Movado’s Earnings Call Contradictions: Gross Margin Sustainability, Inventory Timelines Don’t Match

Date of Call: Aug 26, 2026

Financials Results

• Revenue: $169.8M, up 4.9% YOY ($161.8M prior year), in constant dollars up 4.4%
• EPS: $0.54 per diluted share, up from $0.23 last year, including $0.11 per share from IEEPA duty refunds
• Gross Margin: 59.4%, compared to 54.1% in the prior year; excluding IEEPA duty refunds, 57.5%, up 340 basis points YOY

Guidance:

• Expects top-line growth in the mid-single digit range for the remainder of fiscal 2027.
• Second half gross margin expected to be in a range of 55%-56%.

Business Commentary:

Sales and Profitability Growth:

• Movado Group reported sales of $169.8 million for the second quarter, up 4.9% year-on-year.
• Adjusted operating profit increased to $15.1 million from $7 million last year.
• The growth was driven by strong consumer demand across the business, particularly in the U.S. and international markets like Latin America and India.

Gross Margin Improvement:

• The company's gross margin for the quarter improved to 59.4% from 54.1%.
• Excluding IEEPA duty refunds, the gross margin would have been 57.5%, a 340 basis point improvement.
• This was primarily due to favorable business mix, strategic pricing initiatives, and reduced promotional activity.

Strong Performance in E-commerce and Specific Brands:

• Movado.com sales increased 8%, and Movado outlet stores sales increased 3%.
• The Baby Face mini strap watch sold over 400 units on movado.com in less than a month.
• The performance was attributed to trend-right products and effective digital storytelling.

International Market Dynamics:

• International net sales increased 4.9%, with strong performances in Asia, Europe, and Latin America, although there was a decline in the Middle East.
• The decline in the Middle East was due to ongoing challenges related to the conflict in the region, particularly in markets reliant on international tourism.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'very pleased with our results,' seeing 'momentum across our business and strength in consumer demand,' and described results as reflecting 'meaningful progress advancing our strategy.' The company reported sales growth, margin expansion, a strong balance sheet, and discontinued providing an annual outlook, focusing instead on executing its strategy.

Q&A:

• Question from Owen Rickert (Northland Capital Markets): How much of the 340 basis point gross margin improvement (excluding IEEPA benefit) is structural versus transitory?
  Response: The improvement is a mix of better pricing and favorable legacy inventory benefit; the latter is temporary and not expected to continue in the second half.

• Question from Owen Rickert (Northland Capital Markets): Is the back half gross margin guidance (55%-56%) a step down due to the inventory benefit reversal?
  Response: Yes, the guidance step down is 100% due to the reversal of the temporary IEEPA tariff benefit on legacy inventory.

• Question from Owen Rickert (Northland Capital Markets): How significant is the higher shipping cost headwind? Are you locked into rates or can you renegotiate?
  Response: The increase was due to fuel surcharges and higher e-commerce volumes; the company manages costs tightly and has built these factors into the second half outlook.

• Question from Owen Rickert (Northland Capital Markets): Can you speak to broader trends in the fashion watch and jewelry category and how they are shaping your strategy?
  Response: Seeing strong momentum, especially among younger consumers returning to traditional watches as accessories; this trend supports the company's focus on innovation and storytelling to connect with Gen Z and older demographics.

Contradiction Point 1

Gross Margin Outlook and Structural Drivers

Contradiction on the sustainability of gross margin improvements.

Owen Rickert (Northland Capital Markets) - Owen Rickert (Northland Capital Markets)

2027Q2: The improvement is a mix of improved pricing and better average selling prices across the board, as well as a benefit from legacy inventory that had IEEPA tariffs reversed in Q1 and Q2. This tariff benefit is temporary... - Sallie DeMarsilis(CFO)

How much of the gross margin improvement is structural (mix/pricing power) versus transitory (favorable FX, one-time cost reductions)? - Owen Rickert (Northland Capital Markets)

2027Q1: The actions being taken are expected to have long-term benefits for gross margin improvement, especially through reducing SKU counts and rationalizing suppliers. - Efraim Grinberg(CEO)

Contradiction Point 2

Inventory Replenishment Timing

Contradiction on the expected timing for replenishing depleted inventory.

What was Owen Rickert's question for the earnings call? - Owen Rickert (Northland Capital Markets)

2027Q2: The strong replenishment in Q1 was due to higher-than-anticipated sell-through in Q4... the company expects to replenish these items by summer. - Efraim Grinberg(CEO)

What broader trends are you seeing in the fashion watch and jewelry category, and how are they shaping your strategy going forward? - Hamed Khorsand (BWS Financial Inc.)

2027Q1: The strong replenishment in Q1 was due to higher-than-anticipated sell-through in Q4... This timing is expected to allow for a more balanced inventory schedule for the second half of the year and the important holiday season. - Efraim Grinberg(CEO)

Contradiction Point 3

Nature of Tariff Impact on Financials

Contradiction on whether tariff benefits are a past drag or a future headwind.

Owen Rickert (Northland Capital Markets) - Owen Rickert (Northland Capital Markets)

2027Q2: The improvement is a mix of improved pricing and better average selling prices across the board, as well as a benefit from legacy inventory that had IEEPA tariffs reversed in Q1 and Q2. This tariff benefit is temporary and not expected to continue in the second half. - Sallie DeMarsilis(CFO)

How much of the 340-basis-point gross margin expansion excluding IEEPA is structural (e.g., mix and pricing power) versus transitory (e.g., favorable FX, one-time cost reductions), and are there other factors to note? - Owen Rickert (Northland Capital)

20260319-2026 Q4: For fiscal year 2026, IEEPA tariffs reduced cost of goods sold by about $10 million, equating to a 150 basis point impact on gross margin... For fiscal year 2027, plans are based on a tariff rate of approximately 10% on top of normal duty rates - Sallie DeMarsilis(CFO)

Contradiction Point 4

Primary Driver of Sales Growth

Contradiction on whether growth is driven by consumer return to category or by wholesale inventory replenishment.

Owen Rickert (Northland Capital Markets) - Owen Rickert (Northland Capital Markets)

2027Q2: The company is seeing strong momentum in the traditional watch category... driven by younger consumers returning to watch collecting. - Efraim Grinberg(CEO)

What broader trends in the fashion watch and jewelry category are shaping your strategy? - Hamed Khorsand (BWS Financial)

20260319-2026 Q4: The growth was driven by demand and sell-through. Retailers are currently chasing inventory, and the focus is on rebuilding inventory levels... - Efraim Grinberg(CEO)

Contradiction Point 5

Gross Margin Drivers and Future Expectations

Contradictory factors cited for margin performance and future guidance.

Owen Rickert (Northland Capital Markets) - Owen Rickert (Northland Capital Markets)

2027Q2: The improvement is a mix of improved pricing and better average selling prices across the board, as well as a benefit from legacy inventory that had IEEPA tariffs reversed in Q1 and Q2. This tariff benefit is temporary and not expected to continue in the second half. - Sallie DeMarsilis(CFO)

How much of the 340 bps gross margin expansion is structural (e.g., mix and pricing power) versus transitory (e.g., favorable FX and one-time cost reductions), and are there any other factors to note? - Hamed Khorsand (BWS Financial Inc.)

2026Q3: The focus remains on improving profitability, as evidenced by the 40%+ growth in adjusted operating income. - Efraim Grinberg(CEO)