Good day, and welcome to the Movado Group, Inc. Second Quarter Fiscal 2013 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; Rick Cote, President and Chief Operating Officer; and Sallie DeMarsilis, 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 include 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 and reconciliation of this non-GAAP financial measure to GAAP will be provided as supplemental financial information in our press release. Now I would like to turn the call over to Rick Cote, President and Chief Operating Officer of Movado Group. Richard Coté: Thanks, Allison. Good morning, and welcome to our conference call. We are pleased with our second quarter results, which continued our strong performance from the past 10 quarters. This demonstrates the ongoing success of our strategies that focus on capitalizing on the unique aesthetic of our brands, with compelling product offering, while maximizing our improved operating platform. This is best evidenced by our Movado and licensed brands, which drove our performance this quarter with a combined 20% increase in constant dollar sales. We also readied our Ebel and ESQ brands with their relaunch this fall. We are excited about the strong growth opportunities that lie ahead and afforded to us by our strengthened operating platform and…

Thank you, Rick, and good morning, everyone. I'm very pleased to speak to you today and present our financial results for the second quarter and first 6 months of fiscal 2013. For today's call, I will first review our income statement and balance sheet and then discuss our outlook. For the second quarter, our sales -- our reported sales increased 4.2% to $118 million. In constant dollar, sales rose 7.6%. Sales growth was driven by our Movado and licensed brands and included a 9.1% increase in the U.S. and, in constant dollars, a 6.1% increase internationally. As Rick noted, we strategically reduced shipments of Ebel and ESQ during the quarter, as we prepare for relaunch in the fall. Excluding the impact of both ESQ and Ebel, our sales increased 15.1% over the prior year period on a constant dollar basis. Sales in our Wholesale segment were $104.5 million or 5.2% above sales of $99.3 million for the same period of last year. In constant currency, Wholesale segment sales rose 9%. By geography, our U.S. Wholesale business increased 13.1% to $46.3 million compared to $41 million. Our International Wholesale business sales were essentially flat with the prior year on a reported basis at $58.1 million compared to $58.4 million last year. In constant dollars, international sales rose 6.1%. Sales were up solidly in South America, the Middle East, Asia and Canada. Sales from the company's retail business were relatively flat to last year, as we focus on improving profitability. At the end of the period, we operated 33 outlet stores. Gross profit was $65.8 million or 55.7% of sales compared to $60.9 million or 53.8% in the second quarter of last year. The 190-basis-point improvement in gross margin was driven by a reduction in and leverage gained on fixed costs, as…

Thanks, Sallie. Over the past 2.5 years, we have demonstrated consistent growth, driven by the success of our brand, product, marketing and expansion strategies. We're very pleased to continue to our positive performance in the second quarter and report an increase in net sales, expansion in gross margin and a more than doubling of our operating income compared to last year. As we enter the second half of the year, we will continue to refine our product lines and introduce focused yet frequent innovation, which is the hallmark of our company. This keeps our brands fresh and relevant with consumers and further drives our growth. While we remain cautious on the economy overall, we believe we have strong marketing and product plans in place to help drive our holiday performance. This fall, our retail partners are eagerly anticipating the relaunch of Ebel and ESQ, and we expect to continue to drive the positive momentum for our Movado and licensed brands. Our healthy balance sheet allows us to reinvest in the business and to drive sustained, profitable growth and, at the same time, return value to our shareholders. We are focused on delivering our fiscal 2013 objectives and executing our initiatives to drive our long-term performance. We would now like to open the call up to questions.

[Operator Instructions] And we'll go first to Oliver Chen from Citigroup.

We did have a question related to gross margin. Could you just speak to us a little bit on the upside that you experienced this quarter? And it looks like you're also guiding to encouraging upside going forward? In addition, the inventory control looks pretty outstanding. Do you expect the year-over-year declines to continue throughout the year?

Oliver, I'll speak to gross margin. The upside we've experienced for this year compared to last year has been predominantly due to mix and leverage on our fixed costs. These are things that we've been focusing our efforts on, and we will continue to focus on those for the remaining periods of this year.

From an inventory standpoint, as you know, in the second half of last year, we had a program of melting a lot of our gold product, converting that into cash. So, obviously, we'll start anniversarying those declines at the end of the year. So therefore, the types of declines we're seeing from this year to last year, we expect to be consistent with our level of inventory, as we have been in the last couple of quarters in that $160 million, $170 million range. And we'd expect to kind of continue with that level as our sales grow. So we won't see that same level of continuing declines as we look into next year.

And regarding the second quarter strategic reduction of shipments, is -- in the back half, will that also occur? Or is that kind of over? Are there any implications to Movado in terms of the current product in the marketplace that's not yet updated from ESQ and Ebel? Richard Coté: Well, we will have somewhat of a running change on the ESQ line. And so what we've done is the inventory is now fairly clean out there, and we'll begin shipping our new ESQ product in September and October. So we're very excited about that. And then we'll also, in the third quarter, begin shipping our new Ebel products, so both of those somewhat in a very organized and managed effort.

But no, we don't see any issues coming back with inventory from retail at all.

The new product looks awesome, so that's exciting. Regarding Ferrari, could you share with us some preliminary thoughts on the strategies and the term with respect to the kinds of accounts and/or geographies that you'll be targeting in the beginning? And also when will that start shipping approximately? Richard Coté: Yes. Ferrari, obviously, we're working very diligently on building the infrastructure and product design and development and working with our licensor in Italy. So we're very pleased with what we see. It will start shipping in the spring of next year. So our fiscal year '14, calendar year 13, probably shipping in the April, May timeframe. From a distribution standpoint, obviously, Ferrari is a globally recognized name. We see the opportunity very much piggybacking off of our existing distribution that we have in our major global brands such as Tommy, HUGO BOSS and Lacoste. So we see very similar distribution with that. We also see further distribution down the road with some specialty stores that deal much more with sport novelties and things of that nature, but that will be the second charge that will take place.

Okay. And within the consumer arena, Europe continues to be an interesting hot topic. Are there any callouts that you could offer us? I know you’ve had a good history of conservative guidance in the context of Europe. In terms of callouts of the better or worst-performing countries and your thoughts about what the landscape looks like and watch spending on those markets? Richard Coté: Well, as I outlined in my comments -- our guidance -- the assumptions we make in our guidance so that northern Europe will continue with modest growth. We continue to see that. However, as you know, it's a fragile set of economies, and things can change quite quickly, just as they can in the U.S. with all of the uncertainty taking place with fiscal policy and all. Southern Europe is a much tougher environment, certainly in a heavy recession -- in the recession and with large unemployment. Fortunately, for us, the southern part of Europe is a smaller part of our business. What we are seeing though is that retailers are starting to be more cautious, and they're buying -- they're open to buy -- the timeframe of which they're buying. So they're trying buy closer to the holiday season, which impacts a little bit of the shifting of timing in sales, but that's really what we're seeing now. And as we all hope that people get the fiscal house in order, both in Europe as well as in the U.S. and the economy starts driving forward. We believe we're well positioned to continue strong positioning with the consumers and our retailers out there.

Regarding your portfolio, were there any major callouts in terms of strengths or weaknesses with respect to the different pricing -- prices of your watch portfolio? You do have a comprehensive portfolio, all the way from Lacoste to your superpremium? Were there any major trends in terms of what you were seeing with consumer reception to different prices within the portfolio?

We continue to offer excellent value across all of our brands, and so we have seen very strong performance, especially in our licensed brand portfolio, as well, as in Movado's sweet spots between $500 and $1,500. And we're also seeing growth in the $1,500 to $3,000. Oliver, I would just -- and you ask some really good questions. But I'd like to let some other people also ask some questions, and then please feel free to come back on. Okay?

[Operator Instructions] We'll go next to Raghav Nayar from Capstone Investments.

My first question is about the licensed brands. What is the opportunity here, if you take Europe out of the picture and within your existing licenses? And if you could address existing doors, new doors and by region, please? Richard Coté: Okay. And I think from a standpoint of our licensed brands business, the brands that we have are reasonably mature from a standpoint of we are in the doors that we need to be in. There's small refinement of doors that take place, obviously, in China and places like Korea where our business is relatively small but growing, we kind of expand doors, but it really doesn't have a major impact on the overall sales performance. So the sales performance from our brands is very much on sell-through performance, and it's all unit driven, as opposed to price driven. When we're done, we are extremely global from a licensed brand standpoint. Obviously, each of the brands is a little bit different. Coach is much stronger in U.S. and Asia. HUGO BOSS is much stronger in a Europe type of thing. But we have a pretty good balance throughout the geographies. And we've been again fortunate that, because we are global, some markets are doing well, as Sallie outlined in her comments. Some markets are doing a little bit tougher because of economic situations, but we continue to perform well because of the global nature. So I don't think there's any major shift or adjustment taking place. As the economies get better, that's good for everyone, but obviously, having great products and great price value helps you to be one of the better performers in tougher times as well. And we believe we’re there.

And my next question, did you give Movado brand growth in constant currency for the quarter? Richard Coté: I did in my comments, I believe, let me just -- bear for a second. They were 14% in constant dollars for the second quarter and 18% for the first half. Again, U.S. Movado is very strong in the U.S. marketplace. That's the most dominant. But we do have a nice business outside of the U.S. So therefore, a little bit of improvement from a constant dollar standpoint.

Okay. And just about the dummy [ph] fashion jewelry line. I believe it was in your German and U.K. stores. Can you give us any early reads on that part of the business? Richard Coté: Yes, it's a small business for us. It's predominantly a European business. And for us, it's doing well, but again, it's very early days. So the benefit is, as you are able to launch that in more doors and expand it, you really get that door expansion. But again, as an overall percent of our business, it's quite minor.

Okay. And just about the cash balance, about how much is with the overseas subsidiaries? And are there any plans to repatriate near term? Richard Coté: Sallie?

I certainly can talk to the cash, where it is. We have cash all over the globe, obviously, where our main offices are concentrated, primarily in Switzerland, Asia and then the U.S., with Switzerland having about half of it and Asia and the U.S. having the other half combined. That's definitely all -- it's all in the Q, if you need further information on that. Richard Coté: And from a standpoint of repatriation, our policy there is, obviously, we repatriate as you need it. But obviously, with our strong cash position, no debt position and the cash well positioned globally, we're in good shape and don't have to do that for any particular reason, so that's certainly an opportunity. Again, what I would suggest is thank you for your questions. You do have the opportunity of getting back in the queue for questions, so if you don't mind, I think it’s -- limit it to a couple of questions, and feel free to re-queue .

We'll go next to Mike Richardson from Sidoti.

Just a couple of quick questions. A bunch of them have already been asked. But I wonder if you could just comment on any sales trends sort of as -- throughout the quarter, especially in Europe, did things stay the same, get better, get worse? And if you could talk a little bit maybe about how you're planning inventories for fall and holiday, given sort of the uncertain macro environment?

And again, I think the global economies are all in different states. Again, we try to highlight that in our assumptions from a standpoint of North America being moderate growth, North America being modest, southern Europe being very tough, but strong performance in the Asia and South America. So and all the countries within that kind of reacted a little bit differently. I think the good thing for us is that we have very strong brands, exceptional price points. We provide very compelling product to consumers out there. And as a result, consumers are quite attracted to our product and continue to purchase. So consumers are out there purchasing, obviously, not all consumers, but consumers are out there purchasing. And in our price value proposition, our excellent brand positioning and our excellent brand names, I think, help us to be a stronger performer in the marketplace. So it's really a mixed bag out there, but the things we're doing, I think, are the right things that give us the best possible positioning. And from an inventory, on the second half of the year, we usually build inventory during the first half of the year because of lead times and all for a holiday season. We continue to invest selectively in various brands and building perhaps a little higher levels of inventory to give us more upside potential, but we're very pleased with our inventory levels. And about where they are, I would see that they would remain constant, perhaps decline a little bit for the rest of the year.

Okay. Just 2 more here. I may have missed it. I know Sallie touched on it. Gross margin guidance for the back half, she said that was going to be about in line with second quarter?

That is correct. Richard Coté: Each of the quarters will be in line.

Each of the quarters -- right.

Each quarter, okay. And then if you just...

A little volatility last year, and I just want to make sure that we're aware of the fact that this year should be more in line with each other.

Okay. And I'm wondering if you could comment a little bit on SG&A. It looked like SG&A is basically flat -- down, actually, a little bit year-over-year, which was a little bit surprising to me, given the build and infrastructure that you guys are going to have going on for Ferrari in launch. I’m just wondering how we should be thinking about that maybe for the back half.

I will also comment on that. So SG&A, we will be investing in the organization, but we will get leverage as a percentage of sales.

And most of the drop in the second quarter was currency-related. So we did have a slight -- we did have an increase in constant dollars on SG&A. Richard Coté: Again, that's the beauty of our global structure. We have infrastructure in Switzerland, infrastructure in Asia, infrastructure in the U.S., sales globally that we have a pretty good natural hedge, so if the dollar gets stronger it impacts us on sales negatively. It gives us a little bit of benefit when it comes to expenses, and obviously, we saw that in the second quarter.

Okay. And just actually the last one, the tax rate. I know you haven't given any guidance, obviously, for fiscal '14, I guess that would be. How should we be thinking about the tax rate going forward? Originally, it was 30% for this year, and that's kind of the way we were going to be looking at things going forward. Obviously, it's a little bit lower now for this year. Just for modeling purposes, I'm wondering if there's any -- you have any thoughts there.

Right. So, Mike, for right now I would suggest that you remain at the 30% for the out-years, which is the guidance that we still have existing for our longer-range plans. And then, we will be speaking on our longer -- or our updated longer-range plan, probably in the next 6 to 9 months or so, which will include updated information related to everything, including the tax rate for the go-forward years. Richard Coté: But 30% is the thinking right now.

[Operator Instructions] At this time, we have no further questions in the queue. I would like to turn the call back over to management for any additional or closing comments. Richard Coté: As we all stated earlier, we're very pleased with our quarter. I would like to thank all of you for participating today and asking some very good questions. And thank you very much. And enjoy the rest of the summer.

That does conclude today's conference. We thank you for your participation.