Good day, everyone and welcome to the Movado Group’s Fiscal First Quarter 2017 Earnings Conference Call. As a reminder, today’s call is being recorded and may not be reproduced in whole or in part without permission from the Company. At this time, I would like to turn the conference over to 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; Ricardo Quintero, President; 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 am sure you are all familiar with. The statements contained in this conference call, which are not historical facts, maybe 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 risk 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 or 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 Ricardo Quintero, President of Movado Group.

Thank you. Good morning and welcome to our fiscal 2017 Q1 conference call. Our first quarter results are in line with our expectation, delivering $114 million in net sales, down 5.3% versus last year, gross margin at 53.8% up 140 basis points versus last year and operating income at $7.2 million down 24.7% for last year. Relative to a very difficult retail environment our brands outpaced the competition gaining market share across our major geographies and markets. As expressed during our last conference call where we issued our outlook for fiscal 2017, we expected the retail environment to be soft during the first half of the fiscal year. The first quarter has been especially difficult for the U.S. department store channel in brick and mortar stores and for the fashion watch category in particular. Given the weak sell-through trends coupled with retailers increased focus in controlling inventory and significantly improving productivity metrics. We are now seeing a more difficult outlook for the balance of the year and are adjusting our outlook to $565 million to $580 million in net sales and $55 million to $60 million in operating income. While it is disappointing to have to revise our outlook today, we believe it is necessary to confront reality and focus on the variables we control. One of Movado Group’s core principles is to build and protect all the brands in our portfolio irrespective of whether we own them or license them. This becomes critically important during the difficult times. As our strategy is to stay-on course guided by the consumer and sell-through trends and not sell major quantities in off-price channels to improve our numbers in the short-term while preserving our brands equity. Despite a difficult environment in the U.S. there are some bright spots. Jewelry chain stores are positive…

Thank you, Ricardo, and good morning, everyone. For today’s call, I will begin with review of our first quarter financial results and balance sheet and then discuss our outlook. Before I begin, I would like to point out the special items included in our first quarter results for fiscal 2017 and fiscal 2016. Our press release also describe these items and includes the table of GAAP and non-GAAP measures. Our GAAP results for the first quarter of fiscal 2017 include a $1.8 million pretax charge, which equates to $1.1 million after tax or $0.05 per diluted share in connection with divesting of stock awards and certain other compensations related to the announcement of Rick Cote’s retirement. Our GAAP results for the first quarter of fiscal 2016 include a $2.7 million pretax charge which equates to $2.5 million after tax or $0.10 per diluted share in connection with our operating efficiency initiatives and other items. Breaking the 2016 charge down, this impacted gross margin by approximately $700,000 or 60 basis points and impacted operating expenses by $2 million. The balance of my remarks will exclude the special items just discussed. Beginning with a review of our income statement as Ricardo mentioned sales for the first quarter were in line with our expectations. For the first quarter sales were $114.1 million a decline from the same period of the prior year by approximately $6.4 million or 5.3%. This decrease was primarily driven by our wholesale business partially offset by an increase in our retail business. Sales were down 7% in the U.S. and constant dollars decreased 2.7% internationally. Sales in our Wholesale segment were $102 million as compared to sales of $109.6 million for the same period of last year. In constant dollars, wholesale sales decreased 6.7%. Sales were down in both…

Thank you, Sallie. As everyone knows we’re operating in a challenging retail environment and one that has been particularly difficult for the watch category. As we said in our year-end call, we believed the first half of the fiscal year would be difficult with an improvement in the second half. That being said given the current retail trends, we felt it was prudent to update our outlook. We are very enthusiastic about our innovation pipeline. While we’re excited about our connected watch initiatives that we have launched and will continue to launch during the second half of the fiscal year, we are believers in the continued growth opportunities in the traditional watch and fashion watch categories. We’re very excited about the prospects for our recent product launches in both Movado and our license brand. And we’re focused on continuing to drive innovation across our brands to benefit our consumers and also our retail partners. Great product is needed in any environment in order to grow and gain market share. We have worked diligently over the years to nurture our brands and build desirable distribution and we are not planning on deviating from that path. I would now like to open the call up for questions.

Thank you. [Operator Instructions] We will take our first question from Oliver Chen from Cowen and Company.

Hi. This is [indiscernible] in for Oliver Chen. Thanks for taking my question. I wanted to ask if you could just give a little bit more color on trends you are seeing in the region. I know you highlighted strength you’re seeing in Europe. Could you just give us just more of a better picture of what’s driving that strength there? And then in Asia, we’ve seen it across from some other retailers about the weakness in Hong Kong. Have trends sequentially improved or deteriorated and what’s your outlook as we think about the balance of the year? Thank you.

In Europe we’re seeing real trends in Germany, and as I’d mentioned, we had mentioned in our previous calls, this is an entity that we’ve now taken a 100% control. So we’re very pleased with the quality of how we’ve executed our brands and the consumer is still very interested particularly in a licensed brand portfolio. Now there has been as everybody knows a decline in Chinese tourism, but even within Germany, we still see a lot of our sales in key tourist destinations still being driven by tourism. If I move on to the UK, the results continue to be very, very strong up double-digits as I mentioned and we’re seeing strength across all the brands that we carry there. Again this is another entity that we are managing directly as a subsidiary and we’re very pleased with the sell-through results. Moving to Asia, as we had mentioned in our previous calls, in China we’ve shifted our strategy and we’re now really focusing on the concessions that we operate directly. I was just in China a few weeks ago and I was very pleased to see not only the results of our concessions which are doing very well, but in the cities that I visited I saw still consumers out shopping and our Movado brand is doing well there as well. So I think we all read about what’s happening in China and there is a slowdown in the economy, but nevertheless there are still many consumers that are in the streets, they’re in the shops and they’re carrying shopping bags. So I think we need to be cautious, but still it’s a great market for us.

Hi. It’s also Oliver Chen. We wanted to ask you about the composition on your inventory now. Are you feeling like the freshness is there just regarding sell-ins and sell-outs and the trends you’re seeing that would be helpful? Thank you.

Thanks, Oliver. And I think our inventory is actually in a very good place and I think one of the things that we tried to reiterate on this call is that we’re all really enthusiastic about our new product launches in both Movado and our licensed brands as well as the pipeline of innovation that we have coming both in connected watches, but particularly also in unconnected watches. And we’re introducing an ultra-slim initiative across all our brands of thin, simplistic watches which are right on trend and beautiful and excellent values. And we’re also experiencing momentum behind our launch of Edge last holiday and we’re seeing growth in that category as well as our connected Movado watches, the Movado Museum Motion and the Movado BOLD Motion and we will have launches of connected watches in our licensed brands this fall. But as you can see even with a slight sales decline, we also had a decline in our inventory and so our inventory is in a very, very healthy place.

Okay. Thank you. And our final question is on the gross margin side. Sallie, could you brief us what was the biggest driver in terms of the expansion and the ingredients within the expansion. And then the sourcing initiatives if you could just elaborate a little bit more about sourcing in terms of sourcing helping you on that line that would be great. Thank you.

Yes. As you know Oliver gross margin has been a focus of ours. We are very tuned into being a non-promotional type of company, but also keep in mind that we put in price increases throughout the first half of last year. For those price increases now are we’re seeing the anniversary of that starting to head into second quarter. So we do expect strong gross margins this year, we also have things – we are just buying that we are working closely with our supply chain team and our suppliers in general to get is the best prices we can – what you’re seeing is the cost savings initiatives that are going through our gross margin.

Okay. From the five-year story for wearables and smart technology and how do you see that and are there any trends – how do you think this will evolve globally in terms of harmonization or specific regional preferences. And I’m just curious about your take on the consumer perspective on what features of wearables consumers value whether it would be battery power versus standards versus upgrading versus fine versus fashion in terms of the unfolding of the – because it’s so rapidly changing?

So we think obviously that wearables and connected watches will have a place in the watch business, but it really helps to build a new category and build and bring new consumers into the arena who weren’t wearing watches, so we actually believe that millennials will go down both paths for example and buy simple fashion watches and that’s where we’re going with things like our ultra slim collections, but they’ll also buy connected watches and we’ll have those offerings as well from them. In our research and I think in a lot of research that’s come out there always the number one or two capability of smart watches is time telling which is gratifying to know that people are using watches to tell time, but then also notifications and health functions as well as step counting and areas like that are important to consumers. So I think we’re very early in the rollout, one is as a watch industry overall, two; the technology will continue to improve both from battery life as well as the things that watches can do for you. So those are two things that are very early on in the progression. What people seem to forget is that when we all started with cell phones they were about the size of a brick and weighed a pound or two and then progressively got smaller and better and higher quality and better design. So all of that will begin to happen in this category as well.

Thank you. Best regards.

Thank you.

Thank you, Oliver.

And will now take our next question from Ed Yruma from KeyBanc Capital Markets.

Hi, thanks very much for taking the questions. I guess first on sales mix in the quarter and I guess as you think about the next couple quarters. How should we think about the mix of kind of traditional retailers versus kind of units you’re putting through off price either through a T.J. Maxx or Ross or through your own outlets? And then I guess second clearly seeing a lot of challenges on the fashion component of the watch industry. Are you noticing any specific weakness in price spends as it been a rotational lower price point watches? Thank you.

So I’ll give Ricardo the first one about the distribution and I’ll handle the second one about fashion watches business.

Yes. So, thank you Ed. We’re staying on course in terms of our business mix and as I mentioned in my prepared remarks, we’re now shifting more to off price channels. As we had mentioned earlier we’re very excited about our innovation pipeline and we believe that we can offer great offer to not only our consumers, but our retailer partners in bringing this innovation to drive traffic and conversion in the channel that we operate now and we have the role to play in turning trends around. So we’re sticking to that strategy and we think not only through innovation in the ultra slim, but also the connected pieces are bringing that new consumer in whether it’s a millennial or an older consumers interested in this functionality. So the research that we did actually indicates that there is great interest in the kind of offering that we’re putting out there, so we’re confident that this is going to help build the existing channels of distribution.

And just to add to that if I answer a little more elaborate on the second part of your question, over the last few years certain aspects of the fashion watch category got overly saturated to the point where it became kind of out of fashion. So our job now is to create new fashions within the watch segment and in particularly for women. And I think that’s where a large opportunity - there’s a large opportunity. The declines actually in the fashion watch category have been larger in the women’s category than in men’s category, so that’s interesting because men’s category is probably more highly affected by you know to a little extent by technology women’s not as much. So and the men’s watch category is doing relatively well.

Great. And one other follow-up just as you kind of think about some of the - your specialty watch retailers, have you and your department stores. Have you seen any shifts in the way that they display watches or maybe more importantly the space that they’re allocating watches and if so how is that thing factor into your results? Thank you.

Well, I think you are seeing now a little bit of space being lost out of the traditional fashion watch categories, there are brands that are being eliminated, fortunately we have strong brands and strong partnerships and we’ve developed and nurture our brands. But you are seeing some space eliminated and into better into categories maybe that are trending differently. But right now you know the overall department store business is challenged and you are also going to see some space being allocated to technology as well in several retailers and fortunately we can play - we will be playing in that space as well.

Great. Thanks so much.

Thanks, Ed.

And we will now take our next question from Rick Patel from Stephens Inc.

Thank you and good morning everyone. Just want to follow-up on Oliver’s earlier question on perhaps the sell-ins versus sell-throughs any deviations there from what you saw in prior quarters. And as you think about the softness on the wholesale side aside from perhaps space allocation changes that might be going on, to what extent do you think there is a destocking cycle going on right now as some of your bigger customers gear up for the launch of several smart watches that’s going to be happening this holiday?

I think you’re seeing continued focus on inventory and productivity that you have now seen for a while but I think now that’s somewhat been accelerated by the fact of the overall retail business. So when you now seeing comp store declines of the overall department store channel are pretty uniform, you are going to naturally see a financial focus on bringing inventories down and that would be expected. So I don’t necessarily think it’s necessarily destocking to put in technology I think it’s just overall destocking of the department store channel. I think our sell-in and sell-through are probably pretty balanced right now. I don’t see - I don’t think that in some cases you may have a little better sell-through than you have sell-in, just as people focus on their financial metrics.

Okay. That’s helpful. Thank you. And how should be thinking about your level of smart watch inventories and the ramp up for this year. I guess are you making as big of a bet on your – on Movado Motion and your other smart watch launches as you did perhaps Movado BOLD and Movado Edge or you going to take a more conservative approach?

In all of our successful initiatives we’ve rolled them out very methodically and as we’re doing right now with Edge as we did with BOLD. So it’s not something that we do in a careless manner. It’s actually thought out very methodically and very planned from a door count in distribution and strategic way to also build consumer demand and you know you always build more success if you actually have a little less supply than demand.

We’re following the mantra of you know demand must outpace distribution.

That’s great. Thank you. And can you provide some details on your connected watches on your license side, which brands will this touch, how many SKUs will you have and how should we think about pricing versus Movado Motion.

So we’re doing this across all of our licensed brands and this is the partnership we did with HP and we’re very happy with the initial feedback we received with a total of 25 SKUs and we’re very thoughtful in terms of its design and brand first plus the functionality. So when you look at the watches they represent whether it’s a Tommy Hilfiger watch, it looks like a Tommy Hilfiger watch, you go to Ferrari it looks like a Ferrari watch. So we’ve been very thoughtful, it’s not a cookie-cutter approach, they’re very different and we also were very careful in planning the price points, so they mirror the customer that has appealed for these brands. So we feel very good on how we plan the price points and the functionalities. Our research indicates these are the top functionalities, its notifications for these watches, its step count. Those price points we believe are the right things and it’s a combination analog watch with – there’s a screen that lights up on the dial that is invisible, when you look at the watch without being lit up you think it’s a traditional watch. So we think we hit a sweet spot in terms of design and technology functionality.

Thank you, everyone and all the best.

Thank you.

Thanks Rick.

And we’ll now take a question from Jeremy Hamblin from Dougherty & Company.

Hi. Good morning. Sallie, I just want to clarify something on the change in guidance on the operating margins, it looks like it’s about 140 basis point decline from prior. Is that primarily going to be deleverage on operating expenses due to the $15 million decline in sales?

Yes. The short answer to that is yes, we expect our gross margins to hold up and our operating expenses – we continue to invest behind our brands from brand awareness and initiatives. We will obviously take out variable expenses that are related to the decline in sales, but obviously we’re very good at managing our expenses. We’ve got a really long track record of that. But we’re going to do what’s right for the longer-term health of the brand in the business and continue to support and build behind our initiatives.

Okay. And then just a follow-up on this kind of the department store channel, you mentioned that the jewelry stores are still doing quite well. I think you said that they were actually positive in Q1. Is there anything that you can glean in terms of why you are seeing this disparity between the U.S. department store channel specifically and jewelry stores or traditional jewelry stores. And within the jewelry store segment is there a difference between the mall location jewelry stores and off-mall. Is there something to be glean there that this is a truly a mall problem?

I think as Ricardo mentioned, we’re doing very well in the chain jewelry stores specifically and they are mostly mall based. So I think their traffic is less variable as they have a large jewelry business and bridal business and things like that. You also have to recall that we’re not – that’s not the distribution for our fashion watch brands. So the fashion watch brands are primarily in the U.S. distributing the department store arena that is more highly challenged today. So I think it’s both the category and the channel that is challenged. And so our growth specifically is in the Movado brand and Movado is outpacing the fashion watch category everywhere, department stores and jewelry stores. And I think that was also in Ricardo’s comment as we continue to gain fairly significant market share.

Great. Thanks. And then just one other – you mentioned that the online business continues to do well. I wanted to see if there is anything that you’re noting in terms of the purchasing patterns of that shopper and the type of watches that they’re looking for whether they’re looking for a higher end watch online or a lower end watch. What can you share in terms of color on online purchases versus brick and mortar in terms of the type of inventory you’re selling there?

Well, let me speak first about movado.com because that as you know last year we revamped, we launched a new platform and we continue to see major increases in our business there and also in traffic and we have been adding a lot of digital initiatives, so we’re seeing there’s a connection between social media and digital initiatives, people will go to the website as the first point of entry to learn more about new collections and storytelling. And we pick up some of the sales there – other sales, we don’t pick up, but we believe that the brand website is serving as a platform or showcase to tell the story of the brand and the collection. So we’re seeing that and we’re seeing a huge rise as most people in terms of people are coming through mobile devices. So that’s one big trend. When you look at other categories whether it’s in retailer.com or pure plays we’re seeing that we have consumers across all price points and brands that are interested in shopping online for other reasons which maybe convenience ease of use, price comparison or whatever it maybe, but we’re seeing that trend across all price points there as well.

Great. Thanks. One last follow-up, Sallie, on foreign currency impact that we should be expecting for the remainder of the year, what’s built into the guidance here? Should we be thinking that it’s a fairly muted impact from here or is there going to be additional drag on operating expenses moving forward? How should I be thinking about foreign currency in the remaining three quarters?

Yes. I would agree it’s going to be somewhat neutral for the remainder, we don’t anticipate anything at this point being significant. And if you recall when the big flexes were now more than 12 months ago.

Okay. Great. Thanks for taking the questions. Best of luck.

Great, thank you.

Thank you.

Thank you, Jeremy.

And we will now take a question from Frank Camma from Sidoti.

Good morning guys.

Good morning.

Hi Frank.

Good morning.

Hey. Just a follow-up here if I can. You mentioned a survey you did internally I guess on the – that half of your consumers are really not interested in connected watches. So I was just wondering if you could talk about the – very assuming highly by age sort of like versus millennials because you then later said that you thought millennials would engage on your traditional watches and I was wondering what gave you that conviction?

I’m giving you feedback on a quantitative survey over a 1000 respondents in the U.S. and what’s interesting as you know half of the consumer – almost half of consumers when you look at the bottom two boxes definitely not interested. This is the second way that the survey we are doing, we’re tracking this over time, because we thought it was important to understand there’s been a lot of competitive activity in the last six months. We want to track what is the impact of that and now consumers – this is the U.S. sample, representative sample. They’ve now been exposed to a lot of activity in the smart watch space. So what this is revealing is that about half of them are even knowing what they know now are not interested and you still have about another quarter that are undecided. So there are still a lot of people that are still either on offense or not interested, so that’s the first thing. When you double click by age, obviously there’s a higher interest in younger consumers in this, but also for certain functionalities for older consumers, you still see an interest, but the big difference in interest is coming from younger consumers.

Okay. So but why like I think there was a comment made later on about sort of millennials you thought might be responsive to. So I think specifically you are discussing like the ultra slim watches…

Because that is – we believe a fashion that is coming in that category.

Okay.

And we’ve seen an initial products that we’ve launched and that are in the marketplace that there’s a trend of younger consumers to simplicity and fashion. A lot of young consumers also spend a great deal of their time on their screen. So they don’t necessarily need the connectivity to a watch and we all see that and whether they’re watching videos or attending to social media or things like that much more challenging to do on a watch. I mean there are multiple trends I mean these two – we’ve talked about our two trends, the other trend which I mentioned in my prepared remarks are the appeal to this Heritage collection we’ve launched, we know and if you follow social media there’s a big appeal for millennial consumers to this vintage look so we’re seeing - so it’s not one size fits all. I think what’s interesting about the times we’re living in is that people now have multiple choices and there’s different trends that do emerge.

And you’re also seeing handbag companies for example that are in - that have a heritage bringing back products from their archives very successfully and you know we’ve done that with our new heritage collection in Movado.

Okay. And just my last question is, you called out some strength in the Middle East I think specifically which I thought was unusual given what’s going on. Did that surprise you at all?

Well, we’ve been developing some really important partnerships in the region and yes definitely the region is undergoing a difficult period, but we seem to be doing better than most gaining market share and this is - the market is not disappearing. I mean there is a reduction in the market and the consumption. So people are still buying watches and you know through our partnerships and the quality of the execution we’ve been able to convert more and gain market share. So it’s really a function of outperforming in a difficult market, our competitors.

Okay. Thank you.

Thank you.

Thanks, Frank. End of Q&A

And with no additional questions in the queue, I would like to turn the conference over for management for any additional or closing comments.

Okay. I would like to thank all of you for participating with us today. Enjoy the holiday weekend and we look forward to speaking with you again at the end of our second quarter. Thank you.

And ladies and gentlemen this does conclude today’s conference. And we do thank you for your participation. You may now disconnect and have a wonderful rest of your day.