10-Q: Movado Group Q3 Earnings Rise Amid Restatement Fallout

Movado Group reports increased net income and sales for Q3 2025, navigating a restatement due to past misconduct and ongoing tariff challenges.

Summary

• Net sales for the three months ended October 31, 2025, increased by 3.1% to $186.1 million, and for the nine months, increased by 1.7% to $479.7 million.
• Net income attributable to Movado Group, Inc. for the three months ended October 31, 2025, was $9.6 million, a 100% increase from $4.8 million in the prior year.
• Net income attributable to Movado Group, Inc. for the nine months ended October 31, 2025, was $14.0 million, a 35.9% increase from $10.3 million in the prior year.
• Gross profit for the three months was $101.1 million (54.3% of net sales) and for the nine months was $260.0 million (54.2% of net sales), both showing margin improvement.
• Selling, general and administrative (SG&A) expenses decreased by $1.3 million (1.4%) for the three months and remained flat for the nine months, reflecting cost-saving initiatives.
• Operating income for the three months increased to $11.7 million from $6.0 million, and for the nine months, increased to $16.0 million from $10.8 million.
• The company restated previously issued financial statements for fiscal years ended January 31, 2024 and 2023, and interim periods within fiscal years 2025 and 2024, due to misconduct in the Dubai branch involving overstatement/premature recognition of sales and underreporting of credit notes.
• The SEC Division of Enforcement has requested documents and information relating to the restatement, and the company is cooperating.
• A cost-savings initiative resulted in $1.5 million in accruals for severance and employee-related charges in the first nine months of fiscal 2026, with expected annual savings of approximately $10.0 million.
• The company paid $23.3 million in cash dividends ($0.35 per share) during both the nine months ended October 31, 2025, and 2024.
• 100,000 shares of common stock were repurchased for $1.6 million (average $15.94/share) during the nine months ended October 31, 2025, with $48.4 million remaining available under the repurchase program.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance with significant increases in net sales, gross profit, and net income, alongside improved operating cash flow and a new tariff agreement. However, the ongoing SEC investigation and material weakness in internal controls due to past misconduct in the Dubai branch, coupled with persistent tariff impacts and declining owned brand sales, temper the overall positive sentiment.

Positives

• Net sales increased by 3.1% to $186.1 million for the three months and by 1.7% to $479.7 million for the nine months ended October 31, 2025.
• Net income attributable to Movado Group, Inc. increased by 100% to $9.6 million for the three months and by 35.9% to $14.0 million for the nine months.
• Gross profit margin improved by 80 basis points to 54.3% for the three months and by 20 basis points to 54.2% for the nine months, driven by favorable sales mix and leveraging reduced costs.
• Operating income significantly increased by 95% to $11.7 million for the three months and by 48.1% to $16.0 million for the nine months.
• Net cash provided by operating activities improved by $41.9 million, shifting from a net cash used of $40.6 million in the prior year to a net cash provided of $1.3 million in the current nine-month period.
• Strong liquidity with $183.9 million in cash and cash equivalents at October 31, 2025, and $99.7 million available under the revolving credit facility with no outstanding loans.
• The cost-savings initiative is expected to yield approximately $10.0 million in annual savings.
• A new framework agreement with Switzerland is expected to reduce the special tariff on Switzerland-origin goods to 15% minus the standard duty rate, which should decline the average duty rate.

Negatives

• The company restated previously issued financial statements for fiscal years ended January 31, 2024 and 2023, and interim periods within fiscal years 2025 and 2024, due to misconduct in the Dubai branch.
• The SEC Division of Enforcement has requested documents and information relating to the restatement, indicating an ongoing regulatory inquiry.
• Owned brands category net sales decreased by $4.3 million (8.5%) for the three months and $14.4 million (10.6%) for the nine months.
• Increased U.S. tariffs negatively impacted the gross margin percentage by approximately 230 basis points for the three months and 130 basis points for the nine months.
• Foreign exchange rate fluctuations had a negative impact on gross margin (30 basis points for three months, 70 basis points for nine months) and unfavorably impacted SG&A expenses ($2.3 million for three months, $5.2 million for nine months).
• A non-cash impairment charge of $0.4 million was recorded related to an investment in a venture capital fund.
• An increase of $2.6 million in foreign exchange losses for the nine months was mainly due to a highly volatile foreign currency environment.
• A material weakness in internal control over financial reporting was identified due to an inadequate risk assessment process regarding functional segregation of duties in the Dubai branch.

Risks

• Ability to implement and maintain effective internal control over financial reporting and remediate the identified material weakness.
• General economic and business conditions, including inflation and elevated interest rates, which may impact consumer disposable income.
• Uncertainty regarding geopolitical concerns and international hostilities (e.g., Russian invasion of Ukraine, war in the Middle East) affecting global markets, economies, consumer spending, energy/shipping costs, and supply chain.
• Ongoing impact of tariffs and other trade barriers on U.S. operations, which are expected to be material unless rates are significantly reduced.
• Supply disruptions, delivery delays, and increased shipping costs.
• Changes in consumer preferences and popularity of particular designs, and the impact of smart watches and other wearable tech products on the traditional watch market.
• Availability of alternative sources of supply in case of the loss of any significant supplier or any supplier's inability to fulfill orders.
• Loss of or curtailed sales to significant customers.
• Dependence on key employees and officers.
• Risks associated with minority investments in early-stage growth companies and venture capital funds.
• Losses possible from pending or future litigation and administrative proceedings, including potential assessments for underpayment of tariffs by U.S. Customs and Border Protection (CBP).
• Information systems failure or breaches of network security.
• Complex and quickly-evolving regulations regarding privacy and data protection.
• General risks associated with doing business internationally, including import duties, quotas, political and economic stability, changes to existing laws or regulations, and impacts of currency exchange rate fluctuations.

Future Outlook

The company expects approximately $10.0 million in annual savings from its cost-savings initiatives. The new tariff framework agreement with Switzerland is anticipated to reduce the average duty rate on Switzerland-origin goods, though rates will remain materially higher than in past years, and tariffs are expected to have a material impact on U.S. operations unless significantly reduced. The company does not expect the One Big Beautiful Bill Act (OBBBA) to materially impact its financial statements. While the company currently expects to continue declaring cash dividends, future decisions are at the Board's sole discretion. Remaining severance and employee-related expenses of $1.2 million are expected to be paid during the remainder of fiscal year 2026, and the company may be called upon to satisfy capital calls for the remaining $4.8 million in venture capital fund commitments.

Management Comments

• Management is in the process of implementing a remediation plan to address the material weakness, which includes enhancing the company’s risk assessment and oversight processes to properly assess the risks associated with functional segregation of duties and making changes in personnel and reporting lines.
• The company is increasing policy awareness and compliance training.
• The company expects go-forward annual savings from the cost-savings initiatives of approximately $10.0 million.
• The company will continue to evaluate and monitor potential impact on future periods; however, the company does not expect the OBBBA to have a material impact on its Consolidated Financial Statements.
• 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.

Industry Context

The company operates within a challenging consumer-spending environment, facing increased commodity prices, tightness in the labor market, and general geopolitical uncertainty. Tariffs and international hostilities continue to impact global markets, economies, consumer spending, and supply chains. The industry is also influenced by evolving environmental, social, and governance (ESG) regulations, decreasing mall traffic, increasing e-commerce, and competition from smartwatches and other wearable tech products. The company's operations are also affected by a highly volatile foreign currency environment.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The SEC Division of Enforcement has issued a voluntary request for documents and information relating to the restatement of previously issued financial statements, and the company is cooperating.
• U.S. Customs and Border Protection (CBP) issued an audit report in December 2016 regarding the company's methodology for allocating the cost of certain watch styles for tariff purposes, implying approximately $5.1 million of underpaid duties for the audit period (August 1, 2011, through July 15, 2016). While the statute of limitations has lapsed for the audit period, the company could be exposed to assessments if CBP disagrees with its judgments on cost allocation for imported watches.
• The company is involved in other legal proceedings and claims in the ordinary course of business, the resolution of which is not expected to materially affect its financial condition, future results of operations, or cash flows beyond amounts accrued.

Related Party Transactions

• NA

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and continued dividends and share repurchases. Negative impact from restatement and SEC investigation creating uncertainty.
• Employees: Headcount reductions due to cost-savings initiative. Termination of employees in the Dubai branch due to misconduct. Increased policy awareness and compliance training.
• Customers: Potential price increases due to tariffs.
• Suppliers: Potential changes to sourcing and operational processes due to tariffs.
• Creditors: No impact on debt covenants from the restatement. Strong liquidity and no outstanding borrowings on the credit facility.

Next Steps

• Implement and test the remediation plan for the material weakness in internal control over financial reporting.
• Cooperate with the SEC in responding to document requests related to the restatement.
• Continue to evaluate and monitor the potential impact of the One Big Beautiful Bill Act (OBBBA).
• Evaluate the timing and impact of adoption of new FASB ASUs (2023-09, 2024-03, 2025-05, 2025-06).
• Pay the remaining $1.2 million of severance and employee-related expenses from the cost-savings initiative during the remainder of fiscal year 2026.
• Continue to regularly evaluate the carrying value of investments.
• The Board of Directors will determine future cash dividends.
• Continue the share repurchase program through December 5, 2027.
• Develop additional mitigation strategies for tariffs, including potential changes to sourcing and operational processes.

Key Dates

Recommendation

While Movado Group demonstrated strong financial performance with significant increases in net income and operating cash flow, and is implementing cost-saving measures, the ongoing SEC investigation into past misconduct and the identified material weakness in internal controls present considerable uncertainty and potential future liabilities. The positive operational results are tempered by these governance and compliance issues, making a 'hold' recommendation appropriate until the resolution of the SEC inquiry and successful remediation of internal control weaknesses are clearly demonstrated. The declining owned brand sales also warrant caution.

Keywords

Movado Group, MOV, Quarterly Report, SEC Filing, Financial Results, Watch Industry, Luxury Accessories, Retail, E-commerce, Internal Controls, Restatement, Tariffs, Cost Savings, Corporate Governance, Earnings, Revenue, Net Income, Cash Flow, Share Repurchase, Dividends