Good morning, everyone, and welcome to the Movado Group, Incorporated Fourth Quarter 2023 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’d like to turn the call 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 am sure you are 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.

Okay, thank you, Rachel. Good morning, and welcome to Movado Group's fourth quarter and fiscal 2023 year-end conference call. For today's call, I will first review our results for the fourth quarter and fiscal year, followed by our thoughts on the current operating environment and our strategic initiatives. Then Sallie will review our results in greater detail and provide our outlook. We'll then open up the call to questions. I would like to start by recognizing our teams around the world for delivering strong results and executing our strategic plan in an evolving global economic environment. Over the course of fiscal 2023, we saw the effects of a U.S. consumer who is no longer benefiting from COVID-related stimulus programs, global headwinds from the war in Ukraine that began last March, growing inflationary pressures, and rising interest rates. In addition, our results have been further impacted by currency fluctuations. Within that context, our teams delivered a record year of $751.9 million in sales, an increase of 2.7%, or 7% on a constant currency basis. On an adjusted basis, we delivered $123.2 million of operating profit versus $119.7 million last year. For the fourth quarter, our sales were $194.3 million versus $206 million last year, down 5.7%, and 2.8% on a constant currency basis. Our adjusted operating profit for the quarter was $26.8, million compared to $37.9 million. While below last year's exceptional performance, our operating income for the fourth quarter was our second best ever, and exceeded fiscal 2020 and 2019’s fourth quarter by 222% and 35%, respectively. We ended the year with $251.6 million in cash and no debt, while returning $62.8 million to our shareholders through our dividend and share repurchase programs. We are pleased that our Board of Directors has approved a $1 special dividend, in addition to…

Thank you, Efraim, and good morning. For today's call, I will review our financial results for the fourth quarter and fiscal 2023, and then discuss our outlook for fiscal 2024. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the fourth quarter and full year of fiscal 2023, and fiscal 2022 in our press release issued earlier today, which also includes a table for GAAP and non-GAAP measures. Overall, we are pleased with our performance for fiscal 2023, despite being negatively impacted by intensifying economic pressures in certain key markets as the year progressed, and by the effects of currency fluctuations. Our financial results were highlighted by an increase in global net sales, strong gross margin performance, and operational discipline. We once again ended the year with a strong balance sheet. Turning to the fourth quarter results. For the fourth quarter of fiscal 2023, sales were $194.3 million as compared to $206 million last year, a decrease of 5.7%. In constant dollars, net sales decreased 2.8%. The decrease in constant currency reflects a sales decline in owned brands, partially offset by increases in licensed brands and in our company stores. As Efraim mentioned, we have not been immune to the effects inflation is having on the consumer in the US, as well as across key international markets. To this end, US net sales decreased 6.3%, with a decrease in the company's owned brand category, partially offset by an increase in licensed brands and company store sales. International net sales decreased 5% as compared to the fourth quarter of last year. On a constant currency basis, international net sales grew by 0.6%, with strong performances in certain markets such as India, the Middle East, and Australia, offset by…

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

Hi, Efraim and Sallie. Good morning. Regarding the guidance ahead, what's assumed for average unit retail? And Efraim, what do you see as the biggest need for the lower price point execution, and what's happening there? Given that consumers are really focused on value, are you concerned about the markdown risk in terms of the assortments out there right now? Thank you.

I'm not concerned about markdown risk, although I do believe that the marketplace has been and will continue to be somewhat more promotional through this year as consumers are challenged with inflation. What we've done, and we've done this before in more challenging economic times, sometimes we have to refill price points that we have vacated still at very strong gross margins. So, that's what we're initiating throughout the year in both our licensed brands, and then in several families for Movado BOLD. So, and we've generally seen a very good reaction to those programs. So, I would not expect, for example, the average unit retail this year to increase. I think we're not - I think if we want to motivate consumers, you do have to offer them today value and at every price point, but it still becomes more challenging to increase your AUR.

Got it. Very helpful. And internationally, do you expect Germany, UK, and France to continue to be cautious and/or get worse? Also, your comments on China were helpful. What are you seeing in that market, and how might that momentum change over time?

So, I think - I’ll deal first with Europe. I think it's going to remain challenging for a while. And what we're seeing is that they obviously have increased inflation rates. You've seen central banks in Europe raising interest rates again to fight - to try to fight inflation. And from what - anecdotally what we can see is the consumers there actually being hit by higher levels of inflation and food and fuel than in the United States. And so, I think that that will continue to have a further impact in those markets. On the China front, it's a small market for us, but one we believe we've seen some green shoots as it reopened and believe it has a long-term prospect for the company. The Coach brand is very well accepted in China. CK, we launched last year, and while still small, we believe there's a big opportunity for that in China. And we also have a meaningful Movado business in China that we think will grow over time.

Okay, thank you. And you called out in your prepared remarks the situation regarding the banking system. How might that manifest in your opinion more generally with the consumer and then more specifically in terms of why you called it out?

Well, I think the higher interest rates and as banks get under stress, at least even just as you read about it and you see it, it'll be tougher - they'll be tougher in extending credit to both consumers, which - and credit to consumers will become more expensive. You're already seeing that obviously in mortgage rates, but you'll also see it in credit card bills as well. And they'll also be more cautious in extending credit to corporations. And all of that is meant to slow down - will have an effect of slowing down the economy. So, I think that's historically happened as interest rates rise, and they've risen very rapidly this year, and I think you know, we believe that we'll see a lag effect of those interest rate hikes and a more cautious banking system around the world.

Okay. And Efraim, on the North America wholesale front, we've seen a fair bit of volatility in some of the retailers and department stores are over inventoried in certain categories. What are you seeing there, and what's your forecast for how that channel will look?

So, we've done very well within the department store channel and expect to continue to do well, but I think it will be - they will be very focused on inventory throughout the year and on managing to their sales trends, as they have been and as they should be. So, I think their inventories are in a pretty healthy place, but I think one of the things that the consumer in the U.S. has, first of all, alternatives in terms of they're now spending money on experiences, but even regardless of that, you've seen inflation take a toll on consumers, and then the anniversary of stimulus, which had built a tremendous amount of savings with the American consumer, and those savings are now being depleted by inflation as well. So, I think it's why we had already in the third quarter, believed that you would see an impact of this in the holiday period. And although we did better than we'd originally forecasted, we did see the impact of that - of all these measures on the consumer.

Okay. And Sallie, as we model next year, on the gross margin line, what should we understand about the comparisons and also the back half versus first half? And lastly, as we think about the revenue line between wholesale and your direct to consumer retail, any call outs in terms of what we should pay attention to when we're modeling our quarters? Thank you.

Thanks, Oliver. So, overall, it's a - we feel 56% is the right gross margin for the year. We do have some choppiness in the past - this past year and the year before, with certain quarters being significantly stronger. So, the comparisons can be interesting to say the least, even this fourth quarter that we just finished. Last year fourth quarter was our absolute highest this company has ever seen, but this most recent fourth quarter was still significantly up from fiscal ‘21 and fiscal ’20. So, I guess quarters do matter. We don't have any call outs individually that there's anything significant happening in any one of the quarters from a promotional cadence or anything else. So, it should be fairly level, just that the comparisons to last year could be a little choppy based on how - I'm sorry, not last year, fiscal ‘23, how the quarters break out for fiscal ‘23. But we still will have obviously, mix really being the contributing factor as US wholesale generally has been our highest gross margin contributor. I think your other question had to do with cadence of revenues and breaking it down by maybe bigger channel pieces. I think I'll mention something. I'm sure Efraim will jump in. Once again, the comparisons to last year are what makes this year challenging. We had record-setting revenues in the first two quarters of this year, so fiscal ’23. So, it makes the comparisons in fiscal ‘24 quite difficult, plus we have the uncertainty hitting right now that's causing some stress.

And I’ll add to that, that I do believe that people have returned to brick-and-mortar channels. And so, you'll see a balancing out between sales in the brick-and-mortar channel and on websites and - as well. Remember for about two years, they could only really buy, or they would only really buy on websites, or predominantly, and we're seeing a return to a more balanced approach. People - I think - the good thing is that it's kind of said, well, brick-and-mortar still is going to be here for a long, long time, and people are still going to purchase within that channel. So, I think you'll just see a more balancing out of that as well. And I think - I would imagine that our ratio of sales, of our own sales that are direct to the consumer, and will remain fairly similar to what it was last year.

Thank you. Very helpful. Best regards.

Okay. Thank you, Oliver. Okay. Thank you. I would like to thank all of you for being with us this morning, and we look forward to seeing you again for our first quarter conference call. Thank you.

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