Good day, everyone, and welcome to the Movado Group, Inc Second Quarter 2021 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.

Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chief Executive 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, a 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'd like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Rachel. Good morning, and welcome to Movado Group's second quarter conference call. This morning, I will share some highlights for the quarter and the strategic initiatives that we are focused on as we begin the second half of the year. Sallie will then review our financial results in detail. We would then be glad to take questions. For the last two quarters, we have been operating amid a global pandemic, which has greatly curtailed consumer discretionary retail businesses, led to significant business closures around the world and caused dramatic economic dislocations globally. We remain focused on ensuring the safety and health of our employees, customers and the communities where we operate. Within that context, I am proud of how our teams have reacted and the results that we have delivered for the second quarter. In the challenging environment that we continue to operate in, our teams delivered sales better than our internal expectations, strong gross margin and close to breakeven results on an adjusted basis. We cut expenses by almost $30 million, reduced our inventories by more than $27 million year-on-year and finished the quarter with over $170 million of cash while paying back $37 million of debt. During the quarter, we took a number of actions that will enable us to weather the climate that we are operating in and position the company to emerge strongly as we have done during previous crises. While very painful to do, we have reduced the size of our corporate headcount by 24% and lowered our estimated current year operating expenses by $90 million as we evolve into a more consumer-facing company. We currently are running our business with many of our teams operating in remotely and have prepared ourselves to be able to continue to do so until the effects…

Thank you, Efraim, and good morning, everyone. For today's call, I will address the key highlights of our second quarter and year-to-date period of fiscal 2021. And then I'll provide an update on our financial position. My comments today will focus on adjusted results. Before I begin, I will point out the new matters which impacted the GAAP results for the second quarter of fiscal 2021. Please refer to the description of all of the special items included in our results for the first half of fiscal 2021 and fiscal 2020 in our press release issued earlier today, which also includes the reconciliation table of the GAAP and non-GAAP measures. In the second quarter of fiscal 2021, the company took a $7.4 million pretax charge, which equates to $5 million after-tax or $0.22 per share related to a restructuring plan as part of the company's corporate initiatives to reduce operating expenses across all functional areas. Also during the second quarter of fiscal 2021, the company recorded a $1.3 million pretax gain, which equates to $800,000 after tax or $0.04 per share on the sale of a nonoperating asset in Switzerland. Once again, the balance of my remarks will focus on adjusted results. For the second quarter of fiscal 2021, sales were $88.5 million as compared to $157.8 million last year. During the first quarter of fiscal 2021, the impact of COVID-19 resulted in the closure of the company's retail stores and the majority of the stores of the company's wholesale customers. During the second quarter of fiscal 2021, many worldwide regional and local governments lifted or modified restrictions. By the end of the second quarter, all of the company's retail stores and the majority of the stores of the company's wholesale customers had reopened. However, these stores have been impacted…

[Operator Instructions] Our first question comes from the line of Oliver Chen with Cowen. Please proceed with your question.

The digital momentum has been impressive. Where do you expect penetration to go over time? And on the wholesale side, what are you seeing with distribution footprint there in terms of points of distribution relative to productivity? And how you're handling regionally different aspects of closures and markets. I would love insights there. Thanks

Sure. So obviously, the performance of retail varies around the world and as I said earlier, we've seen Germany and France basically returned to normal, the U.K. progressing really nicely. But then other markets like Latin America and India more challenging. China, we've seen very strong momentum. And we're happy both digitally, and now we're starting to see it in brick-and-mortar as well. As we look at the U.S., you're seeing the best performance of retailers that have street side entrances at malls. And I think that, that's why department stores are doing better from a brick-and-mortar perspective. And department stores generally also have very good digital penetration. So we're seeing their digital business is also growing exponentially. So I think digital will obviously have a significant growth in the future for the company, but it will be both through our owned and through our wholesale partners and then digital marketplaces really all over the world. So we're seeing growth in Amazon in Europe, in Zalando, in Germany. And I think those have a tremendous amount of potential.

So from how do we dimensionalize how big digital may become in those manifestations? And any guidance you could provide on relative margins that would help aid our modeling?

Sure. I think it's -- for us, we look at it and try to maintain an equal sense of profitability from digital. When it's our own, it can have a higher rate of profitability than if it's a wholesale account. But I just think it's the natural evolution of where retail was going anywhere just on an accelerated basis due to the pandemic. So -- and one of the things that we've taken the opportunity to do, and I think is really evolved in an accelerated manner from a wholesale-focused company to a consumer-focused company. So serving the consumer wherever they want to shop. And I think that's really what the future is all about.

And Sallie, on the gross margin line, how might that trend going forward in terms of mix shifts and dynamics that you're seeing? And cash flow have been encouraging, a second quarter positive cash flow is sustainable throughout the year. I would also love your overall take on inventory. And some retailers don't have enough inventory, some have too much. What's the cleanliness of your inventory relative to what you're seeing now? Supply chain hasn't been easy for people to deal within this dynamic environment.

Okay. So let's take -- we'll take it step-by-step, and I'm sure Efraim will pipe in, especially on the inventory and supply chain side. So gross margin, we're doing -- we're managing that very well, especially in light of what Efraim was talking about with things like the e-com and wholesale mix. So we've been -- we're very happy of how strong our gross margin is at over 50%, and we will continue to look at that. And obviously, part of that was taking a look at the fixed cost portion of any type of gross margin. So we're not being highly promotional or anything like that, that's going to deteriorate our margin because of being on sale or anything like that. From a cash flow perspective, we're managing it very closely. We are thrilled with how this quarter was, having positive cash flow in the second quarter that was significantly impacted by a global pandemic is really a tribute to the whole organization with managing how we're doing things. We do have some seasonality to cash flow with third quarter is generally where we would be a little thicker with inventory and so forth as we head into holiday. So I would expect that we're going to be managing very closely, but I would also expect that you do have some seasonality built in for cash flow. And I think on inventory, I know -- I'll have Efraim speak a few words and then I'll jump in, but we are watching that very closely.

Yes. So internally, we're watching it really carefully. And I think our teams have been really reactive and planning ahead in terms of being able to manage our inventories. And our objective is obviously to continue to bring them down by the end of the year. I would think that the third quarter, we always -- is as we prepare for our fourth quarter shipments. So -- but I think they should be in pretty good shape. In retail, we feel pretty comfortable with where our inventories are in retail varies by brand and by channel. And especially as we see better-than-expected sales in brick-and-mortar locations, we see inventories beginning to decline and people needing replenishment. So that's a good sign. And retailers that have started up more slowly are in a heavier inventory position, and that's to be expected. But my expectation is that throughout the year, we'll continue to balance itself out and by the end of the year be in a really good balance.

Our last question is about Calvin Klein. Congrats on that deal. How do you see the distribution footprint there and the magnitude of this business? Also, where might the price points be? And how does it fit into your current portfolio to minimize cannibalization risk?

Sure. So we actually feel really comfortable that it really has its own place in our portfolio, as a minimalist iconic brand and we don't really have anything like that. It is a mega brand of any of the fashion brands. It's one of the top, I would say, three or four American designers, and we have a few of those now. And -- but it also has a great global footprint, which is where our licensed brand business is really strong is on the international side, especially in Europe and has great, great opportunities in Asia where the brand has been really strong in China. So we see it as a long-term partnership. We obviously partner with PVH on our Tommy Hilfiger brand as well, and we're thrilled to have this opportunity. Price points are probably within the $150 to $500 price range. And what we're also really excited about is that it includes both watches and jewelry and jewelry for us is a growth opportunity. Today, we have Tommy Hilfiger jewelry, which is now becoming a meaningful business, especially in Europe. We launched HUGO BOSS jewelry in the U.K. and at the beginning of the year, and it's gotten a very good reaction and both Olivia Burton, MVMT and Movado have jewelry. And so we believe that that's a growth opportunity for the company in the next several years.

We have no additional questions at this time. So I'd like to pass the floor back to management for closing comments.

Okay. I would like to thank everyone for participating with us today and wish everybody a safe and -- a safe balance of the summer as it comes to an end. And hopefully, everything in the world from a health point of view will continue to improve. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.