FinancialsDec 09, 2024
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Movado to Restate Years of Financials Due to ‘Misconduct’ in Dubai
An investigation found that the former managing director of Movado’s Dubai branch overstated and prematurely recorded sales.
A set of Movado Connect 2.0 watches. In an SEC filing last week, Movado Group announced that it will be restating its financial results going back five years following an issue at its subsidiary in Dubai.
Paramus, N.J.—Movado Group will restate its financial results going back to 2021 following an issue at the Dubai branch of the company.
In an 8-K filing with the Securities and Exchange Commission Friday, the company said in late January, it became aware of allegations of “misconduct” at the Dubai branch of its Swiss subsidiary, MGI Luxury Group Sárl, related to sales to select customers in the Middle East, India, and Asia Pacific region.
Upon learning this, Movado retained outside counsel and requested an investigation into the allegations.
According to the filing, the investigation found that the former managing director of the company’s Dubai branch, who was not named, and certain employees under his direction overstated sales, prematurely recognized sales, and underreported credit notes (e.g., sales discounts) owed to customers in the Middle East, India, and the Asia Pacific region.
These actions included the use of a third-party warehouse, unbeknownst to Movado’s management, and falsifying documents to evade internal controls, according to the filing.
The investigation did not find any impact to reported sales to customers in other regions, and did not identify misconduct by employees outside of the affected region.
The managing director of the Dubai branch has been terminated.
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In an 8-K filing with the Securities and Exchange Commission Friday, the company said in late January, it became aware of allegations of “misconduct” at the Dubai branch of its Swiss subsidiary, MGI Luxury Group Sárl, related to sales to select customers in the Middle East, India, and Asia Pacific region.
Upon learning this, Movado retained outside counsel and requested an investigation into the allegations.
According to the filing, the investigation found that the former managing director of the company’s Dubai branch, who was not named, and certain employees under his direction overstated sales, prematurely recognized sales, and underreported credit notes (e.g., sales discounts) owed to customers in the Middle East, India, and the Asia Pacific region.
These actions included the use of a third-party warehouse, unbeknownst to Movado’s management, and falsifying documents to evade internal controls, according to the filing.
The investigation did not find any impact to reported sales to customers in other regions, and did not identify misconduct by employees outside of the affected region.
The managing director of the Dubai branch has been terminated.
These actions took place over a period of five years, Movado said in the filing, beginning with its fiscal year ending Jan. 31, 2021.
After consulting with its management team and PricewaterhouseCoopers, its accounting firm, the Audit Committee of its board of directors decided the company’s financial results during this period could not be relied upon.
As a result, Movado said its financials for the fiscal years ended in 2022, 2023, and 2024 and the interim periods within fiscal years 2024 and 2025 have to be restated to reflect the sales earned and credits issued during this time.
The restated interim periods of fiscal 2025 also will reflect a reduction in operating expenses resulting from the reversal of certain accruals due to the lower adjusted operating results, said Movado.
Movado said the misstatements did not impact its cash flows or compliance with the debt covenants in its credit agreement.
During the investigation, the company’s management team said it identified a “material weakness” in internal controls over financial reporting.
It stated that the company’s risk assessment process did not properly identify the potential pitfalls associated with the lack of “functional segregation of duties” in the Dubai branch.
In short, it decided its internal financial reporting controls, as well as its disclosure controls and procedures for this region, were not effective.
As a result, it has and will continue to address this weakness and mitigate the risk of “inappropriate influence.”
Movado has released interim results for its fourth quarter and will report the official results on April 16.
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