Good day, everyone and welcome to the Movado Group, Inc. Third Quarter 2022 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, Chairman and Chief Executive Officer and Sallie DeMarsilis, Executive Vice President, Chief Operating Officer, and 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. And good morning and welcome to Movado Group 's third quarter conference call. With me today is Sallie DeMarsilis, our Chief Operating Officer and Chief Financial Officer. After I've had a chance to review our third quarter performance and our strategic initiatives, Sallie will review our financial results in greater detail. We would then be glad to answer questions. We are extremely pleased with our results for the third quarter. Our teams around the world continue to execute at a very high level against our strategic objectives. For the third quarter, we delivered record sales and operating earnings. Revenues for the third quarter were $217.7 million, an increase of 28% versus $169.9 million last year. Our adjusted operating income was $42.2 million, a 68.3% increase from $25.1 million last year. Adjusted operating income for the quarter was 19.4% of sales, also a record, partially driven by adjusted gross margin expansion of 320 basis points to 57.7% from 54.5% last year. We continue to focus on remaining disciplined with operating expenses, which were 38.3% of sales, an improvement of 140 basis points against the same period last year, while increasing marketing expenses by $8.1 million over last year. Our Balance Sheet also remains strong. We increased net cash by $75.9 million year-over-year to end the quarter with $201.8 million in cash, while repurchasing 548,000 shares for $17 million. We're pleased that today we announced that our board of directors has approved a 25% increase in our quarterly dividend to $0.25 and an additional $50 million to our share repurchase program. Over the last several years, we've invested in and developed our digital capabilities, the COVID-19 pandemic accelerating these efforts. These initiatives proved beneficial as we began to transform into a consumer-focused omni -channel Company focused on serving our…

Thank you, Efraim. And good morning, everyone. For today's call, I will review our financial results for the third quarter and year-to-date period of fiscal 2022, and then I will provide an update on our outlook for the year. 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 2022 and fiscal 2021 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Certain comments will include comparisons to fiscal 2020 to provide additional context due to the significant impact of COVID-19 on prior-year results. Our performance for the third quarter of this fiscal year exceeded our expectations and resulted in record net sales and operating profits. Our financial performance was highlighted by overall strength in global sales, expansion in gross margins, and operational discipline. We once again ended our quarter with a strong balance sheet and made meaningful progress on our strategic initiatives. For the third quarter of fiscal 2022, sales were $217.7 million as compared to $169.9 million last year, an increase of 28.2%. Strong response to our brands and offerings led to net sales increases across our segments of owned brands, licensed brands, and Company stores, as well as across most geographies, most notably the U.S, but also seeing improvement in Europe and Latin America. U.S. net sales increased 41.7% and international net sales increased 17 -- I'm sorry, 19.7% as compared to the third quarter of last year. Net sales -- total net sales increased 5.9% as compared to the pre -pandemic third quarter of fiscal 2020, with an 8.3% increase in the U.S. and a 4.1% increase in international net sales. Gross profit as a…

Thank you. We will now be conducting a question-and-answer session. One moment please while we poll for questions. Thank you. Our first question comes from the line of Oliver Chen with Cowen. Please proceed with your question.

Hi. Thank you very much. Congrats on great results. The guidance implies nice upsides that were accretive for fourth quarter. Could you provide more detail on expectations that went into the guidance? And it sounds like you're quite optimistic for the health of the consumer. I would love to hear those thoughts relative to what you're seeing with supply chain. Thank you.

Well, I think our team has done a fabulous job of managing supply chain, so I'll start with that first, and we've had the right inventory at the right time. We feel like we're going to continue that pattern. And fortunately for us, we also have -- we've always flown most of our inventory into markets and so we've not had shipping delays that some have experienced. I think we're seeing a healthy consumer and continuing demand, both in brick-and-mortar and e-commerce and that's -- in most of our key markets around the world, we've also seen a bounce back in Latin America over the last quarter. So, I think we're feeling right now pretty good about the consumer. Obviously, there are some headwinds like inflation and inflationary pressures that can affect overall results in the short-to-medium term, but I think we're also continuing to monitor our expenses very closely while continuing to increase our marketing investments at the same time, especially in key markets for the holiday season and behind key brands. So right now, we're excited about the prospects for the fourth quarter. Sallie, if you'd like to add something to that.

No, I think that covers most of it --

Okay. And Sallie --

-- looking forward to the healthy holiday season, that's for sure.

Sallie, on inventory versus sales, how should we model that? It looks like you're in a -- you could be in a tight position. Are you -- are there sales being lost on table or not? And then as we model gross margin and the near and longer-term, do you expect continued leverage on fixed costs? Are there items happening to cost of goods sold that we should be aware of?

Okay. We'll start with inventory. So, as I mentioned, we did have a small fluctuation in inventory, and when our Q is out later today, you'll see that our finished goods inventory is actually slightly up and our componentry is actually what's slightly down, which is a good place to be. We feel like we're in a really good place for holiday season based upon what our forecasted sales are. And again, as Efraim led, our supply chain really has done an outstanding job at meeting the challenge that is facing everyone around the globe right now. So, we feel like we're in good place with inventory. It's the right product, it's very current, its core, it's what's selling. It's so fascinating there as to how that's all working. On gross margin, yes, we will continue to -- as part of our cost containment costs that are in gross margin, so we will continue to manage those. The fourth quarter will look a lot like it was this quarter based on our outlook that we just gave. It's a strong year for gross margin with changes that have been -- that we've been seeing such as the growth of the U.S. wholesale, the growth of the Movado brand year-over-year. Those are all things that contribute to a strong gross margin, and we should continue to see that in the fourth quarter relative to what we experienced in the third quarter.

Efraim, you have run a really globally diversified business model. Are there call-outs for regions, indoor channels that have been stronger versus weaker? And on the U.S. Department store front, how are you feeling about the trends you're seeing there? You mentioned a longer season as well.

I think that in -- on a regional basis, we're seeing our strongest performance in North America and it's been quite a few years since I can say that, so we're really happy about that. We're seeing improved performance in Europe and certainly in Latin America, which for us our biggest markets are Brazil and Mexico. And Brazil is having a nice -- not up to its height, but having a nice bounce back from where it was last year. The Middle East, we're also seeing stronger results in it as well. I think if there's one challenge right now, it would probably be China, where brick-and-mortar is challenged as really limited as people stay out of malls or shopping in person because of increased concerns over COVID.

What about --

I'm sorry. We've also seen India bounce back pretty well. And then our department store business continues to be very strong. We're also seeing improvement in our jewelry store -- our chain jewelry store channel. So, both are performing well and department store has been performing well for us for quite a while now.

Efraim, what about prices and price increases, and how you're thinking about like-for-like versus mix, especially as you work through some of the inflationary pressures?

I think we'll certainly see some price increases next year. We've already passed some, especially in Movado, and so far, the consumer has accepted those price increases. And I think we're in an environment right now and the strength of our brands allows us to continue to have some pricing leverage as we enter next year.

Okay. And on the digital frontier, the digital center of excellence, you called out television and other mediums. What's happening with the customer acquisition cost and strategy and why --

Oh, sure. I think it all complements each other. And television is always been our probably the place where we can rebuild brand awareness and it seems to also complement digital advertising very well. It's well known that the cost of digital advertising and marketing has increased as demand has increased. So, I think having a 360-degree marketing effort is beneficial to the Company and that includes things like outdoor, things like our visuals at the point of sale, also really important. And -- but we've certainly increased our television budget this year on a global basis.

Okay. And we'll all be out in the stores for Black Friday and holiday, but are there highlights for your strategy as we approach to season, unlike any other in the history of our careers for what you're doing for Black Friday and the holiday and .

We're being fairly consistent with what we've done in the past on Black Friday. We're not in a highly promotional category. And Black Friday, while it's important, the whole month is really important also, and especially the last 10 days before our holiday, but certainly there'll be compelling values for consumers over the Black Friday weekend. I think Black Friday, hopefully, this year should benefit also from the fact that last year there was really, in many markets, limited capacity that was allowed in stores at any one time. And this year, at least in the U.S, those restrictions don't exist as more and more people continue to get vaccinated.

Okay. And Efraim, on the product innovation front, you've made a lot of great changes and really executing on also some of the reinvention of classic as well. What's on your mind for what the consumer wants and what features and styling you're pursuing at core Movado, and any other highlights across the portfolio?

Well, I think our team has done a really good job in executing innovation and driving design leadership across our brand portfolio; an increased use of diverse materials from ocean plastic, to the use of ceramics across our portfolio, and then also being able to upgrade what we give our consumers. While we're selling at higher price points, were also able to continue to give them great value. So, as I mentioned, an increased use of automatic movements within the Movado brand. And for us, I was really impressed with selling online over 20% of our sales on our movado.com business was -- it was -- were watches over $1,000. That's a really healthy number.

Okay. Last to -- this is a little technical, but IDSA and the Apple iOS changes, the privacy changes, has that had much impact on your business? And then on shareholder returns, just remind us of the different priorities. You have a nice cash balance and you have a track record of returning funds to shareholders as well.

Certainly, it's made -- the privacy increase -- privacy restrictions have made it more complicated and have also raised, as I talked earlier, raise the cost of digital marketing. And -- but we do believe that there are other areas to also complement that which improved the efficiency of our digital marketing. So, part of executing a really strong digital marketing campaign is you have to reach consumers across all different parts of the funnel, starting with the top of the funnel, and there are many ways to reach consumers at the top of the funnel and then convert them online, both for ourselves and help our wholesale partners convert our consumers. So, I think we're learning how to navigate that efficiently. And then the second question, you can remind me.

Shareholder returns.

Oh, shareholder returns. Shareholder returns. We obviously believe in paying a dividend. We increased our dividend and I'm really pleased. We did that for this quarter. And we've also bought $17 million of stock back since the beginning of the year, most of it in the second quarter, and we increased also our share repurchase program by another $50 million. I think we still have $7 million or $8 million left on the existing plan, and then this will be an incremental $50 million. Our intention is to continue to generate cash and to be able to utilize it appropriately.

Thank you. Best regards. Season's greetings.

Okay. Thank you very much, Oliver. Have a great holiday.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Okay. I'd like to thank all of you for listening and participating today, and I wish everybody a great Thanksgiving holiday, and we look forward to the important selling season that's ahead as well. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.