Movado identifies material weakness in internal control amid misconduct claims

In a regulatory filing, Movado (MOV) announced that in late January, the company became aware of allegations of misconduct within the Dubai branch of the company’s Swiss subsidiary, MGI Luxury Group Sarl, related to sales to certain customers in the Middle East, India & Asia Pacific region. “Promptly thereafter, the Company retained outside counsel to conduct an investigation into these allegations. Based on that investigation, which is now substantially complete, the Company has determined that the former managing director of the Dubai Branch, who oversaw the Affected Region, as well as certain employees under his direction, took actions that resulted in an overstatement of sales, premature recognition of sales, and underreporting of credit notes owed to customers in the Affected Region. These actions included the use of a third-party warehouse unknown to the Company’s management to facilitate the premature recognition of sales, and the falsification of documents to circumvent internal controls. The conduct occurred over a period of approximately five years. The investigation has not identified any impact to reported sales to customers in other regions, nor has the investigation identified any knowledge of, or participation in, the misconduct by company employees outside of the Affected Region. The company has terminated the now former managing director of the Dubai Branch.” The company has concluded that its historical consolidated financial statements for the fiscal years ended January 31, 2024, 2023 and 2022, and the interim periods within fiscal years 2025 and 2024, require restatement to properly record the extent and timing of sales earned and credits issued during the relevant time period. Additionally, the restated interim periods of fiscal 2025 reflect a reduction in operating expenses as a result of the reversal of certain accruals due to the lower adjusted operating results. In the course of the investigation, management identified a material weakness in internal control over financial reporting, wherein the company’s risk assessment process did not properly assess the risks associated with the lack of functional segregation of duties in the company’s Dubai Branch. On April 9, 2025, after considering the recommendations of the company’s management team and discussion with the company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, the Audit Committee of the board of directors of the company concluded that the consolidated financial statements for the Affected Periods should no longer be relied upon due to the findings.