Movado Group is a publicly-traded company. In addition to Movado, its portfolio of brands includes Coach, Concord, Ebel, ESQ, Scuderia Ferrari, HUGO BOSS, Juicy Couture, Lacoste, and Tommy Hilfiger.

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Ticked Off Movado Investors Sue Over Stock Plunge

By Ben Conarck

Law360, New York (February 05, 2015, 3:51 PM ET) -- Luxury watch maker Movado Group Inc. was hit with a proposed shareholder class action on Wednesday accusing executives of issuing unrealistically rosy projections for the 2015 fiscal year to pump up share prices, all before the CEO made $8.6 million from a massive stock sell-off right before the bottom dropped out in the third quarter.

The complaint accuses executives at MGI, one of the world’s largest watch manufacturers, of misleading investors over general growth prospects and the success of an inventory switch-out strategy that the plaintiffs say ultimately backfired in a big way, sending stock prices plummeting nearly 32 percent in the company’s largest single-day slide in 14 years.

The plaintiffs accuse MGI executives of falsely touting the company’s strong business prospects and growth projections for its Movado brand while also misleading investors “regarding their initiative to boost the Movado brand by cannibalizing the ESQ brand’s shelf space at various retailers.”

In March 2014, MGI announced plans to reallocate retail space devoted for its ESQ brand to its Movado brand, which carried a higher price point, according to the complaint.

The plaintiffs quoted Movado executives as assuring investors that the Movado brand watches would match the sales dollars of ESQ brand watches, but because of their higher price point, Movado brand watches had better “future growth prospects” going forward.

Starting in the fourth quarter of fiscal year 2014 and into the first two quarters of the fiscal year 2015, MGI issued projections for the fiscal year of a nearly 11 percent bump in sales to $640 million and a 19 percent bump in operating income to $90 million, according to the complaint. Then, the complaint said, executives in November 2014 revised those projections to a sales growth of only 1 to 2 percent and a decrease in operating profit of 7 to 10 percent for the fiscal year.

The revisions sent stocks into a free fall, dropping from $38.51 per share to $26.25 per share, a slide of nearly 32 percent in the company’s biggest one-day percentage loss in more than 14 years, according to the complaint.

“But, while investors suffered, defendant [CEO Efraim] Grinberg profited handsomely from MGI’s artificially inflated stock price, reaping over $8.6 million in proceeds from insider stock sales during the class period,” the complaint said.

The plaintiffs accuse Movado executives of issuing overly optimistic growth projections for sales and operations income despite knowing they were unrealistic given sluggish demand in the watch market.

Factoring the declining demand in with a weaker retail economy in which retailers were making efforts to trim inventory, the plaintiffs say, the inventory brand switch-out plan only served to weigh the company down, not increase sales as executives had projected.

“The company’s ESQ/Movado repositioning, which only bolstered visibility for the Movado brand by cannibalizing shelf space previously devoted to ESQ, not only brought millions in hard costs during a weakening retail climate but also cost untold millions more in lost sales and returned ESQ inventory,” the complaint said.

The plaintiffs also say that Movado’s entire portfolio of brands was “floundering because of fashion and design misses, with the Lacoste and Scuderia Ferrari brands in particular dragging on MGI’s performance because their products were not resonating with consumers.”