Good day, everyone, and welcome to the Movado Group, Inc.'s Third 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 this conference over to Ms. Rachel Schacter of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and 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 would 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 third quarter conference call. With me today is Sallie DeMarsilis, our COO and CFO. I will share with you some highlights of the quarter as well as some of our initiatives for the important holiday selling season, and then Sallie will cover the details on our financial results and we would then be glad to answer any questions you might have. We continue to operate amid a global pandemic, which is now experiencing a resurgence in Europe and the United States. Within this environment, we have prioritized the safety and well-being of our associates and customers around the world. Most of our teams have been working from home, and we have been able to keep our warehouses and stores operational with strict safety protocols. Within that context, we are very pleased with how our teams around the world have been operating and the results that we were able to deliver for the third quarter. We saw a sequential improvement in sales trends, which led to revenues of $169.9 million that exceeded our expectations. We delivered strong adjusted gross margin of 54.5%, a 100 basis point improvement from last year. Margin expansion and expense management gave us adjusted operating income of $25.1 million versus $24.3 million last year, even the decline in sales and while investing in the innovation on product front and marketing programs to support our brands. Adjusted earnings per share was $0.70 versus $0.82 last year on a higher tax rate during the third quarter of this year, which accounted for approximately $0.11 per share. We also further strengthened our already strong balance sheet. At quarter end, net cash was $126 million, almost doubling over last year's $65.3 million, and inventory declined by 12%. And our expense and…

Thank you, Efraim, and good morning, everyone. For today's call, I will address the key highlights of our third quarter and year-to-date period of fiscal 2021, and then I will provide an update on our financial position. My comments today will focus on adjusted results. Please refer to the description of all of the special items included in our results for the third quarter and year-to-date period of fiscal 2021 and fiscal 2020 and our press release issued earlier this morning. This all includes a reconciliation table of GAAP and non-GAAP measures. Our third quarter performance improved sequentially from the second quarter and was highlighted by continued strength in e-commerce sales, expansion in gross margin and the disciplined management of expenses. We ended the quarter with a strong balance sheet and made progress on our strategic initiatives while navigating the significant impact of COVID-19 on our own and our retail partner store-based sales. For the third quarter of fiscal 2021, sales were $169.9 million as compared to $205.6 million last year, driven by the impact of the COVID-19 pandemic. By the end of the second quarter and throughout the third quarter, all of our retail stores and the majority of the stores of our wholesale customers had reopened. However, these stores have been impacted by a decrease in retail traffic and reduced hours at many locations. During this time, sales trends improved as the COVID-19 restrictions began easing in various stages across the world, enabling some return of foot traffic in the company's retail stores and those of its wholesale partners -- wholesale customers. However, due to the restrictions affecting brick-and-mortar retail, sales declined across all segments. Owned brands, licensed brands and company stores were down in both our U.S. and international businesses, yet we did have a strong e-commerce…

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

Regarding the revenues and geographic exposure, which regions were you most impressed by and which regions would you say have more risk going forward? Also, gross margins were encouraging, just what underpinned the performance there? And which factors may continue through the next quarters?

So I'll start with that and then turn it over to Sallie and see if she has anything to add. In terms of performance, we're really pleased with our licensed brand performance in Europe. And despite still a resurgence of COVID occurring at the end of the third quarter, we did see increased sell-through in many markets in Europe, particularly France and Germany, which are 2 of our biggest markets now in Europe, so I would say that was probably the strength geographically. On the digital front, we saw a lot of strength in the U.S., especially in our movado.com site, and that's becoming a really important part of our business, I believe, as we move forward, and that also contributed to a strengthening of our overall gross margin as well as the performance of our outlet stores that really grew gross margin and profitability during the quarter. So I'll see if Sallie has something to add.

So I absolutely concur with that Efraim, thank you. The growth in gross margin, as we talked about, sales mix was a big component of that and having a larger direct-to-consumer business, and the improvement of our gross margin in the outlet definitely contributed to that.

Okay in...

And then I think to follow-up, Oliver, fourth quarter, we have generally a larger direct-to-consumer business in the fourth quarter anyway as gift-giving is taking place. Now we do know that it started earlier this year, but we would continue with that in the fourth quarter, which is generally a stronger gross margin quarter for us.

Okay. And e-commerce is a big topic, and you mentioned it a few times in the prepared remarks. So how should we think about how big that business will get over time? And also the margin implications, I know you have e-commerce wholesale partners and your own e-commerce as well.

So I think the combined combination of our own websites and our customers' websites is a really powerful combination. And we think that ultimately, that will be a much more significant part of our business and for our customers as well, obviously, and then that will be, for us, should be margin accretive also, both on a gross margin basis, but also on an operating basis. We're really pleased with how our websites are performing, and I think there's still a lot of opportunity ahead in the next number of years within that segment.

Okay. And some of your comments were also encouraging with traffic, less negative than we would have thought and what we're seeing at some others. So has traffic continue to be fairly volatile? And do you expect it to continue along the trends you're seeing now? And also, Efraim, this holiday season is unlike any other. The promotion starting earlier, what's your interpretation of how it's proceeded relative to all the dynamics that are happening with the crisis and other competitors?

Yes. So I think on the traffic front, I think you're still seeing traffic that's down significantly from last year. What you're getting is the people who are going to stores have a much higher intention of purchasing, I think they're not going as much to browse. And we're seeing better than expected, I would say, demand for our products, so we're pleased with that, and the conversion has been really good. And so we're really pleased with that. I think the unknown this holiday season is the fact that people will be shopping for a longer period of time. I don't think you're going to have the Black Fridays in the department store or brick-and-mortar channel that you have had in the past. And so you'll see that go on, it will just be very different. Some of it probably came forward, and then I think some of it will actually go later as, at the end, people will be in stores. People will choose second-day shipping options or next-day shipping options. And in some cases, we'll add those to our -- as our products get more expensive, we end up giving that anyway. So I think it's going to be very, very different. And obviously, there's a resurgence right now, but it does not seem to have impacted traffic dramatically from where it was, which is still a negative number.

Okay. And our last question, on your wholesale partners, particularly in the United States, how do you think about sell-ins versus sellouts as well as your inventory position and freshness and flowing that in the context of some of your earlier comments? Your inventory seem very clean, but how are you generating the right level of newness and flow?

Yes. So we -- I'm really pleased with how our teams have executed on that front in terms of delivering innovation and at the same time, making a meaningful impact to our return on our inventory. And we think our retail partners with us, as a whole, especially in the department store channel, are doing better than expected and especially even on the brick-and-mortar front and on the digital front just becoming a really significant part of their overall business. So -- and our inventories are, we think, in a very good shape, a lot of newness now in stores and really ready for this holiday season. And as I said earlier, if you look at our Movado SE, which we think is going to be a bestseller really quickly, it already is the bestseller in less than a month out there, so we just see a lot of opportunity out there as we continue to deliver on our strategies.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Efraim Grinberg for closing remarks.

I would like to thank all of you for participating on today's call, and wish everybody a happy and obviously a very unusual Thanksgiving, and are hoping that next year, our Thanksgivings can return to normal. Again, so thank you very much, and we look forward to talking to you again next year.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.