Good day, everyone, and welcome to the Movado Group, Inc. First Quarter 2023 Earnings Conference Call. As a reminder, today's call is being recorded and may not be reproduced in whole or in part without permission from the company. At this time, I would like to turn the conference over to Rachel Schacter of ICR. Please go ahead.
Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer, and Sallie DeMarsilis, Executive Vice President, Chief Operating Officer and Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.
If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release. Now I'd like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.
Thank you, Rachel. Good morning, and welcome to Movado Group's first quarter conference call. I will review our first quarter performance and our strategic initiatives, and then Sallie will review our financial results in greater detail. We would then be glad to answer any questions you might have. We are very pleased with our strong results. Despite operating in an increasingly volatile environment, we delivered very strong first quarter performance. Net sales grew by 21.2% to $163.4 million, or by 24.3% on a constant currency basis. Our gross margin for the quarter was 59.2%, a 420 basis point improvement over last year.
Our adjusted operating profit for the quarter was $26.1 million, or 15.9% of sales versus $14.1 million or 10.5% of sales last year. We also ended the quarter with cash of $225.3 million and no debt. While we delivered a very strong quarter, we recognize that we are operating in an increasingly challenging environment. In the U.S., we grew sales by 6.6% in the first quarter, reflecting solid growth despite lapping increased stimulus that began during the first quarter last year and the beginning impact of inflationary pressure on the domestic consumer. As interest rates rise, we expect the U.S. economy to moderate, and as such, we are maintaining a disciplined approach to spending while continuing to strategically invest appropriately to support our brands and our businesses in our biggest markets.
Internationally, we saw very strong growth during the first quarter, with sales increasing 35.3% and 41.3% on a constant currency basis. We continue to see a certain amount of resiliency, especially in Europe and the Middle East. We're also seeing significant growth rates in Latin America and India as these markets begin to improve from the impact of the pandemic. As we look ahead, while our first quarter was extremely strong, we are seeing a heightened level of uncertainty and as such, we are not increasing our outlook. We believe we are taking the appropriate actions to navigate an environment of slowing U.S. growth, higher inflation, increased currency volatility, and geopolitical instability. We also have seen a shift to brick-and-mortar as people return to work and ramp up travel and other activities.
Turning to our Movado brand, for the quarter, our Movado brand continued to perform well with an increase in our wholesale revenues as retailers replenished inventory. This was partially offset by a 13% decline in our movado.com business as we lapped a very strong quarter last year where we more than tripled the business. Despite our strong sales performance from Movado, we did see U.S. retail become more challenging as the quarter progressed. On the product front, we continue to see strong performance of our SE collection and an increasing penetration of our automatic offerings. During the second quarter, we began introducing green dials within our SE collection and have received a very strong reception.
In our licensed brands, we saw a very strong year-over-year performance as much as Europe was closed at various times during the first quarter of last year. Coach continues to be led by strong product innovations and associations. We were pleased to continue our partnership with Jennifer Lopez, supporting our Greyson family of watches. In China, sales were challenged as COVID-related closures continue, and we're seeing customers returning to online channels during the second quarter. In Tommy Hilfiger, our newness continues to resonate with consumers. Our spring campaign introduced Matthew, a modern casual family done in Tommy's iconic blue color. For her, we are featuring Layla on a mesh bracelet in our spring marketing campaign. We had a very strong start to the year in HUGO BOSS as the brand takes on an important marketing refresh with new brand associations like Hailey Bieber and TikTok star Khaby.
We also participated in the brand's HUGO House branding event at Coachella. In both BOSS and HUGO, we plan to introduce new strong innovation in both watches and jewelry throughout the year. In Lacoste, we launched a new sport watch in Replay, done in black in both strap and mesh bracelets. We also had a strong reception from our customers to the Lacoste x Minecraft collaboration. During the quarter, we rolled out Calvin Klein in watches and jewelry in about 400 points of sale with our key partners throughout the world with a very positive response. We have seen strong sell-through to our signature CK branded watches in our everyone gender-inclusive segment, representing about 20% of the business. We're excited to continue Calvin Klein rollout as the year progresses and believe it will become an important brand for Movado Group.
In our outlet store, in our outlet store division, we saw sales fluctuate throughout the quarter, with a modest increase in sales in brick and mortar. We continued to focus on profitability and delivered higher gross margin than last year, somewhat offset by increased compensation and occupancy expenses. In our MVMT and Olivia Burton brands, we are making a great deal of progress with our new leaders in place for both brands. Olivia Burton will have some exciting new products for the fourth quarter, and we are in the process of updating the brand experience. In MVMT, we expanded our ceramic watch assortment and are already seeing some quick wins in this category at higher price points. We're in the process of developing MVMT's long-term strategy for the future. With almost 1 million MVMT customers in our database, we're excited about the long-term potential of the MVMT brand.
While we had a very strong quarter, which has enabled us to maintain our outlook for the year, the macro environment presents a heightened level of uncertainty. Over the last several years, our teams have executed at a very high level as we have had to evolve our plans while navigating a global pandemic. We will use the discipline that we have acquired as we continue to navigate economic risks, including a war in Ukraine, higher energy prices around the world, rising interest rates, a strong dollar, and increased inflation in many categories. We expect to deliver solid gross margin while continuing to carefully manage operating expenses. With our strong balance sheet and cash position, we are focused on delivering sustainable, profitable growth. I would now like to turn the call over to Sallie.
Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the first quarter of fiscal 2023 and balance sheet, and then discuss our outlook. My comments today will focus on adjusted results. Please refer to the description of all the special items included in our results for the first quarter of fiscal 2023 and fiscal 2022 in our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures. Overall, our performance for the first quarter was a strong start to fiscal 2023. Our sales were $163.4 million as compared to $134.8 million last year, an increase of 21.2%. In constant dollars, the increase in net sales was 24.3%.
Net sales increased across our segments of Owned Brands, Licensed Brands, and Company Stores, as well as across certain geographies. U.S. net sales increased 6.6%. As Efraim mentioned, during the first quarter, we anniversaried last year's stimulus in the U.S. and began to see the effects this year of increased inflation on the consumer in addition to slowing domestic growth, all of which created a challenging comparison year-over-year. International net sales increased 35.3% as compared to the first quarter of last year. We saw strong trends, especially in Europe, the Middle East, India, and Latin America, as certain of these markets began easing from the impact of the pandemic. Gross profit as a percent of sales was 59.2%, compared to 55% in the first quarter of last year.
The increase in gross margin was primarily driven by favorable channel and product mix, partially offset by higher shipping costs. Operating expenses were $70.6 million compared to $60.1 million for the same period of last year. The increase was driven by higher marketing and selling expenses to support the increase in net sales. As a percentage of sales, operating expenses for the quarter decreased to 43.2% from 44.6% in the first quarter of last year. This was primarily due to sales leverage. Expansion in gross margin, combined with continued expense discipline in the first quarter, drove a $12 million increase in operating income to $26.1 million as compared to $14.1 million in the first quarter of fiscal 2022.
We recorded income tax expense of $6.2 million in the first quarter of fiscal 2023 as compared to $3.5 million in the first quarter of fiscal 2022. Net income in the first quarter was $19.1 million, or $0.82 per diluted share, as compared to $10.1 million or $0.43 per diluted share in the year-ago period. Now turning to our balance sheet. Cash at the end of the first quarter was $225.3 million as compared to $187 million in the prior year period. Accounts receivable were $92.7 million, up $14.2 million from the same period of last year due to the increase in sales.
Inventory at the end of the quarter was up $10 million compared to the same period of last year, primarily due to the timing of receipts and the addition of the Calvin Klein brands to our portfolio. In the first quarter, we repurchased approximately $14.4 million or 378,000 shares under our share repurchase program. Capital expenditures for the quarter were $1.4 million, and depreciation and amortization expense was $2.9 million, which included $800,000 related to the amortization of acquired intangible assets of Olivia Burton and MVMT. Now I would like to discuss our outlook. While we had a strong start to the fiscal year, we recognize that we are operating in an increasingly challenging environment impacted by currency, inflation, and geopolitical instability.
Therefore, including a strong first quarter, our outlook remains unchanged, and we continue to expect fiscal 2023 net sales to be in a range of approximately $780 million-$800 million, gross profit of approximately 58% of sales, and operating profit to be in a range of $125 million-$130 million. Assuming no changes to the current tax laws, we anticipate a 25% effective tax rate. While we do not generally provide quarterly outlook, we expect our second quarter net sales to increase 2%-4% over last year, which includes a - 500 basis point effect of foreign currency. I would now like to open the call up for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Thank you. Thank you. Our first question comes from Oliver Chen with Cowen and Company. Please proceed with your question.
Hi, Efraim and Sallie. Good morning.
Good morning.
Great to be here. You saw a lot of nice strength in some regions. Could you speak to where it may have been weaker? Also, did you see a lot of volatility within customers there? Second question, as you benefited from channel and product mix upside, which is very encouraging, Sallie, do you expect that to continue? What will be key drivers there as we model the rest of the year? Thanks.
We saw Europe and Latin America, India particularly strong. A lot of that was also just lapping that they were later to reopen last year than other markets. For example, we all recall the U.S. was vaccinated to a great extent much earlier than Europe. We saw a real resurgence of strength there in our European markets. We believe that a lot of that can continue. Our brands, especially on our licensed brand category, are very strong in Europe, Latin America. The Middle East and India for us is an expanding market as well.
In North America, we saw a solid performance in line probably with our expectations for the whole year. We are also seeing a shift back into brick-and-mortar from digital channels, and that's probably also global as the world returns to shopping in store.
That's a nice segue into gross margin. So we have had year-over-year very strong comparisons. You know, what we expect for the rest of this year, you know, we're guiding to 58% gross margin. So we expect it to continue to be strong, but each of the quarters for the remainder of the year should be relatively flat in essence to last year, with each of our businesses contributing to the strength of our gross margins, but no real fallouts to anything significant in each of the quarters or for the fiscal year.
Okay. We're seeing a lot of cross currents with the health of the consumer. What are your thoughts about what you think is happening? Are there any examples about higher versus lower price points? Is inflation playing a role in the demand of your product and/or the cost of goods sold? Thank you.
Inflation is not really playing a significant headwinds for us in terms of the cost of our products. It obviously costs more to operate today. You know, we've made sure that we're careful on expenses and really focused on growing our gross margins to be able to cover that. I think there's a higher level of pressure on the lower-end consumer that has that is no longer receiving as much stimulus as they were at this point last year. You also have the headwinds of what the Fed is trying to accomplish in the United States, which is to slow down inflation. The only way to do that ultimately is to slow down consumption. I think that is factored into our outlook for this year.
Efraim, what are your thoughts on the inventory levels at your department store and other wholesale partners and how sell out is looking versus sell in? Also as a lot of the retailers just become more agile at large, you know, how are you positioning in terms of what inning you are in?
I think our inventory is in a healthy place. It's not over-inventoried. We have not. You know, fortunately for us, we're not in long lead times in terms of shipping product, which you hear about a lot of companies having a lot of inventory out on the sea. Ours has always come by plane. We never had this backlog and then delivering a lot to retailers. I think we're in a really healthy place in terms of inventory. Obviously, retailers continue to focus on inventory levels around the world, but that's something that we've dealt with now for quite a long time.
Okay. Thematically, as the customer goes out again, which parts of your assortment are you most excited about? As you continue to evolve and innovate product and assortment, what is the customer wanting?
We're seeing a lot of interest in materials like ceramic, and also in higher price points, the penetration of automatics, which are more expensive within our Movado brand, has increased. We'll continue to focus that. That actually goes right in line with the strategy that we rolled out in our Movado brand, which was really about elevating the brand over the last few years. It's proven to be very successful. I think we're also seeing higher price points in our licensed brands, particularly in HUGO BOSS, which has really begun to make noise with their marketing programs around the world. Also with now the launch of Calvin Klein, we think that has a big potential for the company, both in watches and jewelry.
Okay. Sallie, the balance sheet and your cash position remain quite attractive. Could you refresh us on key priorities and how you're thinking about that? Anything we should know about net working capital in terms of modeling free cash flow?
Sure. I will start, and I'm sure Efraim will join in. Our priorities have been and continue to be things like returning value to shareholders, so paying dividends. We are, obviously active in a share repurchase program. You know, as far as working capital needs and everything else, we remain with a very solid balance sheet and not a lot of, things like, you know, capital, expenditures. You know, we're not in that, heavy capital, type of industry. We remain really happy and pleased with our balance sheet and the strength of it.
We'll continue to maintain a strong balance sheet. That's always been our priority, especially as with volatility in different markets. We've continued to return money to our shareholders, and that certainly is a key priority as well.
Okay. China's been a relevant topic. Just there's a lot of uncontrollables there with the zero-tolerance policy. Is that impacting your business? What are your thoughts there, Efraim?
It has impacted our business on the international front. We obviously saw a decline there in the first quarter. We expect to see one in the second quarter. It is a growth market for us, but it is not material to our overall results as of yet, and we believe it has a big future for us. There are challenges in terms of sales. As I said earlier, people have returned to buying online at the beginning of the closures in Shanghai. Really, even the dot-com business materially slowed down because warehouses in the market were closed, et cetera. That's beginning to reopen again and I would expect to see China reopen for the third and fourth quarter.
Thank you. Lastly, on the outlet side, in your retail brick and mortar presence, what are your thoughts about the traffic that you're seeing there? Has it been volatile? Have you been pleased with return of foot traffic, and what you're noticing and/or, anniversarying the stimulus being a negative? Thank you.
We are seeing a return to traffic in our stores. We are seeing mall traffic somewhat challenged, but we're seeing positive traffic in our stores, so that bodes well for our business. I think gasoline prices always have a pressure on destination shopping centers that are a distance from urban centers. That's been historical. But we're pretty optimistic in terms of the long-term strategy of our outlet stores.
Thank you. Best regards.
Thanks, Oliver.
Thank you, Oliver.
There are no further questions at this time. I'd like to turn the floor back over to Mr. Grinberg for any closing remarks.
Okay. Thank you very much for participating on our call today. I wish everybody an excellent holiday weekend here in the United States. Again, thank you very much.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.