may impact the
consolidated financial statements in future reporting periods.
41
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Foreign Currency Exchange Rate Risk
The Company’s primary market risk exposure relates to foreign currency exchange risk (see Note 10 – Derivative Financial Instruments to the
Consolidated Financial Statements). A significant portion of the Company’s purchases are denominated in Swiss Francs and, to a lesser extent, the
Japanese Yen. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro, Swiss Franc and the British
Pound. The Company reduces its exposure to the Swiss Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rate risk through a hedging
program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain
exposures and take advantage of natural offsets. In the event these exposures do not offset, from time to time the Company uses various derivative financial
instruments to further reduce the net exposures to currency fluctuations, predominately forward and option contracts. Certain of these contracts meet the
requirements of qualified hedges. In these circumstances, the Company designates and documents these derivative instruments as a cash flow hedge of a
specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. Changes in the fair value of
hedges designated and documented as a cash flow hedge and which are highly effective, are recorded in other comprehensive income until the underlying
transaction affects earnings, and then are later reclassified into earnings in the same account as the hedged transaction. The earnings impact is mostly offset
by the effects of currency movements on the underlying hedged transactions. To the extent that the Company does not engage in a hedging program, any
change in the Swiss Franc, Euro, British Pound, Chinese Yuan and Japanese Yen exchange rates to local currency would have an equal effect on the
Company’s earnings.
From time to time the Company uses forward exchange contracts, which do not meet the requirements of qualified hedges, to offset its exposure to certain
foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these
derivatives are recognized in earnings in the period they arise, thereby offsetting the current earnings effect resulting from the revaluation of the related
foreign currency receivables and liabilities.
As of January 31, 2022, the Company’s entire net forward contracts hedging portfolio consisted of 7.4 million Chinese Yuan equivalent, 28.0 million Swiss
Francs equivalent, 16.2 million US Dollars equivalent, 37.5 million Euros equivalent (including 18.0 million Euros designated as cash flow hedges) and 1.5
million British Pounds equivalent with various expiry dates ranging through July 13, 2022, compared to a portfolio of 29.4 million Chinese Yuan
equivalent, 6.0 million Swiss Francs equivalent, 10.9 million US Dollars equivalent, 16.6 million Euros equivalent and 0.7 million British Pounds
equivalent with various expiry dates ranging through May 19, 2021, as of January 31, 2021. If the Company were to settle its Swiss Franc forward
contracts at January 31, 2022, the net result would be a $0.1 million loss. If the Company were to settle its Euro forward contracts at January 31, 2022, the
net result would be a $0.1 million gain. As of January 31, 2022, the Company’s British Pound, Chinese Yuan and US Dollar forward contracts had no gain
or loss. The Company had no cash flow hedges as of January 31, 2021.
Commodity Risk
The Company considers its exposure to fluctuations in commodity prices to be primarily related to gold used in the manufacturing of the Company’s
watches. Under its hedging program, the Company can purchase various commodity derivative instruments, primarily futures contracts. When held, these
derivatives are documented as qualified cash flow hedges, and the resulting gains and losses on these derivative instruments are first reflected in other
comprehensive income, and later reclassified into earnings, partially offset by the effects of gold market price changes on the underlying actual gold
purchases. The Company did not hold any future contracts in its gold hedge portfolio as of January 31, 2022 and 2021; thus, any changes in the gold
purchase price will have an equal effect on the Company’s cost of sales.
Debt and Interest Rate Risk
Floating rate debt at January 31, 2022 and 2021 totaled zero and $21.2 million (of which 10 million was denominated in Swiss Francs), respectively. For
fiscal 2022, the Company had weighted average borrowings of $4.8 million with a weighted average interest rate of 2.79%. The Company does not hedge
these interest rate risks. Based on the average floating rate debt outstanding during fiscal 2022, a one-percent increase or decrease in the average interest
rate during the period would have resulted in a change to interest expense of approximately $48,000 for the fiscal year ended January 31, 2022.
42
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets at January 31, 2022 and 2021
Consolidated Statements of Operations for the fiscal years ended January 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Equity for the fiscal years ended January 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts for the fiscal years ended January 31, 2022, 2021 and 2020
Schedule
Number
Page
Number
50
52
53
54
55
56
57
S-1
43
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, it should be noted
that a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that its objectives will be met and
may not prevent all errors or instances of fraud.
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded
that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by this report.
The Company’s Chief Executive Officer and Chief Financial Officer have furnished the Sections 302 and 906 certifications required by the U.S. Securities
and Exchange Commission in this annual report on Form 10-K.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rule 13a-15(f) under the Exchange Act, for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, the
Company’s management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework
and criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, the Company’s management has concluded that the Company’s internal control over financial reporting
was effective as of January 31, 2022.
The effectiveness of the Company’s internal control over financial reporting as of January 31, 2022 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report, which appears under "Index to Consolidated Financial Statements - Report of
Independent Registered Public Accounting Firm."
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three
months ended January 31, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
44
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in the Company’s Proxy Statement for the 2022 annual meeting of shareholders under the captions
“Election of Directors” and “Management” and is incorporated herein by reference.
Information on the beneficial ownership reporting for the Company’s directors and executive officers will be contained in the Company’s Proxy Statement
for the 2022 annual meeting of shareholders under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by
reference.
Information on the Company’s Audit Committee and Audit Committee Financial Expert will be contained in the Company’s Proxy Statement for the 2022
annual meeting of shareholders under the caption “Information Regarding the Board of Directors and Its Committees” and is incorporated herein by
reference.
The Company has adopted and posted on its website at www.movadogroup.com a Code of Business Conduct and Ethics that applies to all directors,
officers and employees, including the Company’s Chief Executive Officer, Chief Financial Officer and principal financial and accounting officers. The
Company will post any amendments to the Code of Business Conduct and Ethics, and any waivers that are required to be disclosed by SEC regulations, on
the Company’s website.
Item 11. Executive Compensation
The information required by this item will be included in the Company’s Proxy Statement for the 2022 annual meeting of shareholders under the captions
“Executive Compensation” and “Compensation of Directors” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in the Company’s Proxy Statement for the 2022 annual meeting of shareholders under the caption
“Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item will be included in the Company’s Proxy Statement for the 2022 annual meeting of shareholders under the caption
“Certain Relationships and Related Transactions” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be included in the Company’s Proxy Statement for the 2022 annual meeting of shareholders under the caption
“Fees Paid to PricewaterhouseCoopers LLP” and is incorporated herein by reference.
45
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report
1.
Financial Statements:
PART IV
See Index to Consolidated Financial Statements on page 43 included in Item 8 of Part II of this annual report.
2.
Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3.
Index to Exhibits:
Exhibit
Number
Description
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Sale and Purchase Agreement dated July 3, 2017 between MGS Distribution Ltd and Lesa Bennett and Jemma Fennings in respect of the
share capital of JLB Brands Ltd. Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended July 31, 2017 filed on August 29, 2017.
Securities Purchase Agreement, dated as of August 15, 2018, relating to the acquisition of MVMT Watches, Inc. Incorporated by reference
to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2018 filed on December 4, 2018.
Restated By-Laws of the Registrant. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July
14, 2014.
Restated Certificate of Incorporation of the Registrant as amended. Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-K for the year ended January 31, 2019 filed on March 28, 2019.
Specimen Common Stock Certificate. Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for
the year ended January 31, 1997 filed on April 18, 1997.
Description of Securities. Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K for the year ended
January 31, 2020 filed on March 26, 2020.
Master Credit Agreement dated August 17, 2004 and August 20, 2004 between MGI Luxury Group S.A. and UBS AG. Incorporated herein
by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004. *
Amended and Restated Credit Agreement, dated as of October 12, 2018, among the Company, certain U.S. and Swiss subsidiaries thereof,
the lenders party thereto and Bank of America, N.A. as administrative agent (the “Corporate Credit Agreement”). Incorporated herein by
reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2018 filed on December 4,
2018. *
Second Amendment to the Corporate Credit Agreement, dated June 5, 2020 and effective as of April 30, 2020. Incorporated herein by
reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 filed on June 9, 2020. *
Consent dated January 11, 2021 related to the Corporate Credit Agreement’s restricted payments covenant. Incorporated herein by reference
to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the year ended January 31, 2021 filed on March 25, 2021.*
Third Amendment to the Corporate Credit Agreement, dated October 12, 2021. Incorporated herein by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 2021 filed on November 23, 2021.*
Security and Pledge Agreement, dated as of January 30, 2015, by and among Movado Group, Inc., Movado Group Delaware Holdings
Corporation, Movado Retail Group, Inc. and Movado LLC, as Grantors, and Bank of America, N.A., as administrative agent. Incorporated
herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed February 5, 2015. *
46
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Movado Group, Inc. 1996 Stock Incentive Plan, Amended and Restated as of April 4, 2013. Incorporated herein by reference to Annex A to
the Registrant’s Definitive Proxy Statement on Schedule 14A filed on May 2, 2013. **
Form of Stock Award Agreement under the Movado Group, Inc. 1996 Stock Incentive Plan, amended and restated as of April 4, 2013.
Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2015. **
Form of Option Award Agreement under the Movado Group, Inc. 1996 Stock Incentive Plan, amended and restated as of April 4, 2013.
Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2015. **
Movado Group Inc. Amended and Restated Deferred Compensation Plan for Executives, effective January 1, 2013. Incorporated herein by
reference to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on May 2, 2013. **
Lease made December 21, 2000 between the Registrant and Mack-Cali Realty, L.P. for premises in Paramus, New Jersey together with First
Amendment thereto made December 21, 2000. Incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form
10-K for the year ended January 31, 2001.
Second Amendment of Lease dated July 26, 2001 between Mack-Cali Realty, L.P., as landlord, and Movado Group, Inc., as tenant, further
amending lease dated as of December 21, 2000. Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q filed for the quarter ended October 31, 2001.
Third Amendment of Lease dated November 6, 2001 between Mack-Cali Realty, L.P., as lessor, and Movado Group, Inc., as lessee, for
additional space at Mack-Cali II, One Mack Drive, Paramus, New Jersey. Incorporated herein by reference to Exhibit 10.4 to the Registrant’s
Quarterly Report on Form 10-Q filed for the quarter ended October 31, 2001.
Fifth Amendment of Lease dated October 20, 2003 between Mack-Cali Realty, L.P. as landlord, and the Registrant as tenant further
amending the lease dated as of December 21, 2000. Incorporated herein by reference to Exhibit 10.29 to the Registrant’s Annual Report on
Form 10-K for the year ended January 31, 2004.
Tenth Amendment to Lease dated March 10, 2011 between Mack-Cali Realty, L.P., as landlord, and the Registrant, as tenant, further
amending the lease dated as of December 21, 2000. Incorporated herein by reference to Exhibit 10.36 to the Registrant’s Annual Report on
Form 10-K for the year ended January 31, 2011.
Thirteenth Amendment to Lease dated October 24, 2017 between Mack-Cali Realty, L.P., as landlord, and the Registrant, as tenant, further
amending the lease dated as of December 21, 2000. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended October 31, 2017 filed on November 21, 2017.
Lease Agreement dated May 22, 2000 between Forsgate Industrial Complex and the Registrant for premises located at 105 State Street,
Moonachie, New Jersey. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended April 30, 2000.
First Amendment dated as of February 27, 2009 to Lease dated May 22, 2000 between Forsgate Industrial Complex as Landlord and Movado
Group, Inc. as Tenant for the premises known as 105 State Street, Moonachie, New Jersey. Incorporated herein by reference to Exhibit 10.42
to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2009.
Third Amendment dated as of November 14, 2019 to Lease dated May 22, 2000 between Forsgate Industrial Complex as Landlord and
Movado Group, Inc. as Tenant for the premises known as 105 State Street, Moonachie, New Jersey. Incorporated herein by reference to
Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2020 filed on March 26, 2020.
Amended and Restated License Agreement dated January 13, 2015 between the Registrant, Swissam Products Limited and Coach, Inc.
Incorporated herein by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2015.
First Amendment dated January 6, 2020, to the Amended and Restated License Agreement dated January 13, 2015 between the Registrant,
Swissam Products Limited and Tapestry, Inc. (f/k/a Coach, Inc.). Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed January 8, 2020.
Second Amendment dated August 25, 2021, to the Amended and Restated License Agreement with Tapestry, Inc. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed August 31, 2021.
47
10.17
10.18
10.19
10.20
10.21
10.22
10.23
21.1
23.1
31.1
31.2
32.1
32.2
101
Amended and Restated License Agreement between MGI Luxury Group, S.A., a wholly-owned Swiss subsidiary of Movado Group, Inc.,
Lacoste S.A., Sporloisirs S.A. and Lacoste Alligator S.A., dated March 28, 2014 with an effective date as of January 1, 2015. Incorporated
herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed, December 30, 2014.
License Agreement among Tommy Hilfiger Licensing LLC, Movado Group, Inc. and Swissam Products Limited, effective as of January 1,
2020, amending and restating the prior license agreement among such parties dated September 16, 2009. Incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 filed on June 9, 2020.
License Agreement, dated as of August 19, 2020, among Calvin Klein, Inc., Movado Group, Inc. and Swissam Products Limited.
Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2020
filed on November 24, 2020.
Amended and Restated License Agreement, effective as of January 1, 2012 by and between MGI Luxury Group, S.A. and Hugo Boss
Trademark Management GmbH & Co. KG. Incorporated herein by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-
K for the year ended January 31, 2012.
Term Sheet dated October 11, 2017 governing the amendment and restatement of the Amended and Restated License Agreement, effective as
of January 1, 2012 by and between MGI Luxury Group, S.A. and Hugo Boss Trademark Management GmbH & Co. KG. Incorporated herein
by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2017 filed on November
21, 2017.
Amended and Restated License Agreement entered into as of November 23, 2017 by and between the Registrant and Ferrari S.p.A.
Incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2018.
Amendment No.3, dated October 13, 2021, to the Amended and Restated License Agreement with Ferrari S,p.A. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 19, 2021.
Subsidiaries of the Registrant. ***
Consent of PricewaterhouseCoopers LLP. ***
Certification of Chief Executive Officer. ***
Certification of Chief Financial Officer. ***
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. ***
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. ***
The following financial information from Movado Group, Inc.’s Form 10-K for the year ended January 31, 2022 filed with the SEC,
formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements
of Operations; (iii) the Consolidated Statements of Comprehensive Income (Loss); (iv) the Consolidated Statements of Cash Flows; (v)
Consolidated Statements of Changes in Equity; (vi) the Notes to the Consolidated Financial Statements and (vii) Schedule II – Valuation and
Qualifying Accounts and Reserves. XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL Document.
104
Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).
* Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to long-term debt not exceeding 10 percent of the total assets of Registrant
and its subsidiaries on a consolidated basis are not filed as exhibits to this report. Registrant agrees to furnish a copy of any such instrument to the
Commission upon request.
** Constitutes a compensatory plan or arrangement.
*** Filed herewith.
Item 16. Form 10-K Summary
None.
48
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 24, 2022
MOVADO GROUP, INC.
(Registrant)
By: /s/ Efraim Grinberg
Efraim Grinberg
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
Dated: March 24, 2022
/s/ Efraim Grinberg
Efraim Grinberg
Chairman of the Board of Directors, Director
and Chief Executive Officer
/s/ Sallie A. DeMarsilis
Sallie A. DeMarsilis
Executive Vice President, Chief Operating Officer,
Chief Financial Officer
and Principal Accounting Officer
/s/ Peter Bridgman
Peter Bridgman
Director
/s/ Alex Grinberg
Alex Grinberg
Director
/s/ Alan H. Howard
Alan H. Howard
Director
/s/ Richard D. Isserman
Richard D. Isserman
Director
/s/ Ann Kirschner
Ann Kirschner
Director
/s/ Maya Peterson
Maya Peterson
Director
/s/ Stephen Sadove
Stephen Sadove
Director
49
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Movado Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Movado Group, Inc. and its subsidiaries (the “Company”) as of January 31, 2022 and
2021, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three
years in the period ended January 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the
period ended January 31, 2022 appearing on page S-1 (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
50
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Component Parts Inventory
As described in Notes 1 and 7 to the consolidated financial statements, inventory is valued at the lower of cost or net realizable value. The Company
performs reviews of its on-hand inventory, including component parts, to determine amounts, if any, of inventory that is deemed discontinued, excess, or
unsaleable. As of January 31, 2022, the Company’s component parts inventory balance was $29.8 million. As disclosed by management, the Company
retains adequate levels of component parts to facilitate both the manufacturing of its watches as well as the after-sales service of its watches for an extended
period of time after the discontinuance of the manufacturing of such watches. The adjustment to reduce the value of component parts below their cost to
their net realizable value is based on the timing of when a component part is no longer associated with a watch that is being manufactured as well as the
significant assumption related to the anticipated utilization of component parts for after-sales service.
The principal considerations for our determination that performing procedures relating to the valuation of component parts inventory is a critical audit
matter are (i) the significant judgment by management when determining the valuation of component parts inventory and (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and in evaluating the timing of when a component part is no longer associated with a watch that
is being manufactured as well as the significant assumption related to the anticipated utilization of component parts for after-sales service.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the valuation of component parts inventory. These
procedures also included, among others, testing management’s process for determining the valuation of component parts inventory, which included (i)
evaluating the appropriateness of management’s valuation methodology; (ii) testing the completeness and accuracy of underlying data used in the
valuation; and (iii) evaluating the reasonableness of the timing of when a component part is no longer associated with a watch that is being manufactured as
well as the significant assumption related to the anticipated utilization of component parts for after-sales service. Evaluating the timing of when a
component part is no longer associated with a watch that is being manufactured as well as the significant assumption related to the anticipated utilization of
component parts for after-sales service involved evaluating the reasonableness considering (i) management’s process for determining the timing of when a
component part is no longer associated with a watch that is being manufactured; (ii) historical utilization of component parts for after-sales service; (iii) the
Company’s objectives and strategies; (iv) consistency with external market and industry data; and (v) consistency with evidence obtained in other areas of
the audit.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 24, 2022
We have served as the Company’s auditor since 1976.
51
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
January 31,
2022
January 31,
2021
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories
Other current assets
Income taxes receivable
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Deferred and non-current income taxes
Other intangibles, net
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Accrued payroll and benefits
Current operating lease liabilities
Income taxes payable
Total current liabilities
Loans payable to bank
Deferred and non-current income taxes payable
Non-current operating lease liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest
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;
28,633,025 and 28,078,241 shares issued and outstanding, respectively
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
6,524,805 and 6,610,509 shares issued and outstanding, respectively
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Treasury Stock, 12,266,978 and 11,492,591 shares, respectively, at cost
Total Movado Group, Inc. shareholders' equity
Noncontrolling interest
Total equity
Total liabilities, redeemable noncontrolling interest and equity
$
$
$
$
277,128 $
91,558
160,283
16,974
7,941
553,884
19,470
68,599
42,596
13,507
63,104
761,160 $
46,011 $
48,522
25,117
13,693
18,123
151,466
—
19,614
62,730
50,264
284,074
2,311
—
286
65
222,615
413,587
85,295
(249,040 )
472,808
1,967
474,775
761,160 $
223,811
76,931
152,580
23,479
24,850
501,651
22,349
76,070
42,507
17,081
59,599
719,257
28,187
51,124
18,047
15,861
14,452
127,671
21,230
21,895
68,412
50,115
289,323
2,600
—
281
65
214,043
341,641
92,540
(223,306 )
425,264
2,070
427,334
719,257
See Notes to Consolidated Financial Statements
52
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Impairment of goodwill and intangible assets (Note 6)
Total operating expenses
Operating income/(loss)
Non-operating income/(expense):
Other income (Note 19)
Gain on sale of a non-operating asset
Change in contingent consideration (Note 12)
Interest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes (Note 14)
Net income/(loss)
Less: Net income/(loss) attributable to noncontrolling interest
Net income/(loss) attributable to Movado Group, Inc.
Basic income/(loss) per share:
Weighted basic average shares outstanding
Net income/(loss) per share attributable to Movado Group, Inc.
Diluted income/(loss) per share:
Weighted diluted average shares outstanding
Net income/(loss) per share attributable to Movado Group, Inc.
2022
Fiscal Year Ended January 31,
2021
2020
732,393 $
313,328
419,065
301,574
-
301,574
117,491
530
—
—
(688 )
117,333
24,774
92,559
960
91,599 $
23,190
3.95 $
23,679
3.87 $
506,397 $
235,898
270,499
256,707
155,919
412,626
(142,127 )
387
1,317
—
(1,959 )
(142,382 )
(31,188 )
(111,194 )
324
(111,518 ) $
23,239
(4.80 ) $
23,239
(4.80 ) $
700,966
326,077
374,889
331,898
—
331,898
42,991
86
—
15,356
(930 )
57,503
15,124
42,379
(320 )
42,699
23,123
1.85
23,297
1.83
$
$
$
$
See Notes to Consolidated Financial Statements
53
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income/(loss)
Other comprehensive income/(loss):
Net unrealized gain on investments, net of tax provision of $16, $0 and $2, respectively
Net change in effective portion of hedging contracts, net of tax provision of $38
Amortization of prior service cost, net of tax provision of $16, $6 and $15, respectively
Net actuarial gain/(loss) arising during period, net of tax provision/(benefit) of $249, ($98) and
($15), respectively
Foreign currency translation adjustments
Total other comprehensive (loss)/income, net of taxes
Less:
Comprehensive income/(loss) attributable to noncontrolling interests:
Net income/(loss)
Foreign currency translation adjustments
Total comprehensive income/(loss) attributable to noncontrolling interests
Total comprehensive income/(loss) attributable to Movado Group, Inc.
2022
Fiscal Year Ended January 31,
2021
2020
$
92,559 $
(111,194 ) $
42,379
48
194
57
897
(8,441 )
(7,245 )
—
—
23
(354 )
7,821
7,490
960
(420 )
540
84,774 $
324
474
798
(104,502 ) $
$
5
—
53
(52 )
4,537
4,543
(320 )
(143 )
(463 )
47,385
See Notes to Consolidated Financial Statements
54
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided by operating
activities:
2022
Fiscal Year Ended January 31,
2021
2020
$
92,559
$
(111,194 )
$
42,379
Impairment of goodwill and intangible assets
Non-cash corporate initiatives
Change in contingent consideration
Gain on sale of a non-operating asset
Depreciation and amortization
Transactional (gains)/losses
Provision for inventories and accounts receivable
Deferred income taxes
Stock-based compensation
Cost savings initiatives
Other
Changes in assets and liabilities:
Trade receivables
Inventories
Other current assets
Income taxes receivable
Accounts payable
Accrued liabilities
Accrued payroll and benefits
Income taxes payable
Other non-current assets
Other non-current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Long-term investments
Proceeds from sale of a non-operating asset
Trademarks and other intangibles
Acquisitions, net of cash acquired
Proceeds from sale of an asset held for sale
Net cash used in investing activities
Cash flows from financing activities:
Repayments of bank borrowings
Proceeds from bank borrowings
Dividends paid
Stock repurchase
Distribution of noncontrolling interest earnings
Contributions from noncontrolling interest
Stock awards and options exercised and other changes
Debt issuance cost
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Non-cash financing activities:
Dividends declared but not paid
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash included in other non-current assets
Cash, cash equivalents, and restricted cash
$
$
$
$
See Notes to Consolidated Financial Statements
55
—
(926 )
—
—
12,463
(808 )
4,795
(208 )
4,952
—
561
(18,550 )
(15,436 )
2,054
17,089
18,269
1,368
7,263
1,430
3,258
681
130,814
(5,656 )
(1,967 )
—
(291 )
—
—
(7,914 )
(21,140 )
—
(21,973 )
(22,599 )
(1,230 )
298
324
(294 )
(66,614 )
(2,993 )
53,293
224,423
277,716
$
155,919
3,722
—
(1,317 )
14,112
(836 )
3,786
(18,292 )
5,089
—
126
2,424
21,596
2,261
(21,037 )
(7,811 )
4,480
11,344
2,142
1,323
573
68,410
(3,018 )
—
1,317
(164 )
—
—
(1,865 )
(64,465 )
30,879
—
—
—
—
(497 )
(300 )
(34,383 )
5,823
37,985
186,438
224,423
$
—
—
(15,356 )
—
16,381
1,457
3,152
4,352
6,373
(320 )
923
5,908
(5,549 )
8,103
(7,394 )
(3,642 )
(4,944 )
(12,469 )
(5,393 )
(2,398 )
507
32,070
(12,713 )
—
—
(255 )
(639 )
240
(13,367 )
—
—
(18,400 )
(4,199 )
—
—
(1,266 )
—
(23,865 )
1,141
(4,021 )
190,459
186,438
-
$
2,320
$
-
277,128 $
588
277,716 $
223,811 $
612
224,423 $
185,872
566
186,438
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share amounts)
Balance, January 31, 2019
$
— $
277 $
65 $
201,814 $
431,180 $
80,507 $
Preferred
Stock
Common
Stock (1)
Class A
Common
Stock (2)
Capital
in Excess
of Par
Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Noncontrolling
Interests
Total
Movado
Group, Inc.
Shareholders'
Equity
— $
496,655 $
Treasury
Stock
(217,188 ) $
Net income/(loss) attributable to Movado
Group, Inc.
Dividends ($0.80 per share)
Stock options exercised
Joint venture purchase
Stock repurchase
Supplemental executive retirement plan
Stock-based compensation expense
Net unrealized gain on investments, net of tax
provision of $2
Amortization of prior service cost, net of tax
provision of $15
Net actuarial loss during period, net of tax
benefit of $15
Foreign currency translation adjustment (3)
2
42,699
(18,400 )
154
132
6,373
Balance, January 31, 2020
—
279
65
208,473
455,479
Net (loss)/income attributable to Movado
Group, Inc.
Dividends ($0.10 per share) (4)
Stock options exercised
Supplemental executive retirement plan
Stock-based compensation expense (5)
Net unrealized loss on investments, net of tax
benefit of $0
Amortization of prior service cost, net of tax
provision of $6
Net actuarial loss during period, net of tax
benefit of $98
Foreign currency translation adjustment (3)
2
(111,518 )
(2,320 )
(2 )
141
5,431
Balance, January 31, 2021
—
281
65
214,043
341,641
Net income/(loss) attributable to Movado
Group, Inc.
Dividends ($0.85 per share)
Distribution of noncontrolling interest
earnings
Joint venture purchase
Stock options exercised
Stock repurchase
Supplemental executive retirement plan
Stock-based compensation expense
Net unrealized gain on investments, net of tax
provision of $16
Net change in effective portion of hedging
contracts, net of tax provision of $38
Amortization of prior service cost, net of tax
provision of $16
Net actuarial gain arising during period, net of
tax provision of $249
Foreign currency translation adjustment (3)
91,599
(19,653 )
5
3,454
166
4,952
Balance, January 31, 2022
$
— $
286 $
65 $
222,615 $
413,587 $
(1,422 )
(4,199 )
(222,809 )
(497 )
5
53
(52 )
4,537
85,050
23
(354 )
7,821
92,540
(223,306 )
(3,135 )
(22,599 )
107
614
(14 )
707
1,191
172
2,070
1,023
(1,230 )
298
48
194
57
897
(8,441 )
85,295 $
(249,040 ) $
(194 )
1,967 $
42,806
(18,400 )
(1,266 )
614
(4,199 )
132
6,373
5
53
(52 )
4,523
527,244
(110,327 )
(2,320 )
(497 )
141
5,431
-
23
(354 )
7,993
427,334
92,622
(19,653 )
(1,230 )
298
324
(22,599 )
166
4,952
48
194
57
897
(8,635 )
474,775 $
Redeemable
Noncontrolling
Interests
3,721
(427 )
(129 )
3,165
(867 )
302
2,600
(63 )
(226 )
2,311
(1)
(2)
Each share of common stock is entitled to one vote per share on all matters submitted to a vote of the shareholders.
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.
(4) Dividends declared on January 11, 2021 to shareholders of record on January 21, 2021 payable on February 5, 2021.
(5)
Includes $0.4 million related to the Restructuring Plan of the corporate initiatives.
See Notes to Consolidated Financial Statements
56
NOTES TO MOVADO GROUP, INC.’S CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (together with its subsidiaries, the “Company”) designs, sources, markets and distributes quality watches with prominent brands across
most price categories of the watch industry. In fiscal 2022, the Company marketed the following distinct brands of watches: Movado, Concord, Ebel, Olivia
Burton, MVMT, Coach, Tommy Hilfiger, Hugo Boss, Lacoste, Calvin Klein and Scuderia Ferrari. The Company also designs, sources, markets and
distributes jewelry and other accessories under certain of its brands.
Movado (with the exception of certain Movado collections), Ebel and Concord watches, as well as a limited number of Calvin Klein watch styles, are
manufactured in Switzerland by independent third-party assemblers using Swiss movements and other parts sourced by the Company’s Swiss operations.
Movado smart watches include connected technology licensed from third parties that also provide end users with the necessary applications and cloud
services. All of the Company’s products are manufactured using components obtained from third party suppliers. Certain Movado collections of watches
are manufactured by independent contractors in Asia using Swiss movements. Coach, Hugo Boss, Lacoste, Olivia Burton, MVMT, Scuderia Ferrari,
Tommy Hilfiger and most Calvin Klein watches are manufactured by independent contractors in Asia. The Company’s jewelry and other accessories are
manufactured by independent contractors in Asia and, to a lesser extent, the United States.
In addition to its sales to trade customers and independent distributors, the Company sells directly to consumers via its e-commerce platforms and also
operates 47 retail outlet locations throughout the United States and four in Canada, through which it sells current and discontinued models and factory
seconds of all of the Company’s watches.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances
have been eliminated. To the extent a subsidiary is not wholly-owned, any related noncontrolling interests are included as a separate component of
Shareholders’ Equity.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates and assumptions are based on
management’s best estimates and judgment. On an on-going basis, the Company evaluates its estimates and judgement. These estimates include accounting
for sales discounts, returns, allowances and incentives, warranties, income taxes, depreciation, amortization, inventory write-downs, stock-based
compensation, pensions, contingencies and impairments. Actual results could differ from those estimates.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions
The financial statements of the Company’s international subsidiaries have been translated into United States dollars by translating balance sheet accounts at
year-end exchange rates and the weighted average exchange rate for each period for revenues, expenses, gains, losses and cash flows. Foreign currency
transaction gains and losses are charged or credited to earnings as incurred. Foreign currency translation gains and losses are reflected in the equity section
of the Company’s consolidated balance sheets in Accumulated Other Comprehensive Income.
Cash and Cash Equivalents and Restricted Cash
Cash equivalents include all highly liquid investments with original maturities at date of purchase of three months or less.
Restricted cash is comprised of cash or cash equivalents which has been placed into an account that is restricted for a specific use and from which the
Company cannot withdraw the cash on demand.
57
Trade Receivables
Trade receivables as shown on the consolidated balance sheets are net of various allowances. In the first quarter of fiscal 2021, the Company adopted ASU
2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). As a result of
adoption, the Company replaced its methodology in determining the allowance for doubtful accounts which was based on an analysis of the aging of
accounts receivable, assessments of collectability based on historical trends, the financial condition of the Company’s customers and an evaluation of
economic conditions with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss rate for its trade
accounts receivables. The adoption had no material impact on the Company’s Consolidated Financial Statements. The Company writes off uncollectible
trade receivables once collection efforts have been exhausted and third parties confirm the balance is not recoverable.
Included in Trade receivables include amounts due from trade customers including department stores, jewelry store chains, independent jewelers, third-
party e-commerce retailers and payment processors used by the Company's owned e-commerce websites. All of the Company’s watch brands are also
marketed outside the U.S. through a network of independent distributors. Accounts receivable are stated net of reserves for expected credit losses, returns
and allowances of $26.4 million and $26.8 million at January 31, 2022 and 2021, respectively. Additionally, zero and $2.4 million of receivables and
allowances were recorded in non-current assets as of January 31, 2022 and 2021, respectively. Accounts receivable are also stated net of co-operative
advertising allowances of $5.6 million and $3.8 million at January 31, 2022 and 2021, respectively. Co-operative advertising allowances are credits taken
by the customer at a future date on previously executed co-operative advertising.
The Company’s concentrations of credit risk arise primarily from accounts receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major national chain and department stores and third-party e-commerce retailers. The
Company’s results of operations could be materially adversely affected in the event any of these customers or a group of these customers defaulted on all or
a significant portion of their obligations to the Company as a result of financial difficulties. As of January 31, 2022, except for those accounts provided for
in the allowance for doubtful accounts, the Company knew of no situations with any of the Company’s major customers which would indicate any such
customer’s inability to make its required payments.
No single customer accounted for more than 10% of net sales during any of the years in the three-year period ended January 31, 2022. No single customer
accounted for more than 10% of the Company’s account receivable balance at January 31, 2022 or 2021.
Inventories
The Company values its inventory at the lower of cost or net realizable value. Cost is determined using the average cost method. The Company performs
reviews of its on-hand inventory to determine amounts, if any, of inventory that is deemed discontinued, excess, or unsaleable. Inventory classified as
discontinued, together with the related component parts that can be assembled into saleable finished goods, is sold primarily through the Company’s retail
outlet locations. The Company retains adequate levels of component parts to facilitate both the manufacturing of its watches as well as the after-sales
service of its watches for an extended period of time after the discontinuance of the manufacturing of such watches. The adjustment to reduce the value of
component parts below their cost to their net realizable value is based on the timing of when a component part is no longer associated with a watch that is
being manufactured as well as the significant assumption related to the anticipated utilization of component parts for after-sales service.
Property, Plant and Equipment
Property, plant and equipment, including computer software, are stated at cost less accumulated depreciation. The Company capitalizes certain computer
software costs after technological feasibility has been established. Depreciation and amortization are computed using the straight-line method based on the
estimated useful lives of the assets. The cost of property, plant and equipment and related depreciation and amortization are removed from the accounts
upon the disposition or retirement of such assets and the resulting gain or loss is reflected in operating income.
Goodwill
At the time of an acquisition, in accordance with applicable guidance, the Company records all acquired net assets at their estimated fair values. These
estimated fair values are based on management’s assessments and independent third-party appraisals. The excess of the purchase consideration plus the fair
value of any noncontrolling interest in the acquired company over the aggregate estimated fair values of the acquired net assets, including any contingent
consideration, is recorded as goodwill.
Goodwill is not amortized but is assessed for impairment at least annually on November 1st. Under applicable guidance, the Company generally performs
its annual goodwill impairment analysis using a qualitative approach to determine whether it is more likely than not
58
that the fair value of goodwill is less than its carrying value. If, based on the results of the qualitative assessment, it is concluded that it is more likely than
not that the fair value of goodwill is less than its carrying value, a quantitative test is performed.
The quantitative impairment test is performed to measure the amount of impairment loss, if any. The quantitative impairment test identifies the existence of
potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If a reporting unit’s carrying amount
exceeds its fair value, the Company will record an impairment charge, as an operating expense item, based on that difference. The impairment charge will
be limited to the amount of goodwill allocated to that reporting unit.
Determination of the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is based on management’s
assessment, including the consideration of independent third-party appraisals when necessary. Furthermore, this determination is subjective in nature and
involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an
impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market
comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates,
growth rates, and determination of appropriate market comparisons.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast
majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and
the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in
the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as
well as the Watch and Accessory Brands reporting unit. See Note 6 for further discussion.
At January 31, 2022 and 2021 goodwill was zero.
Intangibles
Intangible assets consist primarily of trade names, customer relationships and trademarks. In accordance with applicable guidance, the Company estimates
and records the fair value of purchased intangible assets at the time of their acquisition. The fair values of these intangible assets are estimated based on
independent third-party appraisals. Finite-lived intangible assets are amortized over their respective estimated useful lives, which range from three to ten
years, and are evaluated for impairment periodically and whenever events or changes in circumstances indicate that their related carrying values may not be
fully recoverable. Estimates of fair value for finite-lived intangible assets are primarily determined using discounted cash flows analysis of such assets,
with consideration of market comparisons and recent transactions. This approach uses significant estimates and assumptions, including projected future
cash flows, discount rates and growth rates. The Company determined that there was no impairment in fiscal 2022.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast
majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and
the recent decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in
the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived assets as
well as the Watch and Accessory Brands reporting unit. See Note 6 for further discussion.
Noncontrolling Interest
Redeemable noncontrolling interests in subsidiaries that are redeemable for cash or other assets outside of the Company’s control are classified as
mezzanine equity, outside of equity and liabilities, at the greater of the carrying value or the redemption value. The increases and decreases in the
redemption amount are recorded with corresponding adjustments against the Capital in excess of par value and are reflected in the computation of earnings
per share using the two-class method.
Noncontrolling interest is recognized as equity in the Company’s consolidated balance sheets and represents ownership interests in the Company’s
subsidiaries held by third parties.
Long-Lived Assets
The Company periodically reviews the estimated useful lives of its depreciable assets based on factors including historical experience, the expected
beneficial service period of the asset, the quality and durability of the asset and the Company’s maintenance policy including periodic upgrades. Changes in
useful lives are made on a prospective basis unless factors indicate the carrying amounts of the assets may not be recoverable and an impairment is
necessary.
59
The Company performs an impairment review of its long-lived assets once events or changes in circumstances indicate, in management’s judgment, that
the carrying value of such assets may not be recoverable. When such a determination has been made, management compares the carrying value of the asset
groups with their estimated future undiscounted cash flows. If it is determined that an impairment has occurred, the fair value of the asset group is
determined and compared to its carrying value. The excess of the carrying value over the fair value, if any, is recognized as a loss during that period. The
impairment is calculated as the difference between asset carrying values and their estimated fair values. Other than as it relates to intangibles, as discussed
in Note 6, no impairment charge was recorded in fiscal 2022 or in fiscal 2021.
Investments Without Readily Determinable Fair Values
From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its
business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in such companies. The Company will
regularly evaluate the carrying value of its investments. There were no adjustments to the original cost value during fiscal 2022. The amounts are recorded
in Other non-current assets in the Consolidated Balance Sheet at January 31, 2022.
Derivative Financial Instruments
The Company accounts for its derivative financial instruments in accordance with the accounting guidance which requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at fair value. A significant portion of the
Company’s purchases are denominated in Swiss Francs and, to a lesser extent, the Japanese Yen. The Company also sells to third-party customers in a
variety of foreign currencies, most notably the Euro, Swiss Franc and the British Pound. The Company reduces its exposure to the Swiss Franc, Euro,
British Pound, Chinese Yuan and Japanese Yen exchange rate risks through a hedging program. Under the hedging program, the Company manages most of
its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural offsets. In the event these
exposures do not offset, from time to time the Company uses various derivative financial instruments to further reduce the net exposures to currency
fluctuations, predominately forward and option contracts. Certain of these contracts meet the requirements of qualified hedges. In these circumstances, the
Company designates and documents these derivative instruments as a cash flow hedge of a specific underlying exposure, as well as the risk management
objectives and strategies for undertaking the hedge transactions. Changes in the fair value of hedges designated and documented as a cash flow hedge and
which are highly effective, are recorded in other comprehensive income until the underlying transaction affects earnings, and then are later reclassified into
earnings in the same account as the hedged transaction. The earnings impact is mostly offset by the effects of currency movements on the underlying
hedged transactions. The Company formally assesses, both at the inception and at each fiscal quarter thereafter, the effectiveness of the derivative
instrument hedging the underlying forecasted cash flow transaction. The Company does not exclude any designated cash flow hedges from its effective
testing. Hedge accounting is discontinued if it is determined that the derivative is not highly effective.
From time to time the Company uses forward exchange contracts, which do not meet the requirements of qualified hedges, to offset its exposure to certain
foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these
derivatives are recognized in earnings in the period they arise, thereby offsetting the current earnings effect resulting from the revaluation of the related
foreign currency receivables and liabilities.
All of the Company’s derivative instruments have fair values which can be determined directly or indirectly based on available market data. The Company
does not enter into any derivative instruments for trading purposes.
Revenue Recognition
Wholesale revenue is recognized and recorded when a contract is in place, obligations under the terms of a contract with the customer are satisfied and
control is transferred to the customer. Such revenue is measured as the ultimate amount of consideration the Company expects to receive in exchange for
transferring goods including variable consideration. The Company considers transfer of control passes to the wholesale customer upon shipment or upon
receipt depending on the agreement with the customer and shipping terms. Control passes to outlet store customers at the time of sale and to substantially
all e-commerce customers upon shipment. Prior to January 1, 2021, the requirement for recognizing revenue for e-commerce was met upon delivery to the
customer. Factors considered in the transfer of control include the right to payment, transfer of legal title, physical possession and customer acceptance of
the goods and whether significant risks and rewards for the goods belong with the customer. The Company records estimates of variable consideration,
which includes sales returns, markdowns, volume-based programs and sales and cash discount allowances as a reduction of revenue in the same period that
the sales are recorded. These estimates are based upon the expected value method considering all reasonably available information including historical
analysis, customer agreements and/or currently known factors that arise in the normal course of business. Returns, discounts and allowances have
historically been within the Company’s expectations and the provisions established.
60
The future provisional rates may differ from those experienced in the past. Taxes imposed by governmental authorities on the Company's revenue-
producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
The Company’s sale of smart watches contains multiple performance obligations. The Company allocates revenue to each performance obligation using the
relative standalone selling price method. The Company determines the standalone selling prices based on the prices charged to customers. Amounts
allocated to the delivered smart watch collections and the related essential software are recognized at the time of sale. The Company’s smart watch
collections have been available in limited quantities and in limited distribution, and, as a result, the amounts related to cloud service and app updates were
immaterial to all periods presented and thereby recognized at time of sale.
The Company has considered each transaction to sell goods as separate and distinct, with no additional promises made. The Company uses the
understanding of what the customer expects to receive as the final product to determine whether goods or services should be combined and accounted for as
a single performance obligation. The Company does not incur significant costs to obtain or fulfill its contracts.
Cost of Sales
Cost of sales of the Company’s products consist primarily of costs for raw materials, component costs, royalties, depreciation, amortization, assembly
costs, shipping to customers, design costs and unit overhead costs associated with the Company’s supply chain operations predominately in Switzerland
and Asia. The Company’s supply chain operations consist of logistics management of assembly operations and product sourcing predominately in
Switzerland and Asia and minor assembly in Switzerland. The Swiss watch movements used in the manufacture of Movado, Ebel and Concord watches, as
well as certain Calvin Klein watch styles, are purchased from three suppliers, one of which is a wholly-owned subsidiary of one of the Company’s
competitors. That competitive supplier announced in February 2021 that it will no longer sell mechanical Swiss movements to third parties, although it
continues to sell Swiss quartz movements. As a result of this development, the Company currently sources all of its mechanical Swiss movements from a
single supplier. Although mechanical movements are only used in a relatively small number of the Company’s watch styles, the elimination of a source of
supply could make it more difficult for the Company to satisfy its requirements for mechanical movements.
Selling, General and Administrative (“SG&A”) Expenses
The Company’s SG&A expenses consist primarily of marketing, selling, distribution, general and administrative expenses.
Marketing expenditures are based principally on overall strategic considerations relative to maintaining or increasing market share in markets that
management considers to be crucial to the Company’s continued success as well as on general economic conditions in the various markets around the world
in which the Company sells its products. Marketing expenses include salaries, various forms of media advertising, digital advertising (including social
media), customer acquisition costs and co-operative advertising with customers and distributors and other point of sale marketing and promotion spending.
Selling expenses consist primarily of salaries, sales commissions, salesforce travel and related expenses, credit card fees, depreciation and amortization,
expenses associated with the Company’s annual worldwide customer conference, and other industry trade shows and operating costs incurred in connection
with the Company’s retail business. Sales commissions vary with overall sales levels. Retail selling expenses consist primarily of payroll and related
expenses and store occupancy costs.
Distribution expenses consist of costs of running distribution centers and customer service, and include primarily salaries, rental and other occupancy costs,
security, depreciation and amortization of furniture and leasehold improvements and shipping supplies.
General and administrative expenses consist primarily of salaries and other employee compensation including performance-based compensation, employee
benefit plan costs, office rent, management information systems costs, professional fees, bad debts, depreciation and amortization of furniture, computer
software, leasehold improvements, amortization of finite-lived intangible assets, patent and trademark expenses and various other general corporate
expenses.
Warranty Costs
All watches sold by the Company come with limited warranties covering the movement against defects in material and workmanship for periods ranging
from two to three years from the date of purchase. In addition, the warranty period is five years for the gold plating for Movado watch cases and bracelets.
When changes in warranty costs are experienced, the Company will adjust the warranty liability as required. The Company records an estimate for future
warranty costs based on historical repair costs. Warranty costs have historically been within the Company’s expectations and the provisions established. If
such costs were to substantially exceed estimates, they could have an adverse effect on the Company’s operating results.
61
Warranty liability, included in accrued liabilities in the consolidated balance sheets, and activity for the fiscal years ended January 31, 2022, 2021 and 2020
was as follows (in thousands):
Balance, beginning of year
Provision charged to operations
Settlements made
Balance, end of year
2022
2021
2020
$
$
2,411
$
1,885
(2,182 )
2,114
$
2,634
$
1,760
(1,983 )
2,411
$
2,703
2,203
(2,272 )
2,634
Pre-opening Costs
Marketing and administrative costs associated with the opening of retail stores are expensed in the period incurred.
Marketing
The Company expenses the production costs of an advertising campaign at the commencement date of the advertising campaign. Included in marketing
expenses are costs associated with co-operative advertising, media advertising, digital advertising, customer acquisition costs, production costs, costs of
point of sale materials and displays and internal payroll related costs. These costs are recorded as SG&A expenses. The Company participates in co-
operative advertising programs on a voluntary basis and receives a “separately identifiable benefit in exchange for the consideration.” Since the amount of
consideration paid to the retailer does not exceed the fair value of the benefit received by the Company, these costs are recorded as SG&A expenses as
opposed to being recorded as a reduction of revenue. Marketing expense for fiscal 2022, 2021 and 2020 was $119.1 million, $85.5 million and $135.3
million, respectively.
Included in other current assets and non-current assets in the consolidated balance sheets are the costs of certain prepaid advertising, including principally
product displays and point of sale materials and to a lesser extent licensing agreements and sponsorships. Prepaid advertising accounted for $0.6 million
and $6.6 million in other current assets at January 31, 2022 and 2021, respectively. Prepaid advertising accounted for $3.3 million and $2.6 million in other
non-current assets at January 31, 2022 and 2021, respectively.
Shipping and Handling Costs
Amounts charged to customers for shipping and handling were $1.9 million, $1.6 million and $2.5 million for fiscal years 2022, 2021 and 2020,
respectively. The costs related to shipping and handling were $13.0 million, $10.0 million and $12.8 million for fiscal years 2022, 2021 and 2020,
respectively. The amounts charged and incurred by the Company related to shipping and handling are included in net sales and cost of goods sold,
respectively.
Income Taxes
The Company, under ASC Topic 740, follows the asset and liability method of accounting for income taxes under which deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and tax rates in each jurisdiction where the Company
operates and applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any
future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more-likely-than-not basis. The
Company calculates estimated income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax expense
along with assessing temporary differences resulting from differing treatment of items for both book and tax purposes.
The Company follows guidance for accounting for uncertainty in income taxes. This guidance clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements and prescribes a recognition threshold and measurement standard for the financial statement recognition
and measurement of an income tax position taken or expected to be taken in a tax return. This guidance also provides guidance for de-recognition,
classification, interest and penalties, accounting in interim periods, disclosures and transitions. Interest and penalties, if any, related to unrecognized tax
benefits are recorded as income tax expense in the consolidated statement of operations and as deferred tax liabilities in the consolidated balance sheet.
62
The Company elected to account for the tax on GILTI as a period cost and therefore has not recorded deferred taxes related to GILTI.
Earnings Per Share
The Company presents net income/(loss) attributable to Movado Group, Inc. after adjusting for noncontrolling interests, as applicable, per share on a basic
and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is
computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.
The number of shares used in calculating basic and diluted earnings (loss) per share is as follows (in thousands):
Weighted average common shares outstanding:
Basic
Effect of dilutive securities:
Stock awards and options to purchase shares of common stock
Diluted
Fiscal Years
Ended January
31,
2021
2020
2022
23,190
23,239
23,123
489
23,679
—
23,239
174
23,297
For the fiscal years ended January 31, 2022, 2021 and 2020, approximately 237,000, 904,000 and 447,000 respectively, of potentially dilutive common
stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the fiscal year
ended January 31, 2021, the Company also had approximately 110,000 stock options outstanding that could potentially dilute earnings per share in future
periods that were excluded from the computation of diluted EPS because their effect would have been anti-dilutive given the net loss during the period.
Stock-Based Compensation
The Company utilizes the Black-Scholes option-pricing model which requires that certain assumptions be made to calculate the fair value of each option at
the grant date. The expected life of stock option grants is determined using historical data and represents the time period during which the stock option is
expected to be outstanding until it is exercised. The risk-free interest rate is based on the U.S. treasury note interest rate in effect on the date of grant for the
expected life of the stock option. The expected stock price volatility is derived from historical volatility and calculated based on the estimated term
structure of the stock option grant. The expected dividend yield is calculated using the Company’s expected average of annualized dividend yields and
applied over the expected term of the option. Management monitors stock option exercises and employee termination patterns to estimate forfeitures rates
within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.
In addition to stock options, the Company may also grant stock awards to employees and directors. The stock awards are generally in the form of time-
vesting restricted stock unit awards (pursuant to which unrestricted shares of Common Stock are issued to the grantee when the award vests) or
performance-based awards (under which vesting occurs only if one or more predetermined financial goals are achieved within the relevant performance
period); both are subject to the participant’s continued employment (or board service) with the Company through such vesting date. Stock awards generally
are cliff-vested after three years from the date of grant (one year in the case of directors’ awards). The fair value of stock awards is generally equal to the
closing price of the Company’s publicly-traded common stock on the grant date.
Compensation expense for all awards is accrued based on the estimated number of instruments for which the requisite service is expected to be rendered as
well as awards expected to be paid in cash. This estimate is reflected in the period the stock option and stock awards are either granted or canceled.
Expense related to stock options and stock awards compensation is recognized on a straight-line basis over the vesting term and only if the performance
condition is probably of being achieved.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) attributable to the Movado Group, Inc. and other gains and losses that are not included in net
income (loss), but are recorded directly in the consolidated statements of shareholders’ equity, such as the unrealized gains and losses on the translation of
the assets and liabilities of the Company’s foreign operations, unrealized gains or losses on available for sale securities and prior service costs and actuarial
gains (losses) associated with pension benefits, net of tax, that have not been recognized as components of net periodic benefit cost.
63
NOTE 2 – IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic and related public health measures materially impacted the Company’s operating results for the fiscal year ended January 31,
2021 and continue to materially affect how the Company and its customers and suppliers operate their businesses. Various containment and mitigation
measures that have at times been imposed by governmental and other authorities around the world (such as quarantines and other social distancing
requirements) have adversely affected sales of our products, given that those sales are heavily dependent on customer traffic in traditional retail stores, such
as those of our wholesale partners, and our Company stores. Such measures have also adversely impacted our supply chain, resulted in late deliveries and
have increased shipping costs. In addition, during the 2021 fiscal year and continuing through fiscal 2022, the Company has implemented remote work
policies and employed additional safety measures for on-site work. These policies and measures have caused strain for, and may have adversely impacted
the productivity of certain employees.
Although the COVID-19 pandemic's adverse impact on the Company has significantly diminished in recent quarters, the full magnitude of the effects on
the Company’s business is difficult to predict at this time and the pandemic is expected to continue to impact the Company’s results of operations for the
foreseeable future. In addition to unpredictable regional resurgences of COVID-19 cases which often result in the reimposition or tightening of containment
and mitigation measures, the ongoing economic impacts and health concerns associated with the pandemic will likely continue to affect supply chains,
shipping operations, consumer behavior, spending levels, shopping preferences and tourism.
The Company evaluates its long-lived assets, operating lease right of use assets, goodwill and intangible assets for indicators of impairment at least
annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that their carrying amounts may not be
recoverable. Given the substantial reduction in the Company’s sales and the reduced cash flow projections as a result of closures of the Company’s retail
stores and those of its wholesale customers due to the COVID-19 pandemic, as well as the significant decline in the Company’s market capitalization, the
Company determined that a triggering event occurred during the first quarter of fiscal 2021 and that an impairment assessment was warranted for goodwill
and intangible assets. This analysis resulted in impairment charges related to goodwill of $133.7 million and intangible assets of $22.2 million in the first
quarter of fiscal 2021. See Note 6 – Goodwill and Intangible Assets – for a further discussion of these impairments.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting”. This guidance provides practical expedients for contract modifications and certain hedging relationships associated with the transition from
reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments, which use LIBOR as a reference
rate, and is effective immediately, but is only available through December 31, 2022. The Company is evaluating the optional expedients and exceptions in
the guidance and while transition from LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives
or other financial instruments or extensions held by or due, the Company does not expect such nor the adoption of this standard to have a material impact
on its Consolidated Financial Statements.
NOTE 4 – JOINT VENTURES
India
In order to more cost effectively market and distribute the Company’s products to customers in India, on October 4, 2021, the Company entered into a joint
venture agreement with Bizotico, an Indian company that historically distributed certain of the Company’s products in that country. The agreement governs
the establishment of a joint venture, MGI Distribution Private Limited (“MGI India”), and sets out the terms governing the Company’s and Bizotico’s
relationship as shareholders of MGI India, and terms on which the joint venture will be managed.
On January 24, 2022, the Company contributed approximately 89 million Indian rupees (equivalent to approximately $1.2 million US dollars) to the joint
venture and became an 80% shareholder and the minority shareholder Bizotico contributed approximately 22 million Indian rupees (equivalent to
approximately $0.3 million US dollars). The Company controls all of the significant participating rights of the joint venture. As the Company controls all
of the significant participating rights of the joint venture and is the majority interest holder in MGI India, the assets, liabilities and results of operations of
the joint venture are consolidated and included in the Company’s Consolidated Financial Statements since the date of establishment within the Watch and
Accessory Brands segment. Bizotico’s interest is reflected in Net income attributable to noncontrolling interest in the Consolidated Statements of
Operations and Noncontrolling interest in the Consolidated Balance Sheets. As of January 31, 2022, all amounts in the Consolidated Financial Statements
related to MGI India were immaterial.
64
Australia
On November 22, 2019, the Company entered into an agreement and formed a joint venture with GDL Accessories PTY Ltd. (“GDL”), an Australian based
company which distributed the Company’s products in Australia and New Zealand. The agreement established a joint venture, MGDL Distribution Pty Ltd
(“MGDL”), and set out the terms in which both parties will govern their relationship as shareholders of MGDL, and terms on which the joint venture will
be managed.
The joint venture was formed to more cost effectively market and distribute Movado products to customers in Australia and in New Zealand.
The Company contributed 0.9 million Australian dollars (equivalent to approximately $0.6 million U.S. dollars) to the joint venture and is a 51% interest
holder. The Company controls all of the significant participating rights of the joint venture. As the Company controls all of the significant participating
rights of the joint venture and is the majority interest holder in MGDL, the assets, liabilities and results of operations of the joint venture are consolidated
and included in the Company’s Consolidated Financial Statements since the date of acquisition within the Watch and Accessory Brands segment. GDL’s
interest is reflected in Net income attributable to noncontrolling interest in the Consolidated Statements of Operations and Noncontrolling interest in the
Consolidated Balance Sheets. As of January 31, 2021, all amounts in the Consolidated Financial Statements related to MGDL were immaterial.
NOTE 5 – RESTRUCTURING PROVISION
On June 29, 2020, the Company committed to a Restructuring Plan as part of the Company’s corporate initiatives to reduce operating expenses and adjust
cash flows in light of the ongoing economic challenges resulting from the COVID-19 pandemic and its impact on the Company’s business. The
Restructuring Plan was substantially completed during the second quarter of fiscal 2021, although cash severance will be paid over a period of time with
the final $0.2 million to be paid in fiscal 2023. Of the total $12.6 million provision incurred in fiscal 2021, $8.5 million has been paid out through fiscal
2022 ($6.7 million of which was paid out during fiscal 2021), approximately $0.2 million is expected to result in cash payments during fiscal 2023 with the
remaining $0.1 million resulting in non-cash use ($0.7 million and $2.1 million had been used in fiscal 2022 and 2021, respectively).
A summary rollforward of the provision related to the Company’s corporate initiatives, including the provision associated with the Restructuring Plan, is as
follows for the twelve months ended January 31, 2022 (in thousands):
Restructuring Plan:
Severance and Employee Related (1)
Other
Other Corporate Initiatives:
Severance and Employee Related
Inventory (3)
Accounts receivable (4)
Other
Total
Balance January 31,
2021
Recovery
Non-Cash Use
Cash Payments
Balance January 31,
2022
$
$
2,378 $
51
—
407
926
19
3,781 $
(133 ) $
(5 )
—
—
(926 )
—
(1,064 ) $
(343 ) $
(36 )
—
(300 )
—
—
(679 ) $
(1,722 ) $
(10 )
—
—
—
(19 )
(1,751 ) $
180
—
—
107
—
—
287
A summary rollforward of the provision related to the Company's corporate initiatives, including the provision associated with the Restructuring Plan, is as
follows for the twelve months ended January 31, 2021 (in thousands):
Balance January 31,
2020
Provision
Non-Cash Use
Cash Payments
Balance January 31,
2021
Restructuring Plan:
Severance and Employee Related
Other (2)
Other Corporate Initiatives:
Severance and Employee Related
Inventory (3)
Accounts receivable (4)
Other (2)
Total
$
$
7,331 $
975
923
691
926
1,783
12,629 $
— $
(315 )
—
(284 )
—
(1,517 )
(2,116 ) $
(4,953 ) $
(609 )
(923 )
—
—
(247 )
(6,732 ) $
2,378
51
—
407
926
19
3,781
— $
—
—
—
—
—
— $
65
The following amounts are included in the Consolidated Balance Sheet at January 31, 2022:
(1) $0.2 million included in Accrued payroll and benefits.
(2) Balance included in Accrued liabilities. Included in non-cash use is approximately a $1.5 million write-off related to unrefunded deposits for a
canceled global customer event.
(3) Reserve included in Inventories.
(4) During fiscal 2022, the Company collected fully on a customer account previously reserved as part of the corporate initiative. The reserve had
been included in Trade receivables, net.
The corporate initiative costs by operating segment are as follows:
For the Twelve Months
Ended January 31, 2022
(Income)
For the Twelve Months
Ended January 31, 2021
Provision
Watch and Accessory Brands:
United States
International
Total Watch and Accessory Brands
Total Company Stores
Total Consolidated
Cost of sales
Selling, general and administrative
Total
$
$
$
$
(99 ) $
(965 )
(1,064 )
—
(1,064 ) $
- $
(1,064 )
(1,064 ) $
7,994
4,635
12,629
—
12,629
735
11,894
12,629
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year
or if an event occurs that would more likely than not reduce the fair value below its carrying amount.
During the three months ended April 30, 2020, in light of the COVID-19 pandemic that resulted in the closing of the Company’s stores and of the vast
majority of the stores of the Company’s wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and
decline in the Company’s market capitalization, the Company concluded that a triggering event had occurred during the first quarter of fiscal 2021,
resulting in the need to perform a quantitative interim impairment assessment over the Company’s Olivia Burton, MVMT and Company Stores’ long-lived
assets as well as the Watch and Accessory Brands reporting unit.
The Company performed recoverability tests for the long-lived assets of MVMT, Olivia Burton and the Company Stores as of April 30, 2020. The
Company concluded that the carrying amounts of the long-lived assets of Olivia Burton and the Company Stores were recoverable, while the long-lived
assets of MVMT may not be recoverable. Utilizing a royalty rate to determine discounted projected future cash flows in the valuation of MVMT’s trade
name and a discounted cash flow method for the valuation of MVMT’s customer relationships, the Company concluded that the fair values of MVMT’s
tradenames and customer relationships did not exceed their carrying values. As a result, the Company recorded impairment charges in the Watch and
Accessory Brands segment totaling $22.2 million in the first quarter of fiscal 2021, decreasing MVMT’s trade name to $2.4 million and MVMT’s customer
relationships to zero.
After adjusting the carrying value of MVMT’s intangible assets, the Company completed an interim quantitative impairment test of goodwill as of April
30, 2020 in which the Company compared the fair value of the Watch and Accessory Brands reporting unit to its respective carrying value. An impairment
test of goodwill was not performed for the Company Stores reporting unit as there was no goodwill at this reporting unit. The fair value estimate for the
Watches and Accessory reporting unit was based on the income and market approaches. The discounted cash flow method under the income approach
involves estimating the cash flows in a discrete forecast period and a terminal value based on the Gordon Growth Model and discounting at a rate of return
that reflects the relative risk of the cash flows. The market approach involves applying valuation multiples to the operating performance of the Watch and
Accessory Brands reporting unit derived from comparable publicly traded companies based on the relative historical and projected operations of the
reporting unit.
66
The key estimates and assumptions used in the discounted cash flows model included the Company’s discount rate, revenue growth rates, EBIT margins
and long-term growth rate. The Company’s assumptions were based on the actual historical performance of the reporting units and took into account the
recent severe and continued weakening of operating results as well as the anticipated rate of recovery, and implied risk premiums based on market prices of
the Company’s common stock as of the assessment date. The significant estimates in the market approach model included identifying similar companies
with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples
in estimating the fair value of the reporting unit. The excess of the Watch and Accessory Brands unit’s carrying value over the estimate of the fair value was
recorded in the Watch and Accessory Brands segment as the goodwill impairment charge in the first quarter of 2021, totaling $133.7 million which resulted
in zero goodwill remaining.
There were no triggering events during fiscal 2022.
The changes in the carrying amount of other intangible assets during the fiscal years ended January 31, 2022, 2021 and 2020 are as follows (in thousands):
Trade names
Customer
relationships
Other (1)
Total
Weighted Average Amortization Period (in
years)
Balance at January 31, 2019
Additions
Amortization
Foreign exchange impact
Balance at January 31, 2020
Impairment
Additions
Amortization
Foreign exchange impact
Balance at January 31, 2021
Additions
Amortization
Foreign exchange impact
Balance at January 31, 2022
$
$
10
34,771 $
—
(3,723 )
27
31,075
(18,595 )
—
(1,888 )
268
10,860
—
(1,633 )
(127 )
9,100 $
6
12,181 $
—
(1,991 )
(36 )
10,154
(3,570 )
—
(1,656 )
240
5,168
—
(1,685 )
(134 )
3,349 $
10
1,231 $
255
(377 )
21
1,130
—
164
(295 )
54
1,053
291
(258 )
(28 )
1,058 $
48,183
255
(6,091 )
12
42,359
(22,165 )
164
(3,839 )
562
17,081
291
(3,576 )
(289 )
13,507
(1)
Other includes fees paid related to trademarks and non-compete agreement related to Olivia Burton brand.
The estimated future amortization expense during each of the next five fiscal years is as follows:
For the fiscal year ending January 31,
2023
2024
2025
2026
2027
Thereafter
Total estimated future amortization expense
(in thousands)
3,494
2,603
1,969
1,958
1,924
1,559
13,507
$
$
NOTE 7 – INVENTORIES
Inventories consisted of the following (in thousands):
Finished goods
Component parts
Work-in-process
As of January 31,
2022
2021
$
$
128,119 $
29,759
2,405
160,283 $
117,382
30,599
4,599
152,580
67
The Company corrected the previously disclosed balances of Finished goods and Component parts to increase Finished goods by $10.1 million and reduce
Component parts by a corresponding amount.
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
A summary of the components of property, plant and equipment and their estimated useful lives is as follows (in thousands):
As of January 31,
2022
2021
Land and buildings
Furniture and equipment
Computer software
Leasehold improvements
Design fees and tooling costs
Less: Accumulated depreciation and
amortization
Property, plant and equipment, net
$
$
1,288 $
57,405
33,006
38,831
2,044
132,574
(113,104 )
19,470 $
130,575
(108,226 )
22,349
Estimated Useful Lives
1,311 40 years for buildings
56,808 4 to 10 years
31,323 5 to 10 years
37,957 Lesser of lease term or useful life
3,176 3 years
Depreciation and amortization expense from operations related to property, plant and equipment for fiscal 2022, 2021 and 2020 was $8.6 million, $10.0
million and $10.1 million, respectively, which includes computer software amortization expense for fiscal 2022, 2021 and 2020 of $1.6 million, $2.1
million and $2.4 million, respectively.
NOTE 9 – DEBT AND LINES OF CREDIT
On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together
with the Company, the “U.S. Borrowers”), each a wholly-owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury
Group S.A. (collectively, the “Swiss Borrowers” and, together with the U.S. Borrowers, the “Borrowers”), each a wholly-owned Swiss subsidiary of the
Company, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as
administrative agent (in such capacity, the “Agent”). The Credit Agreement amended and restated the Company’s prior credit agreement dated as of
January 30, 2015 and extended the maturity of the $100.0 million senior secured revolving credit facility (the “Facility”) provided thereunder to October
12, 2023. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings
by the Swiss Borrowers, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and
conditions.
On June 5, 2020, the Company and its lenders entered into an amendment (the “Second Amendment”) to the Credit Agreement effective as of April 30,
2020. Among other things, the Second Amendment provided for temporary relief with respect to the financial maintenance covenants in the Credit
Agreement starting April 30, 2020 while also temporarily tightening certain covenants and temporarily increasing the interest rate and commitment fee.
These temporary changes to the Credit Agreement ended as a result of the Company’s achievement of certain financial milestones as of and for the periods
ending January 31, 2021. In addition, the Second Amendment increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and
reduced the minimum EBITDA financial covenant level to $35.0 million starting with the four-quarter period ending July 31, 2021.
Effective October 29, 2021, the Company and its lenders entered into an additional amendment (the "Third Amendment") to the Credit Agreement. Among
other things, the Third Amendment extends the maturity of the Facility to October 28, 2026; reinstates the 0% LIBOR floor; reduces the commitment fee at
certain leverage ratio levels; allows the Company to net up to $25 million of unrestricted cash and cash equivalents held in U.S. accounts from total debt
for purposes of determining the leverage ratio for financial covenant and other purposes; and increases the Company's general basket for making
investments under the Credit Agreement's operating covenants.
As of January 31, 2022, and January 31, 2021, there was zero and $21.2 million (of which $10 million was denominated in Swiss Francs), respectively, in
loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in
connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3
million at both January 31, 2022 and January 31, 2021. At January 31, 2022, the letters of credit have expiration dates through May 31, 2022. As of
January 31, 2022, and January 31, 2021, availability under the Facility was $99.7 million and $78.5 million, respectively.
68
The Company had weighted average borrowings under the Facility of $4.8 million and $53.1 million, with a weighted average interest rate of 2.79% and
2.59% during fiscal 2022 and 2021, respectively.
Borrowings under the Credit Agreement bear interest at rates based on either LIBOR (or comparable or successor rate) or a specified base rate, as selected
periodically by the Company. The LIBOR-based loans bear interest at LIBOR plus a spread ranging from 1.00% to 1.75% per annum and the base rate
loans bear interest at the base rate plus a spread ranging from 0% to 0.75% per annum, with the spread in each case being based on the Company’s
consolidated leverage ratio (as defined in the Credit Agreement). As of January 31, 2022, the Company’s spreads were 1.00% over LIBOR and 0.00% over
the base rate. As of January 31, 2021, the Company’s spreads were 2.75% over LIBOR and 1.75% over the base rate.
The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower, except that the Swiss
Borrowers are not liable for, nor do they guarantee, the obligations of the U.S. Borrowers. In addition, the Borrowers’ obligations under the Facility are
secured by first-priority liens, subject to permitted liens, on substantially all of the U.S. Borrowers’ assets other than certain excluded assets. The Swiss
Borrowers do not provide collateral to secure the obligations under the Facility. The security agreement contains customary representations and warranties
and covenants relating to the creation and perfection of security interests in favor of the Agent over various categories of the U.S. Borrowers’ assets.
The Credit Agreement contains affirmative and negative covenants binding on the Company and its subsidiaries that are customary for credit facilities of
this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends
and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and
transactions with affiliates (in each case, subject to various exceptions).
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As of January 31, 2022, and 2021,
these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.0 million and $7.3 million, respectively. As of January
31, 2022, and 2021, there were no borrowings against these lines. As of January 31, 2022, and 2021, two European banks had guaranteed obligations to
third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.2 million and $1.3 million, respectively, in various
foreign currencies, of which $0.6 million, in both periods, was a restricted deposit as it relates to lease agreements.
During fiscal 2022, the Company incurred and capitalized $0.4 million of fees related to the amendment done in fiscal 2022 described above. In addition,
during fiscal 2021, the Company incurred and capitalized $0.3 million of fees related to the amendment. These fees, along with the unamortized fees of
$1.0 million paid related to the amendment done in fiscal 2019 and the base Credit Agreement, are being amortized on a straight-line basis over 60 months,
the revised term of the facility and are included in other non-current assets on the consolidated balance sheets.
Cash paid for interest, including unused commitment fees, during fiscal 2022, 2021 and 2020 was $0.4 million, $1.7 million and $0.7 million, respectively.
NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures that include the use of derivative financial instruments. The Company enters into foreign currency
forward contracts to reduce the effects of fluctuating foreign currency exchange rates. As of January 31, 2022, the Company's net forward contracts
hedging portfolio designated as qualified cash flow hedging instruments consisted of 18.0 million Euros equivalent with various expiry dates ranging
through May 27, 2022. The net gain or loss on the derivatives is reported as a component of accumulated other comprehensive income/(loss) and
reclassified into earnings in the same period during which the hedged transaction affects earnings using the same revenue or expense category that the
hedged item impacted. The Company also enters into foreign currency forward contracts not designated as qualified hedges in accordance with ASC 815,
Derivatives and Hedging. As of January 31, 2022, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of
7.4 million Chinese Yuan equivalent, 28.0 million Swiss Francs equivalent, 16.2 million US dollars equivalent, 19.5 million Euros equivalent and 1.5
million British Pounds equivalent with various expiry dates ranging through July 13, 2022. Changes in the fair value of these derivatives are recognized in
earnings in the period they arise. Net gains or losses related to these forward contracts are included in cost of sales, selling and general and administrative
expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.
The following table presents the fair values of the Company's derivative financial instruments included in the consolidated balance sheets as of January 31,
2022 and 2021 (in thousands):
69
Derivatives designated as hedging instruments:
Foreign Exchange Contracts
Total Derivative Instruments
Derivatives not designated as hedging
instruments:
Foreign Exchange Contracts
Total Derivative Instruments
Balance
Sheet
Location
Other
Current
Assets
Balance
Sheet
Location
Other
Current
Assets
Asset Derivatives
2022
Fair
Value
2021
Fair
Value
Balance
Sheet
Location
Liability Derivatives
2022
Fair
Value
2021
Fair
Value
$
$
154 $
154 $
—
—
Accrued
Liabilities
$
$
30 $
30 $
—
—
Asset Derivatives
2022
Fair
Value
2021
Fair
Value
Balance
Sheet
Location
Liability Derivatives
2022
Fair
Value
2021
Fair
Value
$
$
43 $
43 $
—
—
Accrued
Liabilities
$
$
140 $
140 $
13
13
As of January 31, 2022 and 2021, the balance of net deferred gains on derivative financial instruments designated as cash flow hedges included in
accumulated other comprehensive income were $0.2 million and zero, respectively. For the fiscal years ended January 31, 2022 and 2021, the Company did
not reclassify amounts from accumulated other comprehensive income to earnings. No ineffectiveness has been recorded in fiscal year 2022.
See Note 11 - Fair Value Measurements for further information about how fair value of derivative assets and liabilities are determined.
NOTE 11 - 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 guidance requires the use of observable market data if such data is available without undue cost and effort.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of January 31, 2022 and
2021 (in thousands):
Assets:
Available-for-sale securities
Short-term investment
SERP assets - employer
SERP assets - employee
Defined benefit plan assets (1)
Hedge derivatives
Total
Liabilities:
SERP liabilities - employee
Hedge derivatives
Total
Balance Sheet Location
Level 1
Fair Value at January 31, 2022
Level 3
Level 2
Total
Other current assets
Other current assets
Other non-current assets
Other non-current assets
Other non-current liabilities
Other current assets
Other non-current liabilities
Accrued liabilities
$
$
$
$
249 $
164
772
47,261
—
—
48,446 $
47,261 $
—
47,261 $
— $
—
—
—
—
197
197 $
— $
170
170 $
— $
—
—
—
29,096
—
29,096 $
— $
—
— $
249
164
772
47,261
29,096
197
77,739
47,261
170
47,431
70
Assets:
Available-for-sale securities
Short-term investment
SERP assets - employer
SERP assets - employee
Defined benefit plan assets (1)
Total
Liabilities:
SERP liabilities - employee
Hedge derivatives
Total
Balance Sheet Location
Level 1
Fair Value at January 31, 2021
Level 2
Level 3
Total
Other current assets
Other current assets
Other non-current assets
Other non-current assets
Other non-current liabilities
Other non-current liabilities
Accrued liabilities
$
$
$
$
184 $
162
605
46,673
—
47,624 $
46,673 $
—
46,673 $
— $
—
—
—
—
— $
— $
13
13 $
— $
—
—
—
25,837
25,837 $
— $
— $
— $
184
162
605
46,673
25,837
73,461
46,673
13
46,686
(1)
See Note 19 for a discussion of the fair value of the assets held in the Company’s defined benefit plan in Switzerland.
The fair values of the Company’s available-for-sale securities are based on quoted market prices. The fair value of the short-term investment, which is a
guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. 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 consist of cash flow hedging instruments and forward contracts (see Note 10 for further discussion)
and are entered into by the Company principally to reduce its exposure to Swiss Franc and Euro exchange rate risks. Fair values of the Company’s hedge
derivatives are calculated based on quoted foreign exchange rates and quoted interest rates. The carrying amount of debt approximated fair value as of
January 31, 2021, due to the availability and floating rate for similar instruments.
The Company sponsors a defined pension plan in Switzerland. The plan covers certain international employees and is based on years of service and
compensation on a career-average pay basis. The assets within the plan are classified as a Level 3 asset within the fair value hierarchy and consist of an
investment in pooled assets and include separate employee accounts that are invested in equity securities, debt securities and real estate. The values of the
separate accounts invested are based on values provided by the administrator of the funds that cannot be readily derived from or corroborated by observable
market data. The value of the assets is part of the funded status of the defined benefit plan and included in other non-current assets and other non-current
liabilities in the consolidated balance sheets at January 31, 2022 and January 31, 2021, respectively.
There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.
See Note 6 – Goodwill and Intangible Assets for a discussion on the Company’s impairment charges taken in fiscal year 2021 for certain of its nonfinancial
assets measured at fair value on a nonrecurring basis due to a change in circumstances that triggered an interim impairment test, and the valuation
techniques used to measure the fair value. The most significant unobservable inputs (Level 3) used to estimate the fair values of the Company’s Watch and
Accessory Brands unit’s goodwill and MVMT’s intangible assets are discount rates, which was 17.5% for both.
Investments Without Readily Determinable Fair Values
From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its
business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in companies in media, entertainment,
information technology and technology-related fields and in digital assets. During fiscal 2022, the Company invested approximately $2.0 million in a
privately held company and in venture capital funds (see Note 12 - Commitments and Contingencies for discussion of commitments made related to
venture capital funds). The Company will regularly evaluate the carrying value of its investments. There were no adjustments to the original cost value
during fiscal 2022. The amounts are recorded in Other non-current assets in the Consolidated Balance Sheet at January 31, 2022.
71
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Licensing Agreements:
The Company has minimum commitments related to the Company’s license agreements and endorsement agreements with brand ambassadors. The
Company sources, distributes, advertises and sells watches pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under
the license agreements are generally based on a stipulated percentage of revenues, although most of these agreements contain provisions for the payment of
minimum annual royalty amounts. The license agreements have various terms, and some have renewal options, provided that minimum sales levels are
achieved. Additionally, the license agreements require the Company to pay minimum annual advertising amounts. As of January 31, 2022, the total amount
of the Company’s minimum commitments related to its license agreements and endorsement agreements was $283.2 million, payable in the next five years.
Purchase Obligations:
The Company had outstanding purchase obligations of $118.2 million with suppliers at the end of fiscal 2022 primarily for raw materials, finished watches
and packaging in the normal course of business. These purchase obligation amounts do not represent total anticipated purchases but represent only amounts
to be paid for items required to be purchased under agreements that are enforceable, legally binding and specify minimum quantity, price and term.
Tax:
The Company had previously recorded an obligation of $28.2 million due to the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017
and imposed a one-time mandatory deemed repatriation tax on cumulative undistributed foreign earnings which have not been previously taxed. The
obligation, which was recorded in prior years, is payable in installments over eight years, with the first payment having been made in the second quarter of
fiscal 2019. At January 31, 2022, the Company had an outstanding obligation of $19.2 million.
The Company believes that income tax reserves are adequate; however, amounts asserted by taxing authorities could be greater or less than amounts
accrued and reflected in the consolidated balance sheet. Accordingly, the Company could record adjustments to the amounts for federal, state, and foreign
liabilities in the future as the Company revises estimates or settles or otherwise resolves the underlying matters. In the ordinary course of business, the
Company may take new positions that could increase or decrease unrecognized tax benefits in future periods. See Note 14 – Income Taxes for more
information.
Acquisition Related:
The acquisition of MVMT Watches, Inc in October 2018, included two future contingent payments based on the MVMT brand achieving certain revenue
and EBITDA (as defined in the acquisition agreement) targets that combined could total up to $100 million. In connection therewith, the Company had
recorded a non-current liability of $16.5 million as of the date of acquisition to reflect the estimated fair value of the contingent purchase price. $14.5
million was allocated to purchase price and $2.0 million to deferred compensation expense based on future employee service requirements. Based on
updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company
remeasured the contingent consideration to zero at January 31, 2020; $15.4 million of which was included in non-operating income (portion of contingent
consideration allocated to purchase price including interest accretion) in the Consolidated Statements of Operations for the year ended January 31, 2020,
and $1.5 million reduction in deferred compensation in the Consolidated Balance Sheets at January 31, 2020.
Investments:
From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its
business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in companies in media, entertainment,
information technology and technology-related fields and in digital assets. During fiscal 2022, the Company committed to invest up to $21.5 million in
such investments. The Company funded approximately $2.0 million of these commitments in fiscal 2022 and may be called upon to satisfy capital calls in
respect of the remaining $19.5 million in such commitments at any time during a period generally ending ten years after the first capital call in respect of a
given commitment.
Litigation:
72
The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in
accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance
sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of,
such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the
Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result
that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a
statement that such an estimate cannot be made.
In December 2016, U.S. Customs and Border Protection (“U.S. Customs”) issued an audit report concerning the methodology used by the Company to
allocate the cost of certain watch styles imported into the U.S. among the component parts of those watches for tariff purposes. The report disputes the
reasonableness of the Company’s historical allocation formulas and proposes an alternative methodology that would imply $5.1 million in underpaid duties
over the five-year period covered by the statute of limitations, plus possible penalties and interest. The Company believes that U.S. Customs’ alternative
duty methodology and estimate are not consistent with the Company’s facts and circumstances and is disputing U.S. Customs’ position. Since February
2017, the Company has been providing U.S. Customs with supplemental analyses and information in response to U.S. Customs’ information requests. Most
recently, the Company received summonses from U.S. Customs in December 2020 requesting additional information regarding component part costs and
the Company’s procedures for allocating the value of imported watches among the component parts. The Company responded to these summonses in
January 2021. Although the Company disagrees with U.S. Customs’ position and believes that the information it has provided supports the reasonableness
of its historical allocation formulas, it cannot predict with any certainty the outcome of this matter. The Company intends to continue to work with U.S.
Customs to reach a mutually satisfactory resolution.
Starting in July 2018, the Trump administration announced a series of lists covering thousands of categories of Chinese origin products subject to potential
U.S. special tariffs, including watches. U.S. Customs subsequently issued various rulings regarding, among other things, the application of the special
tariffs to China-sourced components of watches containing non-Chinese movements. A U.S. Customs ruling effective August 1, 2021 holds that while the
special tariff applies to all China-sourced watch bands, the special tariff does not apply to China-sourced watch cases imported as part of such a watch
containing a non-Chinese movement. Pending greater clarity on the retroactive effect of this ruling, for the time being the Company continues to maintain
an accrual for Chinese watch case imports prior to August 1, 2021.
In addition to the above matters, as of January 31, 2022, the Company is involved in other legal proceedings and contingencies, the resolution of which is
not expected to materially affect its financial condition, future results of operations beyond the amounts accrued, or cash flows.
NOTE 13 – LEASES
The Company leases certain real estate properties, vehicles and equipment in various countries around the world. Leased properties are typically used for
retail space, office, warehouse and distribution.
The Company evaluates contractual arrangements at inception to determine if individual agreements are a lease or contain an identifiable lease component.
When evaluating contracts to determine appropriate classification and recognition, significant judgment may be necessary to determine, among other
criteria, if an embedded leasing arrangement exists, the length of the term, classification as either an operating or financing lease and whether renewal or
termination options are reasonably certain to be exercised. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities
represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized on the lease commencement date based
on the present value of lease payments over the lease term calculated using the Company’s incremental borrowing rate, adjusted for the lease term and lease
country, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and are reduced by lease incentives.
The Company’s leases are classified as operating leases with remaining terms of 1 to 10 years, some of which include an option to extend or renew. If the
exercise of an option to extend or renew is determined to be reasonably certain, the associated right-of-use asset and liability reflects the extended period of
payments.
Lease expense for operating leases consist of both fixed and variable components. Expenses related to fixed lease payments are recognized on a straight-
line basis over the lease term. Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain non-lease
components such as maintenance and other services provided by the lessor and other charges included in the lease. The variable portion of lease payments
is not included in the Company’s lease liabilities. Short-term leases are leases having a term of 12 months or less at inception. The Company does not
record a related lease asset or liability for short-term leases. The depreciable life of lease assets and leasehold improvements is limited by the expected
lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
73
As a result of the COVID-19 pandemic, the Company received lease concessions during fiscal 2021 from landlords in the form of rent deferrals and rent
forgiveness. The Company chose the policy election provided by the FASB in April 2020 to record rent concessions as if no modifications to lease
contracts were made, and thus no changes to the ROU assets and ROU liabilities were recorded for these concessions. This guidance is only applicable to
COVID-19 related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company
received rent forgiveness of $1.1 million for fiscal year 2021.
The components of lease expense were as follows (in thousands):
Lease Expense
Operating lease expense
Short-term lease cost
Variable lease cost
Total operating lease expense
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Consolidated
Statements of
Operation Location
For the Year
Ended January
31, 2022
For the Year
Ended January
31, 2021
For the Year
Ended January
31, 2020
SG&A
SG&A
SG&A
$
$
$
SG&A
Interest expense $
18,856
412
10,839
30,107
117
4
$
$
$
$
18,533 $
601
9,051
28,185 $
117 $
9 $
19,301
736
9,229
29,266
117
13
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
Leases
Consolidated Balance Sheets Location
January 31, 2022
January 31, 2021
Assets
Operating
Finance
Liabilities
Current:
Operating
Finance
Noncurrent:
Operating
Finance
Operating lease right-of-use assets
Other non-current assets
Current operating lease liabilities
Accrued liabilities
Non-current operating lease liabilities
Other non-current liabilities
$
$
$
$
$
$
68,599 $
49 $
76,070
166
13,693 $
49 $
62,730 $
- $
15,861
121
68,412
49
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases:
Lease Term and Discount Rate
January 31, 2022
January 31, 2021
January 31, 2020
Weighted-average remaining lease term - in years
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
Future minimum lease payments by year as of January 31, 2022 were as follows (in thousands):
Fiscal Year
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Interest
Total lease obligations
74
6.2
0.4
3.90 %
3.86 %
6.5
1.4
3.78 %
3.86 %
7.4
2.4
3.71 %
3.86 %
Operating Leases
Finance Leases
$
$
$
16,374 $
15,634
13,189
10,192
9,767
21,344
86,500 $
(10,077 )
76,423 $
49
-
-
-
-
-
49
-
49
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Leased assets obtained in exchange for new operating lease liabilities
Leased assets obtained in exchange for new financing lease liabilities
Year Ended January 31,
2022
Year Ended January 31,
2021
Year Ended January 31,
2020
$
19,130 $
19,080 $
4
121
8,519
—
9
116
2,940
—
17,637
13
112
9,863
399
As of January 31, 2022, the Company did not have any material operating or finance leases that have been signed but not commenced.
NOTE 14 - INCOME TAXES
Income/(loss) before provision/(benefit) for income taxes for the fiscal year ended January 31, 2022, 2021 and 2020 on a legal entity basis consists of the
following (in thousands):
U.S. income/(loss) before taxes
Non-U.S. income/(loss) before taxes
Income/(loss) before income taxes
2022
39,920 $
77,413
117,333 $
2021
(121,302 ) $
(21,080 )
(142,382 ) $
2020
(1,226 )
58,729
57,503
$
$
Cash paid for income taxes during fiscal 2022, 2021 and 2020 was $25.3 million, $6.1 million and $16.0 million respectively.
The provision/(benefit) for income taxes for the fiscal years ended January 31, 2022, 2021 and 2020 consists of the following components (in thousands):
Current:
U.S. Federal
U.S. State and Local
Non-U.S.
Deferred:
U.S. Federal
U.S. State and Local
Non-U.S.
Provision/(benefit) for income taxes
2022
2021
2020
$
$
9,249 $
1,179
14,555
24,983
(2,145 )
2,000
(64 )
(209 )
24,774 $
(21,657 ) $
(703 )
9,464
(12,896 )
(11,139 )
(6,321 )
(832 )
(18,292 )
(31,188 ) $
558
905
9,309
10,772
2,337
107
1,908
4,352
15,124
75
Significant components of the Company’s deferred income tax assets and liabilities for the fiscal years ended January 31, 2022 and 2021 are as follows (in
thousands):
Net operating loss carryforwards
Inventory
Unprocessed returns
Receivables allowances
Deferred compensation
Depreciation/amortization
Other provisions/accruals
Deferred occupancy costs
Miscellaneous
Valuation allowance
Total deferred tax assets and liabilities
2022 Deferred Taxes
2021 Deferred Taxes
Assets
Liabilities
Assets
Liabilities
$
$
9,479 $
—
1,178
765
15,764
16,545
2,087
16,024
722
62,564
(7,022 )
55,542 $
— $
377
—
—
—
—
—
14,072
—
14,449
—
14,449 $
11,000 $
—
862
843
15,567
17,434
1,657
17,064
1,096
65,523
(7,007 )
58,516 $
—
2,292
—
—
—
—
—
15,140
—
17,432
—
17,432
On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which provided economic relief to assist
American families and companies during the COVID-19 global pandemic. The CARES Act allowed U.S. net operating losses generated in fiscal 2019,
2020 and 2021 to be carried back up to five years to prior taxable years with a U.S. statutory tax rate of 35.0% and to offset 100% of regular taxable
income in such years (the “CARES Act NOL Carryback Provision”). The Company generated a U.S. net operating loss of $22.0 million on the fiscal 2021
income tax return which was carried back to prior taxable years.
As of January 31, 2022, the Company had U.S. state and foreign net operating loss carryforwards of $1.3 million and $8.2 million, respectively, with
expiration dates ranging from 1-10 years and some foreign jurisdictions with an indefinite carryforward period. Of the foreign net operating losses, $3.4
million is related to China, $1.7 million is related to Germany and the remaining is related to other foreign countries.
A valuation allowance is required to be established unless management determines it is more likely than not that the Company will ultimately utilize the tax
benefit associated with a deferred tax asset. The Company has foreign valuation allowances of $7.0 million, which are primarily related to net operating
loss carryforwards.
Management will continue to evaluate the appropriate level of valuation allowance on all deferred tax assets considering such factors as prior earnings
history, expected future earnings, carryback and carryforward periods and tax and business strategies that could potentially enhance the likelihood of
realization of the deferred tax assets.
The provision/(benefit) for income taxes for the fiscal years ended January 31, 2022, 2021 and 2020 differs from the U.S. federal statutory rate due to the
following (in thousands):
Provision/(benefit) for income taxes at the U.S. statutory rate
Lower effective non-U.S. income tax rate
State and local taxes, net of federal benefit
GILTI, net of foreign tax credits
Impairment of goodwill and intangible assets
Impact of CARES Act
Compensation and benefits
Other permanent differences
Other, net
Total provision/(benefit) for income taxes
$
$
2022
Fiscal Year Ended January 31,
2021
2020
24,640 $
(1,366 )
2,511
77
—
(1,532 )
1,130
(209 )
(477 )
24,774 $
(29,900 ) $
(74 )
(5,549 )
—
11,694
(10,231 )
976
173
1,723
(31,188 ) $
12,076
(1,876 )
800
2,703
—
—
93
399
929
15,124
76
The effective tax rate for fiscal 2022 was 21.1%, and differed from the U.S. statutory tax rate of 21.0% primarily due to U.S. state and local taxes, net of
federal benefit, partially offset by the CARES Act NOL Carryback Provision and related tax effects and foreign profits being taxed in lower taxing
jurisdictions. The effective tax rate for fiscal 2021 was 21.9% and differed from the U.S. statutory tax rate of 21.0% primarily due to the CARES Act NOL
Carryback Provision and related tax effects, and U.S. state net operating loss carryforwards generated in fiscal 2021, partially offset by impairments of the
portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible.
Tax incentives have been granted to the Company for an entity located in Switzerland as a result of the Federal Act on Tax Reform and AHV Financing
(“TRAF”). TRAF introduced two transition methods to provide relief to companies which had an expiring preferential tax regime: the dual rate method and
the step-up method. The Company adopted the dual rate method which allows a reduction in the cantonal statutory tax rate through 2025 which does not
have a material impact on the Company’s earnings per share.
The Company conducts business globally and, as a result, is subject to income taxes in the U.S. federal, state, local and foreign jurisdictions. In the normal
course of business, the Company is subject to examinations by taxing authorities in many countries, such as Germany, Hong Kong, Switzerland and the
United States. The Company is no longer subject to income tax examination for years ended prior to January 31, 2018, with few exceptions.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (exclusive of interest) for the fiscal years ended January 31, 2022,
2021 and 2020 are as follows (in thousands):
Beginning balance
Tax positions taken in the current year
Tax positions taken in prior years
Lapse of statute of limitations
Settlements
Non-U.S. currency exchange fluctuations
Ending balance
2022
2021
2020
901 $
159
-
(166 )
-
(18 )
876 $
826 $
204
(26 )
(119 )
-
16
901 $
1,351
106
(125 )
(114 )
(389 )
(3 )
826
$
$
Included in the balances at January 31, 2022, January 31, 2021 and January 31, 2020 are $0.8 million, $0.8 million and $0.8 million, of unrecognized tax
benefits which would impact the Company’s effective tax rate, if recognized. As of January 31, 2022, January 31, 2021 and January 31, 2020, the Company
had $0.3 million, $0.4 million and $0.5 million, respectively, of accrued interest (net of tax benefit) and penalties related to unrecognized tax benefits.
Interest (net of tax benefit) and penalties accrued in fiscal years 2022, 2021 and 2020 were immaterial. The Company does not anticipate any significant
increases or decreases to unrecognized tax benefits during the next twelve months.
At January 31, 2022, the Company had no deferred tax liability for the undistributed foreign earnings of approximately $295.8 million because the
Company intends to permanently reinvest such earnings in its foreign operations. It is not practicable to estimate the tax liability related to a future
distribution of these permanently reinvested foreign earnings.
NOTE 15 – TREASURY STOCK
On August 29, 2017, the Board approved a share repurchase program under which the Company was authorized to purchase up to $50.0 million of its
outstanding common stock from time to time. This authorization expired on August 29, 2020. On March 25, 2021, the Board approved a share repurchase
program under which the Company is authorized to purchase up to $25.0 million of its outstanding common stock through September 30, 2022, depending
on market conditions, share price and other factors. On November 23, 2021, the Board approved a share repurchase program under which the Company is
authorized to purchase up to an additional $50.0 million of its outstanding common stock through November 23, 2024, depending on market conditions,
share price and other factors. Under both current share repurchase programs, the Company is permitted to purchase shares of its common stock from time
to time through open market purchases, repurchase plans, block trades or otherwise.
During the fiscal year ended January 31, 2022, the Company repurchased a total of 686,559 shares of its common stock under the March 25, 2021 share
repurchase program at a total cost of $22.6 million, or an average of $32.92 per share. There were no shares repurchased under the November 23, 2021
share repurchase program during the fiscal year ended January 31, 2022. During the fiscal year ended January 31, 2021, the Company did not repurchase
shares of its common stock under the repurchase program. During the fiscal year ended January 31, 2020, the Company repurchased a total of 131,402
shares of its common stock at a total cost of $4.2 million, or an average of $31.96 per share.
77
At January 31, 2022, $2.4 million remains available for purchase under the Company’s March 25, 2021 repurchase program and all $50.0 million remains
available for purchase under the Company's November 23, 2021 repurchase program.
There were 87,828, 49,283 and 43,414 shares of common stock repurchased during the fiscal years ended January 31, 2022, 2021 and 2020, respectively, as
a result of the surrender of shares in connection with the vesting of certain stock awards and options. At the election of an employee, shares having an
aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company.
NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The accumulated balances at January 31, 2022, 2021 and 2020, related to each component of accumulated other comprehensive income (loss) are as
follows (in thousands):
Foreign currency translation adjustments
Available-for-sale securities
Hedging contracts
Unrecognized prior service cost related to defined benefit pension
plan
Net actuarial gain/(loss) related to defined benefit pension plan
Total accumulated other comprehensive income
$
$
2022
2021
2020
84,725 $
172
194
(287 )
491
85,295 $
93,166 $
124
—
(344 )
(406 )
92,540 $
85,345
124
—
(367 )
(52 )
85,050
There were no amounts reclassified from accumulated other comprehensive income (loss) to operating income (loss) in the Consolidated Statements of
Operations during fiscal 2022, 2021 and 2020, respectively.
NOTE 17 – REVENUE
Disaggregation of Revenue
The following table presents the Company’s net sales disaggregated by customer type. Sales and usage-based taxes are excluded from net sales (in
thousands).
Customer Type
Wholesale
Direct to consumer
After-sales service
Net Sales
Fiscal Year Ended
January 31, 2022
Fiscal Year
Ended January
31, 2021
Fiscal Year
Ended January
31, 2020
$
$
541,383 $
187,171
3,839
732,393 $
369,031 $
134,952
2,414
506,397 $
530,140
166,877
3,949
700,966
The Company’s revenues from contracts with customers is recognized at a point in time. The Company’s net sales disaggregated by geography are based
on the location of the Company’s customer (see Note 20 Segment and Geographic Information).
Wholesale Revenue
The Company’s wholesale revenue consists primarily of revenues from independent distributors, department stores, chain stores, independent jewelry
stores and third-party e-commerce retailers. The Company recognizes and records its revenue when obligations under the terms of a contract with the
customer are satisfied, and control is transferred to the customer. Transfer of control passes to wholesale customers upon shipment or upon receipt
depending on the agreement with the customer and shipping terms. Wholesale revenue is measured as the amount of consideration the Company ultimately
expects to receive in exchange for transferring goods. Wholesale revenue is included entirely within the Watch and Accessory Brands segment (see Note 20
– Segment and Geographic Information), consistent with how management makes decisions regarding the allocation of resources and performance
measurement.
Direct to Consumer Revenue
78
The Company’s direct to consumer revenue primarily consists of revenues from the Company’s outlet stores, the Company’s owned e-commerce websites,
concession stores and consumer repairs. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer
are satisfied, and control is transferred to the customer. Control passes to outlet store customers at the time of sale and to substantially all e-commerce upon
shipment. Prior to January 1, 2021, the requirements for recognizing revenue for all e-commerce were met upon delivery to the customer. Direct to
Consumer revenue is included in either the Watch and Accessory Brands segment or Company Stores Segment based on how the Company makes
decisions about the allocation of resources and performance measurement. Revenue derived from outlet stores and related e-commerce is included within
the Company Stores Segment. Other Direct to Consumer revenue (i.e., revenue derived from other Company-owned e-commerce websites, concession
stores and consumer repairs) is included within the Watch and Accessory Brands segment. (See Note 20 – Segment and Geographic Information).
After-sales service
All watches sold by the Company come with limited warranties covering the movement against defects in materials and workmanship.
The Company’s after-sales service revenues consists of out of warranty service provided to customers and authorized third party repair centers, and sale of
watch parts. The Company recognizes and records its revenue when obligations under the terms of a contract with the customer are satisfied and control is
transferred to the customer. After-sales service revenue is measured as the amount of consideration the Company ultimately expects to receive in exchange
for transferring goods. Revenue from after sales service, including consumer repairs, is included entirely within the Watch and Accessory Brands segment,
consistent with how management makes decisions about the allocation of resources and performance measurement.
NOTE 18 – STOCK-BASED COMPENSATION
Under the Company’s Employee Stock Option Plan, as amended and restated as of April 4, 2013 (the “Plan”), the Compensation Committee of the Board
of Directors, which consists of three of the Company’s non-employee directors, has the authority to grant participants incentive stock options, nonqualified
stock options, restricted stock, stock appreciation rights and stock awards, for up to 11,000,000 shares of common stock.
Stock Options:
Stock options granted to participants under the Plan generally become exercisable after three years and remain exercisable until the tenth anniversary of the
date of grant. All stock options granted under the Plan have an exercise price equal to or greater than the fair market value of the Company’s common stock
on the grant date.
The table below presents the weighted average assumptions used with the Black-Scholes option-pricing model for the calculation of the fair value of stock
options granted during the fiscal years ended January 31, 2022 and January 31, 2021. There were no stock options granted during the fiscal year ended
January 31, 2020.
Expected volatility
Expected life in years
Risk-free interest rates
Dividend rate
Weighted average fair value per option at date of grant
$
51.61 %
6.0
0.89 %
2.90 %
$
10.23
50.66 %
6.0
0.39 %
4.07 %
4.86
Fiscal Year Ended
January 31, 2022
Fiscal Year Ended
January 31, 2021
The fair value of the stock options, less expected forfeitures, is amortized on a straight-line basis over the vesting term. Total compensation expense for
stock option grants recognized during the fiscal years ended January 31, 2022, 2021 and 2020 was $1.5 million, $0.3 million and $0.5 million, respectively.
As of January 31, 2022, there was $2.7 million of unrecognized compensation cost related to unvested stock options. These costs are expected to be
recognized over a weighted-average period of 1.9 years. Total cash consideration received for stock option exercises during the fiscal years ended January
31, 2022, 2021 and 2020 was $3.5 million, zero and $0.2 million, respectively. During fiscal 2022 there were 31,731 shares of common stock of the
Company tendered by the employee for the payment of the employee's withholding tax obligation totaling $1.4 million. In addition, during the fiscal year
ended January 31, 2022, $5.1 million of shares were tendered to the Company by the holder of the stock options for the payment of the exercise price of
these options. The windfall tax benefit realized on these exercises for fiscal 2022 was $0.3 million.
The following table summarizes the Company’s stock option plan as of January 31, 2022 and changes during each of the fiscal years in the three-year
period ended January 31, 2022:
79
Outstanding
Options
Weighted
Average
Exercise
Price per
Option
Option
Price Per
Share
Weighted
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
$(000)
Options outstanding at January 31,
2019 (264,244 options exercisable)
Granted
Exercised
Cancelled
Options outstanding at January 31,
2020 (399,905 options exercisable)
Granted
Exercised
Cancelled
Options outstanding at January 31,
2021 (561,110 options exercisable)
Granted
Exercised (a)
Cancelled
Options outstanding at January 31,
2022
Exercisable at January 31, 2022
Expected to vest at January 31,
2022
566,260 $
—
(5,150 ) $
—
561,110 $
550,000 $
—
—
1,111,110 $
201,875 $
(330,151 ) $
—
982,834 $
242,959 $
691,920 $
28.43
—
30.36
—
28.41
15.25
—
—
21.90
27.62 $
26.01
—
$12.42-$42.12
27.62
$16.87-$30.36
—
$12.42-$42.12
21.69
31.11
18.49
6.9 $
2,975
7.5 $
3.5 $
8.8 $
15,441
1,776
12,857
(a) Includes 60,000 options exercised at an exercise price of $26.59 per option, 32,600 options exercised at an exercise price of $30.34 per option, 43,440
options exercised at an exercise price of $27.74 per option and 57,300 options exercised at an exercise price of $23.35 per option for which 115,037 shares
of common stock of the Company were tendered to the Company by the holder of the stock options for the payment of the exercise price of these options.
The table below presents information related to stock option activity for the years ended January 31, 2022, 2021 and 2020:
Total fair value of stock options exercised
Total fair value of stock options vested
Non-vested Stock Options
2022
Fiscal Year Ended
January 31,
2021
(in thousands)
2020
$
$
3,652 $
64 $
- $
1,475 $
63
1,621
A summary of the Company’s non-vested stock options at January 31, 2022 and changes during fiscal 2022 are presented below:
Non-vested stock options:
Non-vested at January 31, 2021
Granted
Vested
Non-vested at January 31, 2022
80
Shares
Weight Average
Grant Date Fair
Value
550,000 $
201,875 $
(12,000 ) $
739,875 $
4.86
10.23
5.31
6.32
Stock Awards:
Under the Plan, the Company can also grant stock awards to employees and directors. For fiscal years 2022, 2021 and 2020, compensation expense for
stock awards was $3.5 million, $5.1 million ($0.4 is included in the Restructuring Plan of the corporate initiatives) and $5.8 million, respectively. As of
January 31, 2022, there was $3.0 million of unrecognized compensation cost related to unvested stock awards. These costs are expected to be recognized
over a weighted-average period of 1.9 years.
Transactions for stock awards under the Plan since fiscal 2019 are summarized as follows:
Units outstanding at January 31, 2019
Units granted
Units granted adjustment for fiscal year
2019 grants (a)
Units granted adjustment for fiscal year
2020 grants (b)
Units vested
Units forfeited
Units outstanding at January 31, 2020
Units granted
Units vested
Units forfeited
Units outstanding at January 31, 2021
Units granted
Units vested
Units forfeited
Units outstanding at January 31, 2022
Number of
Stock Award
Units
Weighted-
Average Grant
Date Fair
Value
447,022 $
274,133 $
32.27
32.47
20,409 $
39.95
(73,067 ) $
(151,448 ) $
(26,810 ) $
490,239 $
171,229 $
(212,070 ) $
(33,404 ) $
415,994 $
129,497 $
(234,961 ) $
(14,247 ) $
296,283 $
32.91
29.27
34.80
33.50
13.30
26.05
31.20
29.17
27.82
31.75
32.21
26.39
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
($(000's)
1.7 $
10,983
(a)
(b)
Grant adjustment made due to exceeding the fiscal 2019 financial goal.
Grant adjustment made due to not reaching the fiscal 2020 financial goal.
Outstanding stock awards can be classified as either time-based stock awards or performance-based stock awards. Time-based stock awards vest over time
subject to continued employment. Performance-based stock awards vest over time subject both to continued employment and to the achievement of
corporate financial performance goals. Upon the vesting of a stock award, shares are issued from the pool of authorized shares. For performance-based
stock awards, the number of shares issued related to the performance units granted can vary from 0% to 150% of the target number of underlying stock
award units, depending on the extent of the achievement of predetermined financial goals. The total fair value of stock award units that vested during fiscal
2022, 2021 and 2020 was $7.5 million, $5.5 million and $4.4 million, respectively. There were 56,097, 49,283 and 43,414 shares of common stock of the
Company tendered by the employee for the payment of the employee’s withholding tax obligation totaling $1.7 million, $0.5 million and $1.4 million
during the fiscal years ended January 31, 2022, 2021 and 2020, respectively. Unvested stock award units had a total fair value of $7.8 million, $12.1 million
and $16.4 million, for fiscal 2022, 2021 and 2020, respectively. The shortfall tax expense on the vested stock awards for fiscal 2022 was approximately
$17,000. The number of shares issued related to the remaining stock awards are established at grant date.
NOTE 19 – PENSION AND RETIREMENT SAVINGS PLAN
Defined Contribution Plans
401(k) Savings Plan
All employees in the United States are eligible to participate in the Company’s Employee Savings and Investment Plan (“401(k) Plan”), a tax-qualified
defined contribution retirement savings plan. The Company matches 50% of each 1% contributed by the employee up to
81
a maximum of 6% of pay (totaling a company maximum match of 3%), subject to the contribution limits imposed by the Internal Revenue Code.
Employees vest in the Company match after three years of service. In fiscal 2022, 2021 and 2020, the Company contributed $1.1 million, $0.3 million and
$1.3 million, respectively, in cash to the 401(k) Plan. The decrease in fiscal 2021 is due to the Company’s temporary suspension in the Company match
from April 2020 to the end of fiscal 2021 in response to the COVID-19 pandemic. The Company match resumed in the first quarter of fiscal 2022.
Other Defined Contribution Plans
The Company sponsors defined contribution benefit plans for its employees located in Asia, the United Kingdom and Mexico. Company contributions and
expenses of administering the plans were $0.8 million, $0.6 million and $0.9 million in fiscal 2022, 2021 and 2020, respectively.
The Company maintains a defined contribution Deferred Compensation Plan (also known as a supplemental employee retirement plan or SERP). The
SERP provides eligible executives with supplemental retirement benefits in addition to amounts received under the Company’s other retirement plans. The
Company makes a matching contribution, up to either 5% or 10% of the executive’s salary, which vests in equal annual installments over five years.
Twenty percent of the Company’s matching contribution is in the form of rights to the Company’s common stock. During fiscal 2022, 2021 and 2020, the
Company recorded expenses related to the SERP of $0.6 million, $0.9 million ($0.5 million is included in the Restructuring Plan of the corporate
initiatives) and $0.6 million, respectively. The Company temporarily suspended the matching contribution from April 2020 to the end of fiscal 2021 in
response to the COVID-19 pandemic. The Company SERP matches resumed in the first quarter of 2022.
Defined Benefit Plan
The Company sponsors a defined benefit plan in Switzerland. The plan covers certain international employees and is based on years of service and
compensation on a career-average pay basis.
The components of the net periodic pension costs for the fiscal years ended January 31, 2022, 2021 and 2020 are as follows:
(Amounts in thousands)
Service cost
Interest cost
Expected return on assets
Actuarial gain recognized due to partial settlement
Amortization of prior service costs
Net Periodic Pension Cost
2022
2021
2020
1,131 $
-
(395 )
-
74
810 $
1,274 $
-
(372 )
(43 )
73
932 $
1,121
300
(205 )
-
68
1,284
$
$
The other components of the net periodic pension costs, expected return on assets, actuarial gain recognized and the amortization of the prior service costs,
are all included in other income in fiscal 2022 and fiscal 2021 in the consolidated statement of operations, while the amounts in fiscal 2020, including
interest cost, are included in selling, general and administrative expenses in the consolidated statement of operations due to the immateriality of the
amounts.
During fiscal 2021, the settlements, including lump sum payments, exceeded the sum of the current service cost and interest cost components. Because
only a portion of the benefit obligation is settled, the Company recognized in fiscal 2021 a pro rata portion of the unamortized net gain in the net periodic
pension cost as a reduction of other components of the net periodic pension cost.
The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost in the fiscal year
ended January 31, 2023 is $0.1 million.
82
A reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the consolidated balance sheets are shown
below (based on a January 31 measurement date):
(Amounts in thousands)
Change in benefit obligation:
Pension benefit obligation at beginning of period
Service cost
Interest cost
Benefits (paid) deposited
Employee contributions
Actuarial losses
Foreign currency exchange rate impact
Pension benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of period
Company contributions
Benefits (paid) deposited
Actual return on plan assets
Employee contributions
Foreign currency exchange rate impact
Fair value of plan assets at end of year
Funded status - consolidated
Amounts recognized in the consolidated balance sheets
consist of:
Other non-current assets
Other non-current liabilities
Amounts recognized in accumulated other
comprehensive income/(loss):
Prior service cost
Net actuarial (gain)/loss
Tax effect
Net amount recognized, after tax
Accumulated benefit obligation
2022
2021
26,583
1,131
-
515
760
397
(1,084 )
28,302
25,837
1,142
515
1,914
760
(1,072 )
29,096
794
794
-
358
(618 )
55
(205 )
28,142
$
$
$
$
$
$
24,813
1,274
-
(2,551 )
791
240
2,016
26,583
24,227
1,187
(2,551 )
220
791
1,963
25,837
(746 )
-
746
448
511
(209 )
750
26,390
$
$
$
$
$
$
Investment Policy:
It is the objective of the plan sponsor to maintain an adequate level of diversification to balance market risk, to prudently invest to preserve capital and to
provide sufficient liquidity while maximizing earnings for near-term payments of benefits accrued under the plan and to pay plan administrative expenses.
The assumption used for the expected long-term rate of return on plan assets is based on the long-term expected returns for the investment mix of assets
currently in the portfolio. Historical return trends for the various asset classes in the class portfolio are combined with current and anticipated future market
conditions to estimate the rate of return for each class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of
return for each class.
The assets are classified as a Level 3 asset within the fair value hierarchy and consist of an investment in pooled assets and include separate employee
accounts that are invested in equity securities, debt securities and real estate. The values of the separate accounts invested are based on values provided by
the administrator of the funds that cannot be readily derived from or corroborated by observable market data.
The weighted‑average assumptions that were used to determine the Company’s benefit obligations as of the measurement date (January 31) were as
follows:
Discount rate
Salary progression rate
Expected long-term rate of return on plan assets
2022
2021
2020
0.20 %
1.10 %
1.50 %
0.00 %
1.10 %
1.50 %
0.00 %
1.10 %
1.50 %
83
The discount rates used are based on high quality AAA- and AA-rated corporate bonds with durations corresponding to the expected durations of the
benefit obligations and service time.
The weighted‑average assumptions that were used to determine the Company’s net periodic pension cost were as follows:
Discount rate
Salary progression rate
Expected long-term rate of return on plan assets
2022
2021
2020
0.00 %
1.10 %
1.50 %
0.00 %
1.10 %
1.50 %
0.90 %
1.10 %
0.90 %
The overall expected long-term rate of return on plan assets is a weighted-average expectation based on the targeted portfolio composition. Historical
experience and current benchmarks are considered to arrive at expected long-term rates of return in each asset category.
The Company expects the following benefit payments to be paid out for the fiscal years indicated. The expected benefit payments are based on the same
assumptions used to measure the Company’s benefit obligation at January 31, 2022 and include estimated future employee service. The Company does not
expect any plan assets to be returned to it during the fiscal year ending January 31, 2023. Payments from the pension plan are made from the plan assets.
Fiscal Year ending January 31,
2023
2024
2025
2026
2027
2028-2032
(in thousands)
$
255
458
317
305
449
2,570
During fiscal 2023, the Company expects to contribute $1.2 million to its Swiss defined benefit plan.
NOTE 20 – SEGMENT AND GEOGRAPHIC 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: Watch and Accessory Brands and Company Stores. The Company’s Watch and Accessory
Brands segment includes the designing, manufacturing and distribution of watches and, to a lesser extent, jewelry and other accessories, of owned and
licensed brands, in addition to revenue generated from after-sales service activities and shipping. The Company Stores segment includes the Company’s
retail outlet business. The Chief Executive Officer of the Company is the chief operating decision maker (“CODM”) and regularly reviews operating results
for each of the two operating segments to assess performance and makes operating decisions about the allocation of the Company’s resources.
The Company divides its business into two major geographic locations: United States operations, and International, which includes the results of all non-
U.S. Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company’s International operations in
Europe, the Middle East, the Americas (excluding the United States) and Asia accounted for 33.9%, 7.8%, 6.5% and 4.5%, respectively, of the Company’s
total net sales for fiscal 2022. For fiscal 2021, the Company’s International operations in Europe, the Middle East, the Americas (excluding the United
States) and Asia accounted for 37.4%, 7.3%, 6.6% and 6.3%, respectively, of the Company’s total net sales. For fiscal 2020, the Company’s International
operations in Europe, the Americas (excluding the United States), the Middle East and Asia accounted for 33.4%, 9.0%, 7.9% and 6.6%, respectively, of
the Company’s total net sales. A vast majority of the Company’s tangible International assets are owned by the Company’s Swiss and Hong Kong
subsidiaries.
84
Operating Segment Data as of and for the Fiscal Year Ended January 31, (in thousands):
Watch and Accessory Brands:
Owned brands category
Licensed brands category
After-sales service and all other
Total Watch and Accessory Brands
Company Stores
Consolidated total
Watch and Accessory Brands
Company Stores
Consolidated total
$
$
$
$
2022
Net Sales
2021
2020
249,940 $
368,354
7,929
626,223
106,170
732,393 $
178,173 $
262,367
6,822
447,362
59,035
506,397 $
257,954
344,681
9,763
612,398
88,568
700,966
2022
Operating Income/(Loss)
(1) (2) (3) (4) (5)
2021
(152,662 ) $
10,535
(142,127 ) $
85,619 $
31,872
117,491 $
2020
29,529
13,462
42,991
Watch and Accessory Brands
Company Stores
Consolidated total
Watch and Accessory Brands
Company Stores
Consolidated total
Total Assets
2022
701,986 $
59,174
761,160 $
2021
659,681 $
59,576
719,257 $
$
$
2022
Capital Expenditure
2021
2,956
2,700
5,656
$
$
2,909 $
109
3,018 $
2020
7,616
5,097
12,713
Depreciation and Amortization
2021
2022
2020
$
$
9,810 $
2,653
12,463 $
11,462 $
2,650
14,112 $
14,013
2,368
16,381
Geographic Location Data as of and for the Fiscal Year Ended January 31, (in thousands):
United States
International
Consolidated total
2022
346,092 $
386,301
732,393 $
$
$
Net Sales (6)
2021
2020
2022
214,818 $
291,579
506,397 $
302,426 $
398,540
700,966 $
Operating Income/(Loss)
(1) (2) (3) (4) (5) (7) (8)
2021
(128,430 ) $
(13,697 )
(142,127 ) $
40,476 $
77,015
117,491 $
2020
(22,719 )
65,710
42,991
United States
International
Consolidated total
Total Assets
Property, Plant and Equipment, Net
2022
2021
2022
2021
$
$
352,806 $
408,354
761,160 $
352,517 $
366,740
719,257 $
13,246 $
6,224
19,470 $
14,792
7,557
22,349
(1)
(2)
Fiscal 2021 operating loss in the United States locations of the Watch and Accessory Brands segment included a charge of $99.7 million, related to
the impairment of goodwill and intangible assets associated with the MVMT brand. Fiscal 2021 operating loss in the International locations of the
Watch and Accessory Brands segment included a charge of $56.2 million related to the impairment of goodwill associated with the Olivia Burton
brand and City Time Joint Venture.
Fiscal 2022 operating income in the United States locations and the International locations of the Watch and Accessory Brands segment included
income of $0.1 million and $1.0 million, respectively, related to a reversal in certain corporate initiatives charges due to a change in estimate that the
Company took in fiscal 2021 in response to the impact on its business due to the COVID-19 pandemic primarily due to a collection of a previously
reserved receivable. Fiscal 2021 operating loss in the United States locations and the International locations of the Watch and Accessory Brands
segment included a charge of $8.0 million and $4.6 million, respectively, related to the corporate initiatives that the Company took in response to the
impact on its business due to the COVID-19 pandemic.
85
(3)
(4)
(5)
(6)
(7)
(8)
Fiscal 2022, 2021 and 2020 operating income/(loss) in the United States locations of the Watch and Accessory Brands segment included $0.4
million, $1.6 million and $4.6 million, respectively, of expenses primarily related to the amortization of intangible assets, deferred compensation and
certain accounting adjustments associated with the MVMT brand.
Fiscal 2022, 2021 and 2020 operating (loss)/income in the International locations of the Watch and Accessory Brands segment included $2.9
million, $2.7 million and $2.8 million, respectively, of expenses primarily related to the amortization of acquired intangible assets, as a result of the
Company’s acquisition of the Olivia Burton brand.
Fiscal 2020 United States and International locations of the Watch and Accessory Brands operating (loss)/income included income of $0.3 million
due to a change in estimate related to the Company’s fiscal 2018 cost savings initiatives.
The United States and International net sales are net of intercompany sales of $358.9 million, $236.9 million and $346.8 million for the fiscal years
ended January 31, 2022, 2021 and 2020, respectively.
The United States operating income/(loss) included $38.7 million, $29.1 million and $29.0 million of unallocated corporate expenses for the fiscal
years ended January 31, 2022, 2021 and 2020, respectively.
The International operating income/(loss) included $80.5 million, $63.0 million and $73.3 million of certain intercompany profits related to the
Company’s supply chain operations for the fiscal years ended January 31, 2022, 2021 and 2020, respectively.
86
Schedule II
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description
Year ended January 31, 2022:
Doubtful accounts
Returns
Other sales allowances
Deferred tax asset valuation allowance
Total
Year ended January 31, 2021:
Doubtful accounts
Returns
Other sales allowances
Deferred tax asset valuation allowance
Total
Year ended January 31, 2020:
Doubtful accounts
Returns
Other sales allowances
Deferred tax asset valuation allowance
Total
Balance at
beginning
of year
Net
provision/(benefit)
charged to
operations
Currency
revaluation
Net write-offs
Balance at
end of year
$
$
$
$
$
$
7,042 $
13,901
8,154
7,007
36,104 $
5,643 $
13,280
8,801
5,481
33,205 $
5,492 $
13,034
7,380
5,257
31,163 $
(98 ) (1) $
31,105
10,798
1,001
42,806
1,331
31,892
6,189
1,644
41,056
734
31,232
12,612
516
45,094
$
$
$
$
$
(161 ) $
(223 )
(169 )
(158 )
(711 ) $
316 $
325
251
538
1,430 $
69 $
71
9
(169 )
(20 ) $
(952 ) $
(31,068 )
(9,678 )
(829 )
(42,527 ) $
(248 ) $
(31,596 )
(7,087 )
(656 )
(39,587 ) $
(652 ) $
(31,057 )
(11,200 )
(123 )
(43,032 ) $
5,831
13,715
9,105
7,021
35,672
7,042
13,901
8,154
7,007
36,104
5,643
13,280
8,801
5,481
33,205
(1) Includes a $0.9 million reversal due to the Company collecting fully on a customer account previously reserved as part of the corporate initiatives.
S-1