Good day, everybody, and welcome to the Movado Group Second Quarter Fiscal 2026 Earnings Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call today are Efraim Grinberg, Chairman and Chief Executive Officer; and Sallie DeMarsilis, Executive Vice President 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 would like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Allison. Good morning, and welcome to Movado Group's second quarter conference call. With me today is our Executive Vice President and Chief Financial Officer, Sallie DeMarsilis. After I review the highlights of the quarter, and share our progress on key strategic initiatives, Sallie will take you through the financial results in more detail. We will then be happy to answer questions. We are pleased with our overall results this quarter as we return to growth in both sales and profitability. Sales grew by 3% to $161.8 million and adjusted operating profit more than doubled to $7 million from $2.6 million last year despite a $2.2 million impact from unmitigated U.S. tariff expenses. Although we've taken certain actions to partially offset tariffs, those actions will predominantly impact future periods. After the quarter ended, the United States implemented a tariff rate of 39% on Swiss imports. During the second quarter, we have built a strong position in inventory of Swiss-made watches in the United States and would expect a substantial portion of the year's needs are covered. We are hopeful that over the next several months, the United States and Switzerland will agree to lower tariff rates. Of course, we continue to monitor the situation closely and to develop mitigation plans. We continue to operate with a strong balance sheet with over $180 million in cash and no debt. Overall, we are pleased with the progress that we have made on our strategic initiatives with a focus on returning the company to growth and profitability. We would expect to see approximately $10 million of annualized savings spread evenly throughout this year as a result of the actions we took late last year to reduce operating expenses. Although we experienced a 5.6% sales decline in our Movado brand, we continue to…

Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the second quarter and the year-to-date period of fiscal 2026. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the second quarter and first 6 months of fiscal 2026 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Turning to review of the quarter. Overall, we were pleased with our performance for the second quarter of fiscal 2026. Sales were $161.8 million as compared to $157 million last year, an increase of 3.1%. In constant dollars, the increase in net sales was 1.4%. Net sales increased across licensed brands and company stores partially offset by a decrease in net sales in owned brands. By geography, U.S. net sales decreased 1.6% as compared to the second quarter of last year. International net sales increased by 6.9%. On a constant currency basis, International net sales increased 3.9%, with strong performances in certain markets such as Latin America and Europe. Gross profit as a percent of sales was 54.1% compared to 54.3% in the second quarter of last year. The decrease in gross margin rate as compared to the same period of last year was primarily driven by increased tariffs and unfavorable foreign exchange, partially offset by favorable channel and product mix. Operating expenses were $80.6 million as compared to $82.6 million for the second quarter of last year. The $2 million decrease was driven by a strategic reduction in marketing expenses, partially offset by an increase in performance-based compensation. The combination of higher revenue and gross profit and the decline in operating expenses drove operating income to $7 million, a $4.4 million improvement…

[Operator Instructions] Our first question comes from the line of Hamed Khorsand with BWS Financial.

So there was lots of commentary about many watches. And I just want to understand what you're seeing from a consumer habits or purchasing that you think that the mini is the route that you're taking?

So I think -- and we have both what we call mini watches, and we have micro watches though, which are smaller mini watches for us are watches from like 23 to 28 millimeters. And what had happened is that for a period of time, watches had gotten bigger, both for men and for women. And over the last few years, they've gotten smaller again. And with that, with that aspect, it's actually brought young women back into the category, and there's a lot of social media around that and layering of women's watches with jewelry. And so we believe it represents a significant opportunity across our brand portfolio. And that trend as many trends do begins in luxury and then moves into more accessible products as well.

Okay. And during Prime Day, I know you guys were participating. Was there anything stood out of that event that has continued sense? Or was it purely the consumer responding to price?

So we're probably a bigger participant in the prime events in Europe than we are in the United States. And -- but we've seen our overall digital business with those retailers that are completely focused on digital environment, whether it be Zalandos or the Amazons of the world, really doing very well on a global basis. And that's really, really good to see. And that's really across our brand portfolio. And so we believe that, that's an increased opportunity as we continue to progress down our strategic plan.

Okay. And then I know you talked about you raised inventory because of the Swiss watches. But earlier this year, you had also raised inventory because of what's going on with tariffs, how much of your increase overall year-to-date, I'm speaking of calendar, excuse me, year-to-date on the calendar, can you just digest through the channel by the holiday shopping season?

Sure. So I'll start, and then I'll turn it over to Sallie. Our inventories got very low at year-end. So we began to rebuild inventory in Q1 of this year and now into Q2. We would expect our inventories to be in line by year-end since -- and what that's allowed us to do at the same time is to offset some of the tariff impact by having inventory move to the United States prior to the implementation of certain tariffs. Obviously, we can't offset all of it. And then we have taken other actions, whether it be pricing or negotiations with suppliers to help mitigate some of the effect as well. But I'll turn it back to Sallie as well.

The only detail I will add to that, and thank you, Efraim, that was very thorough is we have, as I mentioned, about $28 million of additional inventory at this time. We do expect to work it down by the end of the year to something more reasonable. But of that $18 million, about $16 million of it is in the U.S. So we did pull it forward into the U.S. so that we can manage through these tariffs and kind of get ahead of some uncertainty with that. And as we also mentioned, just to reiterate, we do think that a substantial portion of what we need in the U.S. is probably already here. We will add in what might be new styles or something that is an advertisement or maybe something that is just selling faster than we had anticipated and bring it in, but we should be in relatively good shape.

Okay. Can I ask one more question?

Certainly.

Absolutely.

You've taken a lot of these restructuring charges in the last few quarters. When do they stop? And when us and investors see it show up in quarterly results?

Well, I think it's a combination both of charges dealing with our event that occurred in the Middle East last year as well as some charges on the restructuring side. I would think on the restructuring side, they're predominantly done and there could be some laggard still expenses on the other charges. But I would expect overall that they will be reduced significantly.

And just to remind you that we did mention when we were talking about the savings and the initiatives we were putting in place, those are offset by some increases this year in our cost. So you will see -- they offset kind of some of the increases that we would have for regular year-over-year increases for merit, adding back performance-based compensation and, of course, currency.

Thank you. We have reached the end of the question-and-answer session. I'd like to turn the floor back to Efraim Grinberg, for closing remarks.

Thank you all for participating with us today, and we look forward to joining you again for our third quarter conference call. We will -- hopefully we'll be able to share with you the progress that we continue to make on our strategic initiatives. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.