Movado Group, Inc. Q1 FY2027 earnings call

Overall Financial Highlights:

• As-reported net sales increased 8.1% year-over-year, or 4.5% on a constant currency basis, to $142.4 million
• Adjusted operating profit increased to $7.5 million from $900,000 in the prior-year quarter
• Adjusted diluted earnings per share increased to 32 cents from 8 cents year-over-year
• Gross margin improved 320 basis points to 57.3% of sales, driven by favorable channel and product mix and operating leverage
• Ended the quarter with $225.3 million in cash and no debt, maintaining a very strong balance sheet
• Board approved a 5 cent per share increase to the quarterly cash dividend, raising it to 40 cents per share

Strategic Priorities and Operational Progress:

• Customer-Centric Brand and Product Strategy: Strengthened digital consumer engagement and delivered trend-right product aligned with each brand's identity. Noted a strong resurgence of the fashion watch category, particularly among younger global consumers returning to traditional watches.
• Consumer and Brand-Focused Innovation: Expanded popular product lines and launched new offerings across the portfolio. Key hits include the Movado Bangle collection, Heritage 1917 collection, and new curved jewelry line; upcoming Father's Day/Q2 launches (Verso S, Kingmatic) already show strong early demand. Smaller, distinctive watch sizes are resonating strongly with consumers across all brands.
• Compelling Consumer Storytelling: Launched high-engagement digital content for Movado's 145th anniversary, highlighting the brand's heritage, quality and craftsmanship. Leverages high-profile brand ambassadors (Ludacris, Christian McCaffrey, Julianne Moore, Jessica Alba) and strategic partnerships (Checo Perez/Cadillac Formula One Team for Tommy Hilfiger) to deepen consumer connections.
• Margin and Profitability Expansion: Achieved 320 basis points of gross margin expansion in Q1, driven by higher-margin product introductions, a focus on full-price selling with reduced promotional activity, and operational efficiency improvements across the value chain. The company expects long-term, sustained margin improvement from these strategic initiatives.

1. Owned Brands (Movado): Delivered strong overall performance in Q1 2027. Movado.com sales grew 12.8% year-over-year, and company store sales increased 10.2% year-over-year. Multiple best-selling styles sold out during the quarter. Owned brands contributed to the overall 8.1% as-reported net sales growth for the company, with owned brand growth outpacing licensed brand growth. 2. Licensed Brands: Overall net sales increased 6.5% year-over-year in Q1 2027. Excluding the underperforming Middle East region, licensed brand net sales grew 9.2% on a constant currency basis. Individual brand performance highlights include strong Gen Z engagement for Coach, growing momentum for Lacoste driven by new product launches, solid performance for Hugo Boss led by core men's collections, continued strong global results for Tommy Hilfiger, growing traction for Calvin Klein, and strong retail sell-through for Olivia Burton in the U.S. and UK markets. On a company-wide basis, owned brands and licensed brands both contributed to overall net sales growth, with U.S. segment net sales increasing 8.7% year-over-year, and international segment net sales increasing 7.6% year-over-year (1.6% on a constant currency basis). Total company net sales for Q1 2027 were $142.4 million, compared to $131.8 million in Q1 2026.

• Due to ongoing economic and geopolitical uncertainty, specifically the unpredictable impact of the ongoing Middle East conflict, Movado Group is not providing full fiscal 2027 guidance at this time.
• Management expects sales growth to moderate in the second quarter of fiscal 2027, particularly on a constant currency basis, following the strong retailer replenishment activity that boosted first quarter results.
• Management reaffirms expectations for full-year gross margin to be higher than fiscal 2026 levels, though not as high as the Q1 2027 margin which included one-time favorable factors.

• Ongoing conflict in the Middle East created significant headwinds for the region's performance in the first quarter, and the unpredictable future impact of this conflict is a key source of uncertainty for the business.
• Foreign exchange fluctuations, specifically the strengthening of the Swiss franc, created negative pressure on gross margin that was partially offset by other favorable factors during the quarter.
• General economic and geopolitical uncertainty creates uncertainty for future business performance, leading the company to suspend full-year guidance at this time.
• The company faced unanticipated inventory shortages, particularly in the core Movado brand, following stronger-than-expected Q1 replenishment demand.

Q: How much of Q1's strong gross margin expansion is structural versus one-time, and what baseline should be expected for the rest of the year? / A: Management expects full-year gross margin to be higher than last year, but not as high as the Q1 2027 level, landing roughly halfway between the prior year and Q1's result. Long-term gross margin improvement is expected from ongoing structural actions including reducing SKU counts across brands and rationalizing the company's supplier base.

Q: Which brands and channels drove the current quarter's margin expansion, and how is the company adjusting inventory and roadmaps to lean into the popular trend of smaller case sizes and distinctive shapes? / A: Direct-to-consumer channels (Movado.com, OliviaBurton.com, company-owned retail stores) and global digital partners (excluding the Middle East) were the key drivers of margin improvement. The company has focused on product innovation for smaller, unique sizes for 18 months, with more progress at some brands than others, and sees significant long-term opportunity. The return of younger consumers to the traditional fashion watch category, drawn to these new sizes and shapes, is a global positive trend that should drive future growth as these consumers move up to higher price points over time.

Q: Was Q1's strong retailer replenishment a one-time event that borrowed demand from Q2? / A: Q4 2026 sell-through was stronger than both the company and retailers expected, leading to higher-than-usual replenishment orders in Q1 2027. This replenishment created unanticipated inventory shortages, particularly for the Movado brand, that are expected to be resolved by summer, putting the business on a more balanced schedule heading into the second half and the holiday selling season.

Q: What is management's view on the recent consumer interest around Swatch's new release, and is it positive or negative for Movado and the broader watch category? / A: Any renewed consumer interest in the traditional watch category is a positive for the industry, even for new hybrid releases that celebrate craftsmanship, watchmaking, and mechanical movements. Movado has strong traction with young consumers already (very high Gen Z penetration for the Coach brand, for example) driven by its own product innovation, so increased category interest benefits the company as well.