Movado Group Inc (MOV) 2003 Q4 法說會逐字稿

Welcome to the Movado Group Incorporated fourth-quarter earnings conference. During the presentation, all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today, March 12, 2004. I would now like to turn the program over to Suzanne Michalek of Movado Group. Go ahead, please.

Thank you. Good morning, everybody, and thank you for joining us today. With me on the call is Efraim Grinberg, President and Chief Executive Officer; Rick Cote, Chief Operating Officer; and Gene Karpovich, Chief Financial Officer.

Before we begin, I would like to note that this conference call contains forward-looking statements which are made in pursuance to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors which would cause actual results to be materially different from any future results expressed or implied are discussed in our filings with the Securities and Exchange Commission. Such forward-looking statements include statements regarding Movado's performance for the remainder of fiscal 2005 and beyond.

We currently expect to update estimates. However the failure to update this information should not be taken as Movado's acceptance of these estimates on a continuing basis. Movado Group may also choose to discontinue presenting future estimates at any time.

Let me now outline the order of speakers and topics for today's conference call. Efraim will begin with the highlights of our fourth-quarter and full-year results; Gene will then review the financial details; and Rick will cover the progress we have made on our operating initiatives as well as provide you with a progress update on Ebel, along with our outlook for fiscal year 2005. We would then be glad to answer any questions you might have. I would now like to turn the call over to Efraim.

Thank you, Suzanne, and good morning everyone. Our excellent fourth-quarter financial performance capped a banner year for Movado Group. With a consistent record of delivering strong financial results, we are very pleased to announce today a two-for-one stock split and a 33 percent increase in our dividend. These actions demonstrate the value we are bringing to our shareholders, along with our confidence that Movado Group is poised for continued strong growth.

Turning to our financial results, for both the fourth quarter and the year, we delivered record sales earnings and, very importantly, cash flow. Fiscal 2004 was also a year where sales increased year-over-year in each of our brands, and our brands performed extremely while at retail. Our strong results are even more gratifying when you consider that they were achieved in a year littered with significant macroeconomic hurdles, including SARS, the war in Iraq, and a challenging global economic environment.

In addition to our financial performance, we're very excited about the acquisition of premiere Swiss luxury watch brand Ebel and the future growth potential that lies ahead for our company.

During the fourth quarter, we experienced great momentum across all of our brands, Movado, Concord, Coach, ESQ, and Tommy Hilfiger with year-over-year sales gains recorded both domestically and internationally. Highlights for the fourth quarter include a 16.6 percent year-over-year increase in sales, an 11.2 percent increase in net income, and a 6.5 percent increase in earnings per share, on top of a 4.3 percent increase in shares outstanding.

For the year, sales grew 10 percent and net income increased 13.9 percent; as a result our earnings per share grew 11.5 percent over last year to $1.84, ahead of expectations. We're also very pleased to report record cash flow from operations of $51.6 million, our second consecutive year of record cash flow. Our strong financial performance continued to be driven by the strength of our brands and our commitment to consistently bringing newness to the marketplace via new product introductions that are supported by compelling advertising campaigns. Our company was extremely well positioned as we entered the important holiday season with our brands prominently placed in print and on television.

During the fourth quarter, our Movado brand achieved low single digit revenue increases and experienced even stronger sellthrough increases domestically. Movado's strong sales results were led by the success of the new Movado Automatic Museum watch, and strong marketing support which included a national television campaign.

As we enter this spring season, we will continue to build on the strength of the Movado brand with a new advertising campaign featuring the addition of two new personalities to our team. These include principal dancer Darci Kistler of the New York City Ballet and Mikhail Baryshnikov, the world-renowned dancer. This new print campaign will launch in May and will be prominently placed in widely circulated and brand-appropriate publications.

The Movado image and lifestyle continues to be reinforced in our Movado Boutiques. Momentum continued to grow in our boutiques during the fourth quarter, with comparable store sales increasing a strong 15.1 percent for the quarter and 20.1 percent for the year. Our focus on the jewelry category continues to be well received by our customers. More specifically, the introduction of our proprietary Movado Diamond generated great excitement in our stores. For example, the average Movado Diamond engagement ring that we sold had an average selling price of almost $7000.

The momentum that we saw throughout the holiday season in our boutiques continued with a very strong Valentine's Day performance. Our boutiques continue to service as an effective vehicle to enhance the image of the Movado brand in the eyes and minds of our consumers.

In fiscal 2004, we opened seven new locations on top of the 10 we already operated when the year began. We opened two in Florida, one in the Chestnut Hill Mall in Boston, two in the Chicago market, one in Bellevue Square in Seattle, and one in the Valley Fare Mall in Santa Clara, California. At the end of fiscal 2004, we operated 17 boutiques nationwide; and just last week we opened a new boutique in the Pentagon Shopping Center in Washington, DC.

Two more boutiques are scheduled to open during our first quarter, one in the Oakbrook mall in Chicago and another location in the Houston Galleria. Looking ahead we have an additional two stores scheduled to open later this year, one in the Stony Point Mall in Richmond, Virginia, and the other in Century City in Los Angeles.

Our Concord brand delivered a successful performance for the quarter and the year, with sales showing double-digit increases as we benefited from a strategic shift in Concord's product emphasis to the more accessibly priced steel luxury watch category. Concord's modern luxury positioning was solidified in the marketplace as we introduced a comprehensive new marketing support program, including new displays, brochures, and beautiful wood packaging. These efforts led to very good sellthrough increases at our retailers and were led by the Saratoga family and the new Carlton collection. We were also very pleased with Concord's international sales performance, particularly in the Middle East, which returned to growth in the second half of fiscal 2004 after experiencing a challenging environment during the first part of the year.

This past year was a very strong year for our Coach watch brand, as we posted double-digit sales growth for both the quarter and the year. Our team continues to deliver on the global strength of the brand. We're successfully introducing fashion newness in tandem with Coach's product offering, and we're providing a seamless accessory to the Coach leather goods consumer.

Extensions of the Bridle Classic family with diamonds and bold-colored suede straps were featured throughout the holiday season and helped drive double-digit global growth and sellthrough. We are well positioned to build upon the success of our Coach watch brand during the spring and summer seasons, as we introduce exciting new products with a great selection of fashion and color. Bright colors will make important statements in our watches and will be incorporated in line extensions of our successful legacy Harness collection and other strong watch families.

In ESQ we were very pleased with the introductions of or new Centurion and Quest families, which posted excellent sellthrough rates during the fourth quarter. This performance reaffirms our view and validates our strategy as we take ESQ out of the promotional category and return the brand to its roots of success, featuring unique leadership product combined with focused advertising and marketing support. This spring we are introducing a beautiful new women's collection called Loveknot.

The global growth of our Tommy Hilfiger watch brand continued in fiscal 2004 as sales for the year grew to over $18 million, a 65 percent increase over last year. Our business in Europe is very strong, and we continue to expand our global presence. This year we opened several new markets including France and Hong Kong. We've also seen great demand for our Tommy Hilfiger product in North America. Excellent new products combined with a clear and compelling advertising campaign helped drive strong results throughout the year. We're focused now on continuing the growth of Tommy Hilfiger, both in the U.S. and internationally, and are very excited about the new product that we are introducing this spring, including a sporty new men's watch called Four-wheel-drive (ph). It women's we are introducing La Jolla, which is pretty and colorful and will feature pastel colors for the spring.

As you know just before Christmas, we announced our acquisition of the premiere luxury watch brand Ebel, and on March 1st, we announced the close of this transaction. The powerful combination of Ebel's prestigious image, iconic designs, and technical expertise, together with Movado Group's proven track record, will allow Ebel to become an even stronger Swiss luxury brand in the future than it is today.

Our vision for Ebel reflects our commitment to its legacy. Ebel will be positioned as a very luxurious brand. To achieve this cachet one of our key objectives will be to make the distribution of Ebel even more exclusive than it is today. We will focus on top field jewelers around the world and maintain a very limited distribution. In addition we will reallocate marketing dollars which had previously been directed primarily at selling support material, and focus more of this spending on media. As a result of this shift, a new print advertising campaign will launch during the fall season. These along with other initiatives will allow us to re-energize Ebel as a global luxury brand.

We have been working very closely with Ebel's management team on the product development front. As a result of our joint efforts, we are very excited about the new product introductions inspired by Ebel's heritage, which will debut next month at the annual International Watch and Jewelry Trade Fair in Basel, Switzerland, and we look forward to providing you with greater feedback on these products when we host our first-quarter earnings conference call.

As you can see from our results, fiscal 2004 was a very successful year for Movado Group, as we continued to focus on our business fundamentals and on the execution of our marketing plan. We appropriately invested behind our brands while maintaining financial discipline and delivering excellent financial results.

We also remained focused on partnering with our customers. In fiscal 2004, we became one of the first companies to offer after-sale service on the Web, which allows our customers to place and track after-sale service through a unique customized Web-based platform. We're already receiving excellent usage of this service. These and other initiatives are enabling us to better serve our customers as we grow our business.

As we enter fiscal 2005, we have strong marketing and advertising plans in place to support all of our brands, creating customer demand for our products and driving sales. With an improving economy in place we're well positioned to capitalize on the global momentum we're experiencing across all of our brands. I would now like to turn the call over to Gene, who will review our financial results in greater detail.

Thank you, Efraim, and good morning everyone. We're pleased with our financial performance in the fourth quarter and for the full year ended January 31, 2004, particularly with the record sales, net income, and cash flow performance. We posted fourth-quarter net income of 6.2 million as compared to 5.5 million prior-year. This resulted in fully diluted earnings per share of 49 cents, an increase of 6.5 percent over prior-year results of 46 cents per fully diluted share.

For the year, net income increased 13.9 percent to 22.9 million. This translated into fully diluted earnings per share of $1.84, an increase of 11.5 percent over prior year's earnings of $1.65. Increases in earnings per share for the fourth quarter and the year were achieved on top of an increase in our diluted shares of 4.3 percent and 2 percent respectively, primarily resulting from a higher average stock price which increased the number of diluted shares outstanding.

Turning to our results for the fourth quarter. Sales for the fourth quarter increased 16.6 percent over last year to 92.7 million. In constant dollars, sales increased by 14.6 percent to 91.2 million. We're pleased to report that year-over-year sales increases were recorded in all brands and segments of our business.

Sales in the wholesale segment increased 14.9 percent to 67.2 million versus last year's sales of 58.5 million. The domestic wholesale business was up 8.4 percent, with year-over-year increases in all our brands. Strong double-digit sales increases were recorded in Concord, Tommy, and Coach, while low single-digit increases were recorded in Movado and ESQ.

The international wholesale business was up 52.3 percent year-over-year. In constant dollars, sales were up 40.4 percent over prior year. Tommy sales more than doubled, while all other brands recorded double-digit growth.

The retail business posted a 24 percent sales increase over last year. This increase was driven by a 15.1 percent comparable store sales gains in our Movado Boutiques and increases from seven new boutiques opened throughout the year. The company outlet stores recorded a sales increase of 8.4 percent over prior year.

Gross profits for the quarter increased by 6.4 million or 13.2 percent to 55.3 million. The increase is due to the higher sales volume. The gross margin percent was 59.6 percent, which was below prior year by 1.8 percentage points and reflects the negative effect of the continued weak U.S. dollar to the Swiss franc, as well as a shift in our overall mix of sales.

Operating expenses for the quarter increased by 5.8 million from last year to 46 million. The increase is the result of costs associated with our new boutiques openings, the unfavorable impact of currency translation, investment in sales support, and increases in payroll and related costs. Operating income improved 7.8 percent year-over-year to 9.2 million, as compared to 8.6 million in the prior-year period.

Interest expense declined 22.8 percent to 0.7 million. This was due to reduced average borrowings for the quarter. Our average debt for the quarter decreased 16.1 percent from prior year to 53.1 million, reflecting the favorable results of our cash flow and working capital management. Taxes for the quarter were provided at a 28 percent rate consistent with last year.

Turning now to our full-year fiscal 2004 results. Net sales were 330.2 million or 10 percent above prior year. On a constant dollar basis, net sales were 324.6 million or 8.2 percent above prior year. For the year, sales increases were recorded in all our brands and business segments.

Sales in our wholesale segment were 261.1 million or 9.8 percent above prior year. The domestic wholesale business was above prior year by 8.6 percent. Double-digit increases were recorded in the Concord, Coach, and Tommy brands, and mid single-digit increases were recorded in Movado and ESQ.

The international wholesale business was above prior year by 15.9 percent. On a constant dollar basis, international wholesale sales were up 5.3 percent. Significant increases were recorded in Tommy Hilfiger as a result of international market expansion. Coach was above prior year in mid double-digits; and Concord recorded single-digit increases. Movado was below prior year due to the continued economic weakness in Europe and South America.

The retail segment increased 13 percent for the full year. Strong comparable store sales increases of 20.1 percent were recognized in the Movado Boutiques. In addition, increases were recorded as a result of our boutique expansion and in the company outlet stores.

Gross profit for the year increased by 16.1 million or 8.8 percent above prior year, driven by the higher sales volume. Our gross margin percent was 60.7 percent. This is below prior year by 70 basis points and in line with our expectations due to currency.

Operating expenses of 165.5 million reflect an 8.6 percent increase from prior year's expenses of 152.4 million. In constant dollars, operating expenses were 162.9 million or 6.9 percent above prior year. The increase of 13.1 million is primarily due to increased spending in support of our seven new Movado Boutiques, an increase marketing spending including the new Movado TV media spend, and higher payroll and related costs.

Operating income for the full year was 34.8 million or 9.5 percent above prior year of 31.8 million. Interest expense for the full year declined by 0.9 million to 3 million. This is the result of lower average borrowings. The average borrowings for the year were 50.5 million 25.7 percent below prior year. Income taxes were provided at a 28 percent effective rate for both years.

Now I would like to discuss our balance sheet that continues to reflect a very strong financial position. Accounts receivable of 88.8 million decreased by 5.6 million from last year. In constant dollars, our accounts receivable were 87.6 million or 7.2 percent below last year, while our constant dollar sales increased by 8.2 percent. The decrease is the result of a shift in the mix of business as well as improved cash collections.

Inventories at 121.7 million increased by 9.9 million from last year. The effect of the weaker U.S. dollar and the resulting translation of Swiss inventory had a significant impact. In constant dollars, inventory was 116.9 million or 4.6 percent above last year. The increase was due to higher inventory required for our seven new Movado Boutiques, slightly offset by reduced wholesale inventory.

For the second consecutive year, we ended with negative net debt, as our cash position of 82.1 million exceeded long-term debt. We had no short-term debt as of January 31st. Our capital expenditures for the year were 10.8 million, with approximately 60 percent going toward the buildout of our new boutiques. Now let me turn the call over to Rick.

Thanks, Gene. Good morning everyone. As Efraim and Gene have reviewed, fiscal 2004 was a very exciting and profitable year for Movado Group. We achieved record sales and record profits for both the quarter and the year. We are particularly proud that fiscal 2004 marked the achievement of our second consecutive year of record cash flow from operations. Our cash flow was in excess of $50 million this year and over the past five years has amounted to over $150 million.

Our strong and consistent financial performance this year and over the past several years and enabled us to complete the acquisition of Ebel and fund 100 percent of the transaction with cash on hand. Even after the close of the acquisition we still have approximate $30 million of cash on our balance sheet.

We have achieved these strong results while also maintaining a strategy of strong and consistent investment in our business. Throughout the year we invested behind our brands by improving sales support and employee training, as well as increasing advertising support. In addition, we've also invested in our geographical expansion and our growing chain of Movado Boutiques.

Our balance sheet is strong and reflects our efforts toward optimizing our working capital. In addition, our companywide productivity initiatives have resulted in increased levels of operating efficiency and improvements in our supply chain.

We have put our cash flow to work, not only by investing in our core businesses, but also by enabling our stockholders to share in the company's successful achievements through the 220 percent increase in our annual dividend over the past five years. This includes the 33 percent dividend increase we announced this morning.

Now let me turn to fiscal 2005 and outline for you our operating initiatives for the year. These include, first, a continued focus on our growth initiatives, Tommy Hilfiger and our Movado Boutiques. Second, a continued focus on our company's financial strength by managing working capital and generating positive cash flow from operations. Thirdly, the integration of Ebel into our worldwide operations.

Now let me touch on Ebel for a few minutes. As you know, we've utilized part of our cash to fund the acquisition of Ebel. The acquisition closed on March 1, and the final purchase price is subject to certain closing adjustments based on the value of net assets we are receiving including inventory, receivables, and certain fixed assets. The final purchase price will be determined in mid-May and will be subject to the receipt of an audited balance sheet.

As previously disclosed, our projected estimate calls for goodwill to be in the range of US$5 million to US$10 million, which includes the cost of restructuring, third-party transaction-related fees, and adjustments made to comply with U.S. Generally Accepted Accounting Principles. The goodwill value will also be finalized in mid-May.

We believe the acquisition of this premiere luxury watch brand represents a compelling strategic opportunity for us. As Efraim touched on, we're working on several initiatives on the product development, distribution, and marketing fronts that will allow us to further enhance Ebel's luxury image. In addition to these top-line initiatives, we're also focused on restructuring Ebel's operation to return the business to profitability. Last year, Ebel's losses were in excess of $15 million.

Importantly, we're bringing Movado Group's operating disciplines to bear on Ebel's infrastructure. These include our gross margin improvement initiatives, operating expense control, and working capital management. These type of initiatives will allow us to return Ebel to an acceptable level of profitability and position it for future growth.

As an example, we have launched a major initiative to restructure Ebel's operations in Switzerland. Our intent is to right-size the business and create a variable expense structure with strong supply chain management capabilities. Our plans call for outsourcing of production, consistent with Movado Group's supply chain strategy. These restructuring efforts will result in a reduction of approximately 70 employees from Ebel's headquarters, which would represent a 40 percent reduction in the workforce at La Chaux-de-Fonds, Switzerland.

We intend to maintain La Chaux-de-Fonds as Ebel's worldwide headquarters including sales, marketing, finance, and human resources. We also plan to maintain limited movement manufacturing and high-end watch assembly. Today Ebel manufactures its own self-winding chronograph movement, the Caliber 137; and we will continue to manufacture this prestigious movement. We expect this integration process will take place over the next six months.

Outside of Switzerland, we have obtained sales and marketing personnel around the world and will use our existing infrastructure to operate the business particularly in North America and Asia. In those operations where we do not have a significant on-the-ground presence, particularly Germany, the UK, and Japan, we will set up an appropriate internal support infrastructure. In the interim LVMH is currently providing transitional services in these countries. We would expect these services provided by LVMH to last no more than six months.

We are committed to returning the Ebel brand to profitability. Building and growing watch brands are the core focus of our worldwide operations. We have a strong track record of successful product development, marketing, and supply chain management; and therefore we are confident that we can position Ebel so that it will be able to grow profitably in the future.

Now I would like to turn to our financial outlook for fiscal 2005. During fiscal 2005, we anticipate that Ebel's financial position will improve, as the market for luxury watches has improved, and as certain of our restructuring initiatives begin to gain traction. We currently anticipate Ebel will dilute our earnings between 10 cents and 20 cents per share in fiscal 2005. We would anticipate virtually all of this impact to occur in the first half of our fiscal year as this is when we will be implementing the majority of our restructuring efforts. Ebel is expected to be accretive to earnings in fiscal 2006.

For the consolidated company, we're currently projecting net sales to be slightly in excess of $400 million. This represents an estimated contribution of between 50 to 55 million from Ebel, and projected sales growth of 6 to 8 percent from our other brands. Gross margin for the year will be lower than the past couple of years, due to the impact of Ebel's current lower margin, combined with continued pressure from the weak U.S. dollar and product mix. Our plans call for gross margin to be in the range of 59.0 percent to 60.0 percent.

Operating expenses should grow in line with sales due to the investments we're making behind our Movado Boutique expansion and the increased costs associated with operating Ebel's global marketing and support infrastructure. We anticipate Ebel's fiscal-year operating expenses to be in the $30 million range.

Our tax rate will be approximately 25 percent due to the consolidation of Ebel. This has been built into our 10 to 20 cent per share impact which I discussed earlier. Prior to including Ebel into our financial results, we would anticipate fiscal-year 2005 earnings per share to range between $2.00 and $2.05, versus the $1.84 achieved this fiscal 2004.

However, on a consolidated basis, we anticipate earnings per diluted share to be in the range of $1.84 to $1.92 for fiscal 2005. This range takes into account all of the factors I have just outlined, including the impact of the integration of Ebel and our lower tax rate.

Turning to our guidance for the first quarter of fiscal 2005, we would expect Movado Group profits excluding Ebel to be in line with last year's first-quarter results. However, including Ebel, our consolidated results, we would anticipate first-quarter bottom-line results to range between a breakeven to a loss of 10 cents per share. With that, I would now like to open the call up for questions. Nate, we're ready for questions.

(OPERATOR INSTRUCTIONS) Beth Montgomery, SG Cowen.

Congratulations. I have two questions. First I was wondering, Rick, if you could tell us what percentage of Ebel's sales come from Germany, UK, and Japan?

From those three markets, I'm just thinking out loud on the top of my head, probably in the 20 to 25, probably in the 25 percent arena.

What is the largest market? Is it the U.S.?

The largest market is the U.S., followed by the Middle East.

The second question is can you comment on the boutiques' profitability? If you did, I'm sorry, I missed it.

The boutiques are in a stage when we look at it from an all-in basis; are still in an investment mode. The investment mode is consistent with the last year or two, which is approximately a $5 million investment on an overall basis, of which over 60 percent of that is overall Movado advertising, which obviously benefits the wholesale business quite significantly. But we charge it to the boutiques.

As we have talked in the past our plan has been to accelerate our growth, because of the strong success of our performance and the introduction of our new productlines, to basically get to the 30 stores, which for us is the critical mass level. Basically over the next couple of years we see us getting to that 30-store level, and basically taking that investment and bringing it down over the next three years to a breakeven position.

That sounds great. Can you just give the CAPEX guidance for next year? And maybe what your cash flow target is for next year as well?

When we look at our CAPEX, this year it was right around 11 million; next year we expect it to be probably closer to around 15 million because of the expansion of the stores, some remodeling has to take place; plus regular ongoing business and the integration of Ebel with some capital spending.

From a standpoint of working capital, we would expect working capital to be probably more in the 15 to 20 to $22 million range, which is going to be probably slightly lower than overall profitability. That is because of the very strong progress we have made over the last couple of years. We are extremely pleased with the progress that our teams have made around the world, particularly in receivables, in the aggressive cash collection position we have had, considering the marketplace. So, those types of increases will not continue at the same pace; and we have been very successful the last couple of years. But again very strong cash flow even on a go-forward basis.

That sounds great. Thank you.

Paula Kalandiak, Wells Fargo Securities.

Good morning. Great quarter. A couple of questions, starting with the marketing side. What was your experience with the TV campaign? Is that something you're going to continue to do?

It is in our current plan to continue to do it in the fourth quarter this year. We had an excellent sellthrough in the Movado brand, really with all of our major customers during the fourth quarter. We believe that the television had a great impact into that. Most of our growth in December with most of our major customers was in the low double digits to high double digits, high teens sellthrough growth. So we're very pleased with that.

Your advertising spend, is that still in the range of a high teen percent of sales?

Yes, our advertising spend is in the 16 to 17 percent range. We would expect that that is the range we would be continuing, even with Ebel coming in. Obviously when you look at our mix of business, the higher-end luxuries are at a higher percent of that, and some of the other brands are at lower levels. So that comes out to an average, and we believe that is a very strong, consistent level.

Finally, in the commentary about the specific brands, regarding ESQ, you said something about taking it out of the promotional category. Can you clarify what that was referring to?

For the last three years, the ESQ brand has been in a promotional category, which means that it would have a high and a low selling price at different times of the year. We're basically going back to a suggested retail price that is our suggested retail price. And really focusing on the development of iconic leadership product like the Quest family and the Centurion family that we just recently introduced, and then the new Loveknot family that we are introducing this spring.

And we have had very good success in the late fall with those product introductions, and focused on related really being the only Swiss brand in this price category.

Great. Thanks.

(OPERATOR INSTRUCTIONS) Carole Cranmer, Morgan Joseph.

Good morning. I will follow up with some questions specifically on the boutiques. Beyond what you have said in the aggregate about your investment, I was wondering how the stores are performing relative to the economics that you have shared in terms of plan. Are the new stores that you are opening doing well versus that budget?

Also, for whatever you might share in terms of what you have learned about that retail marketplace, as you have opened boutiques in different geographic areas. As well as any comments you might have about the jewelry penetration in the stores.

I will take the first piece of that, which is basically the performance in the stores. On a four-wall basis, and we have talked about this the past. On a four-wall basis, in our first full year of operations we're profitable on a four-wall basis.

From a standpoint of our models when we look at sales, from a standpoint of opening up stores, we're basically in the 6 to $750 range per square foot. And we are delivering along that. So we're very pleased with the performance in the stores. Clearly it takes a full year-plus to really get it to an ongoing good level of performance, so it is meeting the expectations that we have outlined with you.

Clearly when we look at the overhead that we have, in support of the boutique business, the overall merchandising and the brand presidents and the supply chain management team, as well as the advertising that we have, that is where we need to get to our critical mass of stores to basically be able to cover those two cost factors.

So, it is in line with our expectations and we're very pleased with that. And as we are going into the new stores we have been very pleased with the performance of the comps, which last year were in excess of 15 percent. So, that is pretty indicative of the performance that we're having. And clearly the first three years are major growth years in the boutiques. With that I will turn it to Efraim on the jewelry performance.

Two things. Let me just add that in the new markets that we have been going into, we have been very happy with the results and very pleased with the results in markets like Bellevue in Seattle, and Valley Fair in California, and the Chicago market as well, which have been our last three markets that we have entered. We have had some very nice performances there as well.

The jewelry penetration continues to increase, and watches now represent about 35 percent of our sales, down from a high of 50 several years ago. So, as we develop our jewelry assortment and grow our jewelry assortment, and especially now with the addition of the Movado Diamond, we are quite pleased that we really are expanding the Movado brand into a lifestyle brand.

Thank you.

David Taylor (ph) from David P. Taylor.

I actually have a few questions centering on Ebel. You've had a few days to look inside the wrapper since the actual acquisition. Is everything at Ebel as you expected?

Ebel is an excellent brand. Clearly we just closed March 1; so, yes, we have been looking in the boxes. But it's 11 days and we're still in a very heavily involved closing process, which will take place over the next 45 days. But, Ebel is an exceptionally strong brand name.

Clearly we went in and, when you look at the purchase price that we paid, clearly there is a lot of work that has to be done from the standpoint of positioning, from a standpoint of going back to the core attributes which the brand stands for, with improvement in the product development as well as the marketing. And we have been working diligently over the last 60 days on that. So really since we signed a contract we have been intimately involved with the Ebel management team there.

Clearly we have a lot of work to do. That is taking them from a loss that was reasonably significant to getting into a smaller loss this year and to profitability next year. But again even within 11 days we have announced very significant restructuring activities, a 40 percent reduction in personnel. So clearly we have been working very hard on our plans as to what we need to do to return that to profitability. We've initiated those virtually on day one of taking over the business.

And what gives us a lot of confidence is, look at our performance over the last several years, basically getting back to fundamentals. I believe we have got a very very strong track record on focusing on fundamentals, which is strong sales, healthy sales, excellent product, excellent marketing, infrastructure control, cost control, and cash flow from operations.

So, clearly it's going to take a lot of work. We're ready for it. We will be focusing in on that; and we will get it to where we believe it needs to be over the next number of months. But very importantly, over the next couple of years.

I would just like add to that, that we have really in Ebel bought one of the world's great watch brands. We're very committed to it, believe that it is a great opportunity for the company; and we're also very focused on bringing Movado Group's operating disciplines, as Rick touched upon, to Ebel. And have begun that virtually on day one.

We have found a group of people there also who are willing to learn; very enthusiastic about the brand; and committed to its success and return to profitability. Because without profitability, a business or a luxury brand is not viable. And we will make it profitable.

I was a little surprised when you announced your projected sales for each range for the year. As I thought about it, I gather that you are talking about a decline in Ebel sales this year of 15,20 percent. Am I in the ballpark on that?

I think from a standpoint, we are looking at a reduction that is probably in the teen arena. Part of it is currency. Because again the numbers were more in Swiss francs. When you look at it from a Swiss francs standpoint, the decline is probably more in the 15 percent arena. When you look at it translated into dollars, it is a little bit higher because of the decline in the U.S. dollar. So the expectation will be the more -- the dollar will be lower this year than it was last year.

Part of that is for a couple of reasons. Number one is obviously with any business change in ownership, obviously you've got to sit there and regear it and get it back up to speed from a standpoint number one. From a standpoint number two is we're focusing very much on making it extremely healthy. And part of that health is making sure that we have very strong distribution and consistent distribution. So our sales expectation this year are to be basically on selective distribution and very focused and healthy distribution.

Also we are very focused this year on restructuring the brand and rebuilding the brand. At its height Ebel did in excess of $100 million. We are in the process of restructuring it to build it again back up to growing sales levels every year.

We only have 11 months of sales for this year. Because we did acquire it March 1, so we only have 11 months in this fiscal year.

Thank you very much.

(OPERATOR INSTRUCTIONS) At this time there are no further questions. I would like to turn the program back over to our moderators. Go ahead, please.

I would like to thank all of you for participating today. Obviously we're very pleased with our year. And, also with our announcement today of a two-for-one stock split as well as a 33 percent increase in our dividend. We are committed to continuing our success for the future. Thank you again for participating today.