Good day, and welcome to the Movado Group, Inc. Third Quarter Fiscal 2013 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Ms. Rachel Schacter of ICR. Please go ahead, ma'am.

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 includes today's press release. If any non-GAAP financial measure is used on this call, our presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure 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, Rachel. Good morning, and welcome to our conference call. Before beginning my commentary, I want to take just a moment to express our sympathy and empathy to everyone whose lives were impacted by Hurricane Sandy. Our thoughts and prayers are with all of the families that have been affected by the storm with the hope that you return to normalcy as quickly as possible. Let me now turn to our business performance. We are pleased with our third quarter and year-to-date results, which continued our strong performance from the past 11 quarters. Our consistent strength demonstrates the ongoing success of our strategies that focus on capitalizing on the unique aesthetic of our brands while -- with compelling product offering…

Thank you, Rick, and good morning, everyone. I'm very pleased to speak to you today and present our financial results for the third quarter and first 9 months of fiscal 2013. On today's call, I will first review our income statement and balance sheet and then discuss our outlook. Lastly, I would like to point out the special items reported in the third quarter and 9-month period of fiscal 2013. Please refer to our press release for a description of these items, as well as the table of GAAP and non-GAAP measures. During the third quarter, Movado reported a $3 million pretax contribution to the Movado Group Foundation. This contribution is reflected in our operating expenses for the third quarter and 9-month period of fiscal 2013. On a GAAP basis, the tax provision for the third quarter and 9-month period of fiscal 2013 include a $19.4 million or $0.75 per diluted share, noncash tax benefit related to the reversal of the valuation allowance on certain domestic net deferred tax assets. This valuation allowance was initially recorded in the third quarter of fiscal 2010 in an amount of $20.8 million. The balance of my remarks will exclude the special items just discussed. For the third quarter, our reported sales increased 12.3% to $160.2 million. In constant dollars, sales rose 14.3%. Sales growth was driven by our accessible luxury and licensed brand categories and included a 17.7% increase in the U.S., and in constant dollars, a 10.7% increase internationally. Sales in our Wholesale segment were $147.3 million or 13.6% above sales of $129.6 million for the same period of last year. In constant currency, wholesale sales rose 15.9%. For geography, our U.S. wholesale business increased 21.7% to $74.3 million, compared to $61.1 million. Our international Wholesale business increased 6.5% to $73 million,…

Thank you, Sallie. We are pleased with our third quarter performance and as our guidance suggests, we are expecting a strong year. Initiatives we have implemented over the past 2.5 years have led to more powerful assortment and are driving strong sales increases across our Movado and licensed brands. We are pleased by the initial response to our new ESQ powered by Movado and Ebel assortments, which we expect to provide us with incremental growth opportunities. Our balance sheet remains healthy, affording us the flexibility to invest in our business and return value to our shareholders. As Rick discussed earlier, we are pleased to have announced the second special cash dividend this year, which reflects our board's continued confidence in both our financial position and our brand strategies. Our special cash dividend is consistent with our commitment to increase shareholder returns when both our performance and outlook create the appropriate opportunities. We are optimistic as we begin the holiday season and expect the compelling innovation in our offerings combined with our memorable advertising campaigns to drive increase growth across our portfolio. We remain equally focused on continuing to deliver sustainable profitable growth for the future. We would now like to open the call up to questions.

[Operator Instructions] And we'll take our first question from Oliver Chen with Citi.

This is actually Nancy Hilliker filling in for Oliver Chen at Citi. Our question is actually how would you like us to prioritize the biggest new growth opportunities in the medium term and into next year? Should we think that Ferrari will become one of your biggest brands? And how do you see ESQ and Ebel going forward in 2013? Richard Coté: We are not counting yet on significant growth from Ebel and ESQ in the near-term. And Ferrari, we believe, will ramp up fairly quickly but it won't be one of our biggest brands for quite a while in terms of our licensed brand category. But we think it has huge potential. And we're excited about its launch next year. And I think as the year ends this year and we -- next year, we begin to give guidance for the following year, we'll give a little more color on where we think Ferrari is going.

[Operator Instructions] And we'll take our next question from Mike Richardson with Sidoti.

I'm just wondering if you could comment on any -- if you saw any change in sales trends throughout the quarter. Did things -- sort of consistent throughout the quarter, strengthened towards the end, weakened? Anything you can share with us would be helpful.

I think from a standpoint nothing major from anything unusual in trends. Obviously for us, the third quarter is a buildup to the holiday season. And the holiday season is starting off a little bit early with Thanksgiving a week earlier than normal. So really the trends we're looking for are going to be in January when we see what has taken place in the holiday season.

So no change in buying patterns from your distribution partners?

No, no. Again, we'll see that -- the 53-week will impact us at the end of January. Our fiscal year being the end of January 31 and the retail calendar being a few days later. So that will have an impact when we build that into our guidance.

Okay. And with regard to inventory, how should we be thinking about that going forward? Once again, inventory's down a little bit year-over-year. I'm just trying to -- for modeling purposes going forward, how should we be thinking about that?

I think from a standpoint, we're pleased with our inventory levels where they are. We do see that over the next couple of years, they will probably need to start growing a little bit. But we believe that we're able to grow them at a lower level than our sales grows. So we see that trend continuing, but we don't see the trend that we've had over the last 2 years, which is bringing inventory down during a period of significant sales increase. So we think we have inventory at a pretty good level, but again, I think we can do a good job of managing it and not letting it grow -- having it grow less than our sales growth.

Okay. Just one more and then I'll let the others jump in. Just back to the sales, specifically in Europe, no changes there? I know you sort of guided, I believe, modest growth in Northern Europe and sort of more of a recession in Southern Europe. Any -- was that -- that was a little bit of a change, right, for Southern Europe from the second to third quarter? Richard Coté: What I put down is in the second - at the last conference call at the end of the second quarter, I said a continued deterioration in the southern part of Europe. But I've just changed that to say it's in a formal recession. So yes, Southern Europe is important for us but not overly significant. And therefore, we have been impacted, but I think that trend has kind of continued. Northern Europe I know has been a little bit tighter. But again, our performance has continued to do quite well there. So we're pleased. But we do expect that Northern Europe may grow slightly above a 0% level. So we don't think it's quite in a recession. Certainly the whole Eurozone is when you put in the southern part, but our business is stronger in the northern part than the southern.

And just to reiterate what Rick said, Southern Europe has been tough for quite a while, so that's nothing new. Unemployment in Spain and places like Portugal and -- have been tough for quite a while. So it's nothing new.

And we'll take our next question from Raghav Nayar with Capstone Capital.

I had a question about the Ebel brand. I was hoping that you can share your thoughts with us about its potential, especially in North America. I get the sense that in the brand, it's still top of mind in North America for -- with independent retailers. Could you talk about what is the potential for North America? And how is this business different from the Movado brands, please? Richard Coté: Well it operates at a higher segment, price point segment, than the Movado brand. It is specifically really geared towards women. And we believe it has a strong opportunity in North America, but it will take some time to really communicate the new brand strategy and image to the consumer. So it has, as you said, still has strong top of mind with retailers as well as consumers. So it's a valuable franchise. And now we have to really invest behind it and continue to build that. But we're doing it in a planned, methodical approach and not trying to do it all overnight.

Okay. And I was wondering if you could share your initial reads on ESQ Movado at retail? Richard Coté: I think it's still early days from a consumer sell-through standpoint since we're just getting into the holiday season. But early response has been -- we're very pleased with the response from our retailers from product standpoint, product positioning standpoint, packaging, display material. So we're very pleased with the positioning that we have. And now it's all about getting the message across to consumers and having consumers have the same level of excitement.

Okay, great. And I'm sorry I just have a couple of more. The total Movado brand -- growth of the Movado brands, you have said that was 20% in Q3? Richard Coté: Let me just go back and confirm that but from that but from a -- yes, from a constant dollar standpoint, it was 20% in the third quarter and 19% in the 9-month period.

Okay, great. And I had just one question on the -- I guess, what's in your plan now for Asia -- in Asia? You had gone now to, I guess, conservative growth. What is the change between conservative and solid? Richard Coté: Yes, I think with all the news over the last number of months about China bidding a little bit tougher, I think from overall economy standpoint, there's been a lot of questions and concerns with that. From a Swiss watch export standpoint, the numbers have not been anywhere close to where they've been in the past. We think from a standpoint of the high-end luxury side, there's lots of inventory out in the marketplace. From our standpoint in our Movado products and licensed brands, we believe we're well-positioned. But obviously as the retailers have a lot of inventory perhaps of other brands at a higher price point, they're open to buy maybe a little bit more limited. So I think it's just highlighting that the China number seem to indicate that there's a little bit of a slowing taking pace. So that's really the change from the consistent to the more conservative.

Good. And my last question, could you just share with us your philosophy about -- in I guess using your cash strategically versus returning to. shareholders? Richard Coté: I think from a standpoint, we look at that full balance. Obviously, we're always interested in looking at additional growth opportunities. Certainly, we're using part of the cash to invest in Scuderia, Ferrari, and the launching of that brand. We thought it was a good opportunity this year to be able to return some of our U.S. cash to shareholders. But again, we look at that as an ongoing basis and looking at our cash position globally and looking at the opportunities out there and make assessments each year as to the best utilization of our cash. And sometimes it's holding onto it for potential future opportunities.

[Operator Instructions] And we'll now take our next question from Mike Richardson with Sidoti.

So just one follow-up on gross margin. I believe Sallie made a comment that you're expecting slight gross margin improvement in the fourth quarter year-over-year. What -- what are you -- what's driving -- are you raising prices? Is it just -- what's going on there?

I'll take that, Mike. I did say that. We expect gross margin in the fourth quarter to be somewhere in the range between 54% and 55% predominantly due to mix and currency. Richard Coté: Yes. From a standpoint, the increase in our sales is driven by unit growth, not by price increases. And that's been pretty consistent for quite a few years now coming out of the recession. We really have not made any changes to much -- to be at all in pricing.

And we have no further questions in the queue.

Okay. I'd like to thank all of you for joining us today. We wish all of you a happy and a healthy holiday season and a new year. We'd like you to visit our stores and take a look at our product, and they make very good holiday gifts. So, and we look forward to speaking to you again for our fourth quarter results in March. So thank you very much, and again, a happy and a healthy new year to everybody, as well as a great holiday season.

And this does conclude today's conference call. Thank you, all, for your participation.