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Call participants
Chairman and Chief Executive Officer — Efraim Grinberg
Executive Vice President and Chief Financial Officer — Sallie DeMarsilis
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Risks
There was a $2.2 million impact from unmitigated U.S. tariff expenses in the fiscal second quarter ended July 31, 2025. Management stated mitigation actions “will predominantly impact future periods.”
Gross margin fell by 20 basis points to 54.1% from 54.3% in the fiscal second quarter of the prior year, primarily due to increased tariffs and unfavorable foreign exchange, according to management.
The Movado brand experienced a 5.6% sales decline in the fiscal second quarter.
Management confirmed it will not provide a fiscal 2026 outlook, stating, “Given the current macroeconomic environment and the ongoing uncertainty of the impact of tariffs on our business.”
Takeaways
Net sales— $161.8 million, up 3.1%, with constant currency growth of 1.4% in the fiscal second quarter.
Adjusted operating profit— $7 million, more than double the $2.6 million reported in the fiscal second quarter of the prior year.
Gross margin— Gross margin was 54.1%, down 20 basis points in the fiscal second quarter, primarily due to higher tariffs and currency headwinds, partially offset by a favorable mix.
Net income— $5.3 million, or $0.23 per diluted share, compared to $3.5 million, or $0.15 per diluted share in the fiscal second quarter of the prior year.
Inventory— $28.3 million higher than the prior year (+15.5%) in the fiscal second quarter, with $16 million pulled forward in the U.S. to mitigate tariff exposure.
International sales— Increased by 6.9% (reported) and 3.9% (constant currency) in the fiscal second quarter, led by growth in Europe, Latin America, and India.
U.S. sales— Decreased 1.6% in the fiscal second quarter, impacted by continued channel rebalancing.
Licensed brands— Reported growth of 9.5%, or 6.5% at constant currency, in the fiscal second quarter.
Movado brand sales— Declined 5.6% in the fiscal second quarter, though e-commerce posted 6% growth and brick-and-mortar sell-through improved.
Operating expenses— Fell by $2.0 million to $80.6 million (adjusted) in the fiscal second quarter, due to lower marketing spend, partially offset by higher performance-based compensation.
Annualized cost savings— $10 million in expected savings for fiscal 2026 from prior operating expense reductions.
Cash balance— $180.5 million with no debt reported at the end of the fiscal second quarter.
Outlet stores segment— Grew 2.4% in the fiscal second quarter, supported by recent initiatives and positive momentum.
Share repurchases— 100,000 shares repurchased, with $48.4 million remaining on the authorization as of the fiscal second quarter.
Summary
Management stated it established a “strong position in inventory of Swiss-made watches in the United States” to cover a substantial portion of anticipated demand in response to the new 39% tariff as of the fiscal second quarter ended July 31, 2025. Tariffs and currency pressures were cited as the primary drivers of lower gross margin, with strategic pricing actions implemented on July 1 and further actions planned. Cost-saving efforts are expected to deliver approximately $10 million in annualized reductions for fiscal 2026, which management stated are mitigating operational increases and supporting profitability growth. International growth outpaced the U.S., with Europe, Latin America, and India leading performance in the fiscal second quarter, while the U.S. saw a 1.6% decline in net sales due to strategic changes in distribution channels.
The CFO explained that approximately $4.6 million of reciprocal tariff costs remained embedded in inventory at the end of the fiscal second quarter.
Management described licensed brands as benefiting from a resurgence in “fashion watch and jewelry category” demand, citing heightened Gen Z interest on digital platforms.
Efraim Grinberg said, “We would expect our inventories to be in line by year-end,” addressing concerns about the significant rise in inventory levels.
Management referenced the completion of most restructuring charges and expects these “will be reduced significantly” in future quarters, as discussed on the fiscal second quarter earnings call.
Recent trends in mini and microwatch sizes have drawn young women back to the category, creating product opportunities across the brand portfolio.
Industry glossary
Mini watches: Wristwatches with case diameters typically between 23 to 28 millimeters, positioned as appealing to younger and female consumers per discussed brand trends.
Microwatches: Even smaller wristwatches than mini watches, referenced in the call as an emerging size segment within the portfolio.
Conference Call Transcript
Efraim Grinberg: Thank you, Allison. Good morning, and welcome to Movado Group’s second quarter conference call. With me today is our Executive Vice President and Chief Financial Officer, Sallie DeMarsilis. After I review the highlights of the quarter and share our progress on key strategic initiatives, Sallie will take you through the financial results in more detail. We will then be happy to answer questions. We are pleased with our overall results this quarter as we return to growth in both sales and profitability. Sales grew by 3% to $161.8 million, and adjusted operating profit more than doubled to $7 million from $2.6 million last year despite a $2.2 million impact from unmitigated U.S. tariff expenses.
Although we have taken certain actions to partially offset tariffs, those actions will predominantly impact future periods. After the quarter ended, the United States implemented a tariff rate of 39% on Swiss imports. During the second quarter, we have built a strong position in inventory of Swiss-made watches in the United States and would expect a substantial portion of the year’s needs are covered. We are hopeful that over the next several months, the United States and Switzerland will agree to lower tariff rates. Of course, we continue to monitor the situation closely and to develop mitigation plans. We continue to operate with a strong balance sheet, with over $180 million in cash and no debt.
Overall, we are pleased with the progress that we have made on our strategic initiatives, with a focus on returning the company to growth and profitability. We would expect to see approximately $10 million of annualized savings spread evenly throughout this year as a result of the actions we took late last year to reduce operating expenses. Although we experienced a 5.6% sales decline in our Movado brand, we continue to make progress on our Movado strategy, which I will discuss later in my remarks. In our licensed brands, we grew by 6.5% on a constant currency basis or 9.5% on a reported basis.
Overall, we reported gross margins of $54.1 million versus 54.1% versus 54.3% in Q2 of last year despite the 130 basis point impact of additional tariffs in the U.S. Most of our strategic pricing actions to partially offset the impact of tariffs became effective July 1. Our international business grew by 6.9%, or 3.9% on a constant currency basis, led by a strong performance in Europe, Latin America, and India, with Europe seeing particularly strong trends. As expected, this performance was offset somewhat by the Middle East, where we are in the process of rebuilding our team.
Our U.S. business declined by 1.6% as we focus on rebalancing our chain jewelry store distribution, although we had an improved performance in our domestic department store and e-commerce channels. Our outlet stores segment grew 2.4% for the quarter, and we are excited by the recent initiatives and accelerating trends in that channel. As we look at the progress that we are making in our brands, we are particularly pleased by the success that we are seeing in the overall performance of trend-right products across our brand portfolio. In Movado, we are making significant progress in returning the brand to growth in our wholesale distribution.
We have seen strong performance in our own e-commerce site, with 6% growth and strong trends in our digital partners. In brick and mortar, Movado brand sell-through has returned to growth in the second quarter in our department store channel, where we have implemented and expanded our coverage as a point of sale and installed our new point of sale display. We will continue to execute behind these initiatives as the year progresses. On the product front, Movado has seen increased penetration and success in women’s watches, including our new iconic bangle watches and our new mini quest in bold, which along with our bold tank watch is a best seller.
On the men’s side, we are seeing strong performance in the Movado bold collections, including Verso automatic and Quest automatic. Our heritage collection inspired by Movado’s rich heritage continues to do particularly well in a limited distribution across the country. The Movado brand marketing campaign for the second half will include new creative featuring our Movado icons, Ludacris, Jessica Alba, Julianne Moore, Christian McCaffrey, and Tyrese Halliburton. We are very excited by the digital-first content that our team has executed with a greater focus on products associated with each of the icons. We have exciting new products debuting this fall, like the new Museum Imperial with Christian McCaffrey and Our Heritage 1917, with Tyrese Halliburton.
On the women’s side, Jessica Alba and Julianne Moore will be featured with different shapes of our museum bangle collection and a women’s version of the museum imperial and Heritage 1917. Turning to our licensed brands, we are seeing a return to the fashion watch and jewelry category with increased interest by Gen Z consumers across digital platforms like TikTok, Reels, and YouTube. Sales in our licensed brands grew by 9.5% for the quarter or 6.5% in constant currency. In Hugo Boss, we have experienced strong growth in our iconic families, Time Traveler and Candor. Our new updated Grand Prix is quickly becoming a best seller.
We are also excited by our new women’s watches led by the May family with a petite square shape. In Tommy Hilfiger, we are very excited to be refocused on the women’s watch category. Our EMEA family is already showing signs of strong sell-through and will be featured in our fall campaign. Complementing Mia is Moira, a new mini East West Oval that has gotten a strong reception. On the men’s front, we are excited by our new seventies-inspired Chronograph Hudson Collection, which will be featured in our holiday campaign, as well as by RegattaTH, a new sports watch collection in exciting colors opening at $139.
In Lacoste, we are introducing a new black and gold version of our iconic LC 33 collection and will complement our Tang Parisienne with a new oval version. Our Lacoste jewelry business continues to exceed expectations, and we are very excited to introduce the Arthur and Crocodile families to complement our best-selling Metropole bracelet collection. In Calvin Klein, we are launching a new mini version of our best-selling Pulse collection, as well as a new 18-millimeter contemporary collection that has really piqued our retailers’ attention. Coach continues to perform extremely well, particularly in the United States, and is now showing momentum in Europe as well.
For the second half, we have several new introductions in our best-selling Sammy Oval collection with a strong new 20-millimeter Reese tank. We will also be expanding our best-selling charter collection for him. As we enter the second half of the year, we recognize that uncertainty remains around tariffs and the broader retail environment. At the same time, we are excited by the new products we have introduced and encouraged by the resurgence we are seeing in the fashion watch market. As a leadership team, our focus remains on driving profitability and delivering consistent growth in both sales and operating margin while maintaining the strength of our balance sheet and executing against our strategic plans across all of our businesses.
