Impact of U.S.-Switzerland Tariffs on Inventory and Supply Chain
Movado built a strong inventory position of Swiss-made watches in the U.S. in anticipation of a 39% tariff rate on Swiss imports implemented after the quarter.
Management expects a substantial portion of the year's inventory needs are already covered by the current stock, mitigating immediate supply disruptions.
Approximately $28 million of inventory was accumulated, with $16 million in the U.S., to offset tariff impacts and manage supply chain risks.
The company has taken proactive measures such as pricing adjustments and supplier negotiations to mitigate tariff effects, though some impacts will only be seen in future periods.
Movado plans to reduce inventory levels by the end of the year to more reasonable levels, aiming to offset the increased costs caused by tariffs.
Management remains optimistic that the U.S. and Switzerland will negotiate to lower tariff rates in the coming months, which could further ease supply chain pressures.
Impact of Tariffs and Mitigation Strategies on Margins
Management highlighted ongoing tariff impacts, estimating a 250 basis point gross margin pressure due to tariffs in the Brand Portfolio segment.
Mitigation efforts include sourcing country mix adjustments, factory concessions, and selective price increases, but lag effects mean pressure persists into the second half of 2025.
The company expects gross margin pressure from tariffs to continue into the third quarter, with some normalization anticipated in the fourth quarter as mitigation strategies take effect.
Approximately $10 million of sales in Q2 were negatively impacted by tariffs, split evenly between cancellations and delayed receipts, with recovery expected in Q3.
Management emphasized the lag between tariff enactment and mitigation effectiveness, which complicates short-term margin recovery efforts.
The company is actively exploring additional cost savings and efficiency measures to offset tariff-related margin pressures.
Impact of Commodity Cost Increases on Nut Prices and Inventory
The company experienced a 3.4% increase in the weighted average cost per pound of raw nuts and dried fruit, primarily due to higher commodity acquisition costs for all major tree nuts.
Inventory on hand increased by 29.5% to $58 million, as the company stockpiled raw materials in anticipation of seasonal demand and rising costs.
Despite higher costs, the company managed to offset some impact through manufacturing efficiencies and strategic sourcing, maintaining gross profit margins at 18.1%.
Management highlighted ongoing efforts to mitigate commodity price pressures through innovation, cost savings, and retail partner collaborations.
Impact of Tariffs and De Minimis Removal on Margins and Pricing Strategy
Management highlighted a $240 million mitigated impact on gross margin due to tariffs and the removal of the de minimis exemption, representing approximately 220 basis points of margin decline for 2025.
The removal of the de minimis exemption is expected to have a significant impact, accounting for about 170 basis points of the tariff-related decline.
The company is implementing strategic pricing actions and supply chain initiatives to mitigate increased tariff costs, but these will take time to fully realize benefits.
For 2026, the net impact of tariffs and de minimis removal is projected to be around $320 million, affecting operating margins.
The company is actively managing inventory placement and supply chain adjustments to offset some of the tariff-related costs.
Pricing increases are being cautiously rolled out on a small portion of the assortment, with ongoing evaluation planned.
Dafinchi
