Movado Group Inc (MOV) 2005 Q3 法說會逐字稿

Welcome to Movado Group's third-quarter earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded on December 8.

I would now like to turn the program over Suzanne Michalek of Movado Group.

Go ahead please.

Thank you.

Good morning, everyone, and thank you for joining us today.

With me on the call are 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 refer you to our third-quarter earnings press release which is posted on our website at www.movadogroup.com.

I would also 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 could 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 anytime.

Let me now outlined the order of speakers and topics for today's conference call.

Efraim will begin with an overview of our business;

Gene will then review the financial details and Rick will provide you with an update on our Ebel business, along with our financial outlook for the balance of our fiscal year.

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.

Good morning, everyone.

Our company delivered a strong performance in the third quarter with year-over-year sales increases recorded in each of our brands and businesses.

The results were driven by our steadfast execution of our strategy to develop and support our distinctive portfolio of brands through strong product development, powerful advertising campaigns and consistent marketing support.

We're especially pleased with the improvement we've seen in our Ebel business, which Rick will discuss later in the call.

By focusing on our business fundamentals we generated double-digit growth in both our top and bottom lines, which comes on top of a solid performance in the year-ago period.

Now let's take a look at some of the brand highlights during the quarter.

Movado continues to be a power brand in the marketplace with dominance in the 500 to $1500 price category.

During the quarter Movado delivered single-digit percentage growth with gains recorded both domestically and internationally.

Leadership products such as Timema, Trembrili and La Nouvelle have been infused into our assortments, along with fresh twists on the very successful Eliro and Esperanza families.

During the quarter we introduced a beautiful consumer brochure geared primarily towards women and highlighting several of our new women's watches.

Our market presence is exceptionally strong this holiday season.

By now you have probably seen the strong advertising commitment we've rolled out to support the Movado brand.

The campaign features well-known personalities such as Mikhail Baryshnikov, Wynton Marsalis, Mia Maestro (ph) and Ashley Tuttle (ph).

These adds convey a clear luxury message to our consumer and are powerfully placed in magazines, newspapers and now on television.

We are also focused on continuing our expansion in China, which we view as a long-term market opportunity for Movado.

We now have 25 corners opening watch and department stores.

These shopping environments mirror the luxury image of the Movado brand.

With comparable store sales gains of 12.8 percent in the third quarter and a 16.7 percent increase for the 9 months, our Movado Boutiques are filling a niche in the marketplace for customers seeking jewelry and accessories with signature Movado styling and design.

In the third quarter we capitalized on this appeal by introducing our first image book focused exclusively on our jewelry collections.

Collections such as Ono and Radius continue to resonate strongly with the consumer, as does our proprietary Movado Diamond.

Expansion of the Movado Boutique concept continued in the third quarter with 3 new openings -- Tampa's International Plaza, Palm Beach Gardens, and Stony Point in Richmond, Virginia.

These openings bring our total number of Boutique locations to 24 nationwide.

We're especially pleased that just last week 1 of our Boutique exposes, the Movado Museum Art Watch was featured on Oprah Winfrey's influential "Favorite Things for 2004".

Concord delivered high single-digit sales increases during the quarter and solid double-digit gains for the year-to-date period.

Concord's business was primarily driven by significant gains in Asia, fueled by strong sales and sellthrough of the new Delirium, particularly in Hong Kong and Singapore.

We have also received an enthusiastic response from both retailers and consumers to Concord's new global advertising campaign.

The campaign encompasses a lifestyle component and positions Concord as style defined, highlighting the brands and sophisticated elegance and individual style.

The vibrancy and relevance of the Coach brand remains strong in the marketplace, and our Coach watch business continues to reap the benefits of increasing brand awareness and loyalty.

Coach watches recorded high single-digit sales increases in the third quarter and double-digit gains for the 9 months.

The Gallery watch with interchangeable bezels is featured in our holiday advertising and continues to be a strong performer.

Our partnership with Coach remains strong and we collaborate closely to create timepieces inspired by their handbag designs.

In what has been a challenging fashion watch market, our Tommy Hilfiger business continues to deliver strong double-digit sales gains both domestically and internationally.

Overseas our Tommy business nearly doubled in the third quarter, reflecting market expansion both in new and existing locations, as well as the strong Tommy Hilfiger brand recognition and acceptance in the European marketplace.

Strong product collections such as Gracie and Mollie continue to perform well, and new products such as Scarlet and Biscayne feature crystal enhancements for the holiday season.

Let me just conclude by saying that we bring a powerful portfolio brands to the marketplace with Movado, Ebel, Concord, ESQ, Coach and Tommy Hilfiger.

By keeping true to the core values of these brands, but always evolving, we're delivering the total package to our consumers and retailers with a great brand, innovative product, bold advertising and consistent marketing support.

Now I would like to turn the call over to Gene.

Thank you, Efraim, and good morning, everyone.

We recorded strong financial results in the third quarter ended October 31, 2004, fueled by strong sales.

In discussing our financial performance today, I will once again provide you with year-on-year comparisons with and without our Ebel business.

Sales for the third quarter were 127 million or 26.1 percent above prior year.

Excluding Ebel sales were 111.3 million or 10.5 percent above last year.

Sales in the wholesale segment increased 26 percent to 110.8 million.

Excluding Ebel, wholesale sales increased 9 percent.

All brands are above prior year with Tommy Hilfiger up over 50 percent and ESQ up over 20 percent.

The domestic wholesale business was up 11 percent and excluding Ebel up 5 percent.

Tommy Hilfiger led the way with sales up a strong 35 percent over prior year due to positive sellthrough at retail in existing doors and expanded distribution.

ESQ was up double digits and Concord and Movado were up single digits.

The international wholesale segment more than doubled, and excluding Ebel was up 30 percent.

Strong double-digit growth was recorded in Europe and Asia, with all brands recording strong double-digit increases.

Tommy Hilfiger almost doubled year-over-year, reflecting the strength of the brand name and the appeal of our watch design to the international marketplace.

Our Coach sales were particularly strong in duty-free, up over 100 percent from the prior year results.

The retail business posted a 25.7 percent sales increased over last year.

The increase was driven by an overall 70 percent increase in Movado Boutique sales.

This was the result of a 12.8 percent comparable store sales increase, along with increases as a result of 12 new stores.

The Company outlet store total sales were above prior year by 10 percent.

Gross margin for the quarter was 77.1 million or 15.8 million above last year, driven by our sales increase.

Gross margin as a percent of sales (technical difficulty) to 60.7 percent compared to 60.9 percent last year.

The 20 basis point decline was primarily due to brand and product mix.

Our operating expenses were 61.2 million or 31.3 percent above last year.

Excluding Ebel, operating expenses were 51.4 million or 10.4 percent above last year.

The principal reasons for the increase in expenses are added spending and support of our Movado Boutique expansion, the continued global expansion of Tommy Hilfiger and increased people-related infrastructure costs to support other growth initiatives, including the development of the Movado brand in China, higher compensation costs and increased fees including costs related to Sarbanes-Oxley certification.

Interest expense is 872,000 or 14.1 percent above prior year.

Our average debt for the quarter was 63.3 million or 14.6 percent above last year.

The increase in our average debt is attributable to cash acquired to pay for the all-cash acquisition of Ebel, in addition to cash required for working capital to support our sales growth.

Our average borrowing rate is 4.7 percent versus 5.5 percent last year.

This reduced rate is the result of the mix of our borrowings with the greater portion being short-term bank loans.

Income taxes were provided at our planned 25 percent tax rate versus 28 percent rate last year.

The decrease in the effective tax rate is the result of our projected profits and earnings mix for the year.

As reported, net income increased 12.5 percent to 11.3 million versus 10.1 million last year.

For the quarter, the Ebel business recorded a net loss of 124,000 or less than 0.5 cent per share loss.

And our base business recorded a 13.7 percent increase in net income over last year.

On a reported basis, earnings per diluted share rose 10 percent to 44 cents versus 40 cents last year on slightly higher average diluted shares outstanding.

Looking now at the year-to-date results, sales for the 9-month period were 299 million or 25.9 percent above prior year.

Excluding Ebel, sales were 270.4 million or 13.9 percent above last year.

Sales in the wholesale segment increased 26 percent to 252.4 million.

Excluding Ebel, wholesale sales increased 12 percent.

We're pleased to report that all of our brands reported increases above prior year.

Tommy Hilfiger, Concord, Coach and ESQ are above prior year in double digits and Movado up mid-single digits.

The domestic wholesale business was up 11.8 percent, and excluding Ebel up 7.1 percent.

Tommy Hilfiger led the way with sales of up strong 51 percent over prior year due to sellthrough at retail and added distribution.

ESQ was up double digits, Concord and Coach up high-single digits and Movado up low-single digits.

The international wholesale segment was up over 100 percent and excluding Ebel up 40 percent.

Sales were significantly stronger in Asia, which had been negatively impacted by SARS in the prior year, and in our Coach duty-free business.

All brands recorded double-digit increases with Tommy Hilfiger more than doubling year-over-year.

The retail business posted a 24.4 percent increase over last year.

The increase was driven by an overall 67.9 percent increase in Movado Boutique sales.

This was the result of a 16.7 percent comparable store sales increase, along with the addition of the new doors year-over-year.

The Company outlet stores were above prior year in mid-single digits.

Gross margin year-to-date was 178.5 million or above last year by 33.5 million.

The increase in gross margin is due to the sales increase.

Consolidated gross margin as a percent of sales is 59.7 percent or below last year's 61.1 percent primarily due to brand and product mix.

Our operating expenses were 152.1 million or 27.3 percent above last year.

Excluding Ebel, operating expenses were 132 million or 10.5 percent above last year.

The principal reasons for the increase are the same as I just outlined for the third quarter.

Interest expense for the 9 months is 2.4 million or flat to prior year.

Our average debt is 56.7 million or 7 percent above last year.

Our average borrowing rate is 4.7 percent versus 5.4 percent last year.

As previously announced, we recognized a 1.4 million gain in the second quarter net of associated fees resulting from a litigation settlement with Swiss Army Brands.

Taxes were provided at a 25 percent effective tax rate versus a 28 percent rate last year.

As reported, net income increased 14.7 percent to 19.1 million versus 16.7 million last year.

Our base business, excluding the litigation settlement, recorded a significant 29.1 percent increase in net income to 21.5 million, while the Ebel business recorded a loss of 3.3 million.

On a reported basis earnings per diluted share increased 11.9 percent to 75 cents versus 67 cents last year on slightly higher average diluted shares outstanding.

Our base businesses delivered a 31.3 percent increase in earnings per share, excluding the settlement gain, and we recorded a loss of 13 cents in the Ebel business.

Now taking a quick look at our balance sheet, our cash as of October 31, 2004 is 35.9 million as compared to 61 million last year.

This reflects the net impact of the payment for the all-cash acquisition of Ebel, the severance and restructuring costs associated with Ebel's Swiss operations and the funding of Ebel business year-to-date, as well as additional cash required to fund the working capital needs for volume growth.

Accounts receivable of 137.9 million increased by 17.2 million from last year, an increase of 14.2 percent.

Excluding Ebel, our base business accounts receivable are 123 million, 1.9 percent above last year as compared to our sales growth of 13.9 percent.

This reflects the favorable mix of our sales growth in Tommy Hilfiger and our Movado Boutiques, in addition to strong cash collections from our brands.

Inventories of 192.8 million increased by 69.7 million from last year.

Excluding Ebel, inventories were 152.7 million, an increase in our base business of 29.6 million.

The increase is comprised of 6.8 million for our new Movado Boutiques, 7.1 million resulting from the negative impact of currency and 15.7 million due to the seasonal build of new products for delivery in our holiday selling season.

Our short-term debt was 21.3 million versus 27 million prior year.

And our long-term debt is 45 million versus 30 million prior year.

Total debt is 66.3 million versus 57 million last year.

Capital expenditures year-to-date were 10.9 million and depreciation expense was 8.6 million.

Our capital expenditures were primarily for the buildout of our new retail stores and the expansion of our headquarters in Paramus, New Jersey.

In summary, we're pleased with our financial performance for the quarter in all respects, delivering very solid P&L performance and maintaining a sound balance sheet.

Now let me turn the call over to Rick.

Thank you, Gene, and good morning, everyone.

To echo Efraim and Gene's comments, let me just reiterate how pleased we are to have delivered strong increases in sales and profits in the third quarter, even as we invested behind our brands' infrastructure and inventory.

These results continue to demonstrate our efficient operating structure and strong balance sheet.

We are always looking at ways to optimize our capital structure, and during the third quarter we took advantage of still low long-term borrowing rates and drew down 20 million from our $40 million private shelf debt agreement.

These funds will be used to pay down maturing debt, fund the continued expansion of our Movado Boutique concept and for general corporate purposes.

We are also very pleased with the improvement we've seen in our Ebel business in the third quarter.

As you know, we have only owned this business since March 1st of this year, but with the hard work and accomplishments of our teams around the world, we are already seeing the beginnings of an Ebel turnaround.

Specifically during the third quarter, Ebel generated sales of 15.7 million and neared the break-even mark on the bottom line.

Importantly, the appropriate cost structure is now in place, and we are focused on product development, marketing, advertising and selling efforts.

We remain intent on delivering our goal of making Ebel modestly accretive to full-year earnings in fiscal 2006, with the potential for significant operating leverage in the future.

We will provide additional guidance when we report our fourth-quarter results.

We are seeing excellent sellthrough on important new products such as the Sportwave, an entry-level product we introduced geared towards a younger consumer.

New product introductions will revitalize the iconic collections that Ebel is known for, and we look forward to introducing a much broader array of new products throughout next year.

Ebel's global advertising campaign first launched in September, and now with the holiday selling season upon us the campaign is highly visible to consumers with front and center placements in major fashion publications and newspapers around the world.

The woman's campaign featuring Claudia Schiffer has helped re-energize Ebel and put the brand back into the eyes and minds of our consumers.

So too has the men's campaign, which recalls Ebel's roots and heritage as the architects of time.

We are also pleased to have hired a President for Ebel, Thomas Van der Kallen, who will join our organization and mid-January.

With global lecture he brand experience, we look forward to benefiting from his expertise in our organization.

Thomas will be responsible for worldwide sales and marketing of Ebel, and he will be based in the brand's headquarters in La Chaux-de-Fonds, Switzerland.

Now let me provide you with some guidance on our financial outlook for the full-year fiscal 2005.

We expect consolidated net sales to be in excess of $410 million, with Ebel contributing sales in the 40 to $45 million range.

Our gross margin for the full-year will continue to be affected by the shift in the overall mix of our business, particularly the higher sales growth of Tommy Hilfiger, the increased mix of jewelry in our Movado Boutiques and the impact of Ebel.

Nevertheless, we expect strong gross margins for the year, consistent with where they have been, at approximately 59.7 percent.

Operating expenses, including and excluding Ebel, are expected to be in line with where they have been year-to-date, growing between 25 and 28 percent and 10 and 11 percent respectively as we continue to be aggressive in supporting our brands and businesses.

As a result, we expect consolidated diluted earnings per share to range between 98 cents and $1.02 for the full-year, which is at the high end or slightly in excess of our previously issued guidance, and compares with earnings of 92 cents per diluted share achieved in fiscal 2004.

This range includes the legal settlement gain reported in the second quarter of this year and the planned dilutive impact of Ebel.

Excluding these 2 items, we project full-year earnings per share from our base business to increase between 20 and 25 percent, significantly outpacing our sales growth.

With that I would now like to open the call up for your questions.

(OPERATOR INSTRUCTIONS) Carol Cranmer, Morgan Joseph.

It's great to see such a strong quarter.

Could you give us a little more detail please or remind us of your boutique expansion plans for the coming year?

You have said you're pleased with their performance.

Could you just remind us about your goals to reach critical mass and profitability, and what that might look like next year?

Well, we expect -- the last 2 years we've opened up I believe 7 boutiques a year.

Obviously that pace we will not continue.

We're planning next year to open up somewhere between 3 and 4, and probably with a similar number in the following year.

And then we expect to then be at critical mass to be able to have a profitable ongoing business for the future several years down the road.

Probably we're about 3 years away.

Thank you.

Eric Beder, J.B. Hanauer.

Could you talk a little bit about the gains that you're seeing with Ebel, leveraging their marketing network in Europe for Movado brands and some of the other brands?

Really our focus right now with the Ebel business is on turning around that business, so there was a lot to do this year.

We took a business that had been losing substantial amounts of money each and every quarter and brought it to a virtual breakeven this quarter.

So it's really not been a focus on getting synergies with the rest of our business, aside from on the back-office functions and supply chain functions where we have begun to see a tremendous amount of leverage on synergies.

When do you think that will be part of the --?

Really I think that is probably a few years down the road.

I think next year our focus on Ebel is beginning to bring back growth to the brand again and make it an important global player in the luxury category.

We have a lot of confidence and the great enthusiasm about the power of the Ebel brand, but it's really got to be focused now on growing Ebel before we look at having market synergies with those businesses as well.

That doesn't mean that we won't get infrastructure synergies in many local markets around the world.

Could you just give us a little more color on China and what you're doing there and how your leveraging opportunities there?

China is really, it's an emerging market and an emerging market in luxury goods.

So we are focused on becoming a factor in the Chinese marketplace over the next several years.

And our main focused there right now is our Movado brand where we believe that as people become more affluent in the marketplace a growing number of the market will be able to afford their first luxury watch, and hopefully that will be a Movado.

But it's still a small business, but 1 that we want to make sure that as the market grows we have a tremendous amount of focus in.

In your estimates, your projections for Q4 and the year, what are you assuming in terms of currency rates?

Basically we're looking at currency rate basically being at around a 120 level.

And the reason for that, as you know, is from our hedging standpoint.

So even though the currency has been lower than that for a short period of time, we do have a hedging program in place, and obviously we're covered through this year and that's why we're able to use that through our fourth quarter.

Susan Ng, Sidoti & Co.

I wanted to build on that question about expansion in China.

What are your plans for penetrating that market?

And what's the current distribution channels and the number of doors at the current level, and projections for next year, if you have that?

I think it's a little early for that.

We're still viewing it as an emerging market, and it's 1 that we want to be present in because it can ultimately be obviously a very large market with a very large population.

But it's still, as I said earlier, it's an emerging market.

Today we currently have for Movado about 100 doors and they're predominantly watch stores and department stores.

And really what most people are trying to do today is establish a presence in China, and that is really what we're focused on.

I don't think you're going to see any major growth or returns out of that marketplace in the short term.

Can you speak more about -- I know that the scarf watch was featured on Oprah, as you mentioned.

Can you touch on how that's impacted store traffic and in any way quantify how that has performed in terms of sales and any projections on how --?

I don't think we're going to give specifics on the sales of those watches, but we did see significant improved sellthrough on those models, which is a very unique model.

But it's also overall I think the exposure helped the Movado brand with all of our retail partners and positions Movado -- continues to position Movado in a very strong and powerful light.

We were very pleased with that association.

And we got huge reactions from publicity point of view, as well as increased visits to our website.

And I found out that a lot of the financial community watches Oprah.

And some customers that I interacted with actually referred to it as the Oprah watch.

So I guess it's nicknamed that now.

And I did -- just 1 final question.

I did miss your mention on CapEx for the third quarter.

Are you in line, on track for about 15 million in CapEx this year?

Yes we are.

We may be in the 14 to 15 million range.

And basically year-to-date we're about 11 million in CapEx.

Great.

Thank you so much.

Richard Friery (ph), Delphi Management.

I know earlier in the call you talked a little bit about Coach at duty-free.

I'm just wondering how Asia versus the Caribbean is doing in duty-free.

Are they both strong?

I think 1 of the things that we did not highlight was that we had a very strong quarter, despite the fact obviously that a number of our businesses or affected in the Caribbean due to the hurricanes that occurred in September, as well as obviously Florida, our Florida business with our retail stores and our wholesale business in that area.

So the duty-free business strength in the quarter really predominantly came from the Japanese travelers in our Coach business in duty-free stores.

You mentioned just a couple of questions ago were talking about the currency.

I'm wondering going forward with the currency at these levels and any future hedging, is that going to start to impact your gross margin or any of your operating expenses?

I think our operating expenses translate higher, but we obviously are very focused on protecting our gross margin, both from a hedging point of view and realizing cost reductions, as well as selected price increases when necessary.

So we don't believe it will have a major impact on our gross margins as we move forward.

And from an expense point of view, everything that's overseas gets translated at a higher rate, but so do sales as well.

Also, what portion of your sales go to the Middle East or travelers from the Middle East?

In our Concord business, a good portion of our international business is in the Middle East.

And it's been very strong over the past 18 months.

But we've always had a very strong presence in that market.

But it's a small overall percentage for the overall Company.

Thank you.

(OPERATOR INSTRUCTIONS) Steve Kernkrow (ph), Berman Capital.

I just wanted to ask 1 question.

Now that you're absorbing the Ebel acquisition, what is the acquisition plan or brand expansion plan for these next couple of years?

Should we assume that there aren't any other brand acquisitions over the next few years or that you're looking for and we should see additional brands being acquired?

We're always looking at opportunities that make sense for the Company and will create shareholder value for the Company.

But at the same time we're focused, very focused, on executing our business plan on our existing businesses, as well as continuing the successful turnaround of the Ebel business.

Obviously we're very happy with where we've progressed so far, but we still see a huge opportunity with Ebel, as well as a number of our existing businesses and their future growth as well.

I may have missed part of your opening comments, but could you kind of just describe what you're seeing in terms of mall traffic in this Christmas season so far, because it seems that jewelry is a very hot category and you should be participating?

I just want to get a sense of what you're seeing.

I think there is still a lot of time left between now and Christmas, so we don't want to really just comments on the Christmas season.

I think the economic indicators in this country seem to be pretty strong.

And I think Rick gave our forecast or our plan for the year.

But I think it's a little early to comment on the results of the Christmas holiday season.

Thanks very much.

Good luck.

Arnold Reef (ph), Goldsmith & Harris.

Just to understand Ebel, you indicated that it would be slightly accretive next year.

I would assume given the seasonality of the business it would be accretive in the fourth quarter, not in the first quarter; certainly in the fourth quarter of next year, and then the second and third quarter is sort of a question mark.

Could you give us a little guidance -- without getting into numbers, but just direction?

I think from a standpoint of the fourth quarter this year we would expect it to be a little bit dilutive.

The third quarter, because of our quarter end of October 31, is seasonally our strongest quarter from sales across all of our brands.

Clearly for next year in the first quarter and probably in the second quarter will be dilutive.

Again, I will give guidance on that specifically when we give our fourth quarter results.

And certainly we would expect the second half to be accretive.

Could you give us some direction in terms of the operating results of the boutiques?

The sales and comps have been very strong.

Are the operating losses continuing to decline?

Yes, from the standpoint of the sales and the comps are doing well.

Again, we're opening a lot of stores.

And as you know, we've said that in the first year of operation, because it's a partial year, on a 4-wall basis it is a slight loss.

Clearly it is accretive on a 4-wall basis on the first full year of operation.

So we've gone a lot of stores that have not been open a full year.

From a standpoint of our investments, they continued at the range they have been, which we talked about in the past, of around 4.5 to $5 million.

And clearly we do see that going down.

And that's the important aspect of having that critical mass level.

So over the next 3 years we see that getting to a breakeven scenario and clearly those investments going down.

When we're done those investments are significant drivers to our overall Movado brand business.

I'm not quite sure -- I know you opened a lot of stores this year, but you opened a lot of stores last year too which have matured a little bit, so --

(multiple speakers) first full year of operation.

They start maturing over years 2 through 5, is when we start getting good maturing.

But we have 7 stores that we opened last year that would be open a full year this year, and we have 7 new stores this year.

So the operating loss for the boutiques should be down this year?

It's down from last year, yes.

I'd just like to follow up on that other question in terms of strategic plans for growth apart from the focus on the existing.

Does the fact that Ebel seems to be in better shape make any contribution next year.

You're lining up new products next year.

When you look at acquisitions you can be receptive to what comes through the door or you can be at least somewhat more aggressive in terms of looking.

Have you sort of swung over from the latter to the former position now in terms of looking for additional (multiple speakers) so to speak?

Let me be clear about just how we operate.

We're very selective in the opportunities that we would pursue, meaning either on the acquisition front, on the licensing front or on any other expansion.

So it really has to be something that we find very appealing for the Company.

Ebel we found very appealing for the Company.

Those things will not come about very often.

So when something -- but that means the Company is opportunistic.

We will take the opportunity to do something that is very appealing for the Company and create long-term shareholder value for our shareholders.

Let me just try to push through 1 more.

There is a difference between being receptive to opportunity and pursuing it with a reasonable aggressiveness.

It doesn't mean you're going to find anything.

You certainly want something that's very appealing.

But are you in that latter mode at this point?

Are you looking, so to speak, as opposed to being opportunistic?

We have worked very hard to have our very strong balance sheet and to give us financial flexibility whether to seize opportunities that have been materialized in the marketplace and/or deal with economic changes that take place around the world.

So from that standpoint, we have the flexibility.

When we're done our plans do not call for, nor do we anticipate because those are things that are not within our control.

Pamela Brown, Gabelli.

I just wanted to focus kind of not on a quantitative basis on the gross margin going forward.

But looking at how quickly your gross margins have turned relative to your expectations, if you could maybe give us some qualitative indications I guess specifically related to Ebel and how that business is progressing in contrast to your expectations in terms of timing and growth.

As you know, when we took over the business the margins were not where wanted them to be or we certainly planned them to be.

They were in the 50 percent or slightly below range.

Clearly our goal was to get that up over the next couple of years, ideally close to that Company average of around 60 percent.

They have been moving up during the quarters.

We are pleased in the third quarter that the margin was a solid margin performer for us.

But a lot of that was driven because of new products.

As you know, all of our new products going forward are through our existing supply chain organization where we are much more efficient and have an overall purchasing power capability.

So we're very pleased with Ebel margins and how they're performing.

Clearly there's a lot of inventory that we acquired and those margins will be lower than we ideally would like them.

But our new products are being delivered where we expect them to be on a go-forward basis.

If I could just ask to follow up on that in terms of the advertising and the strategic initiatives that you put behind those new products.

Is there anything else specific that you can give us that happened in the third quarter that really went from where you were in the first half of the year?

I think it's really the first quarter where we got to deliver some of the new product that we introduced, and a very limited assortment of that, I have to add.

And then also that benefited from the advertising campaign that the Company put in place and really focused in our major markets around the world -- the US, the UK, Germany, Japan, and Switzerland.

And so I think we got some very good indications and very good positive reaction from consumers and retailers alike.

It's obviously a long-term process to turn around a brand.

And we're very gratified at the results that we have got so far but know that we still have a lot to do as we move forward next year.

And next year we're going to see, obviously, an accelerated number of new product introductions, as well as a continued focus on marketing to continue to strengthen and build Ebel as a true luxury brand.

Is there any way to quantify how many new products there are and how many you're going to be increasing that by next year?

We introduced very little this year; really only 1 product family, Sportwave.

And next year what we will be doing is revitalizing a number of the Ebel product families focused around the industry show at Basel, Switzerland in April.

So this year we introduced 20 SKUs.

Next year I think you are going to see 5 times that.

That's great.

Elizabeth Montgomery, SG Cowen.

This is Sarah O'Riley calling for Elizabeth Montgomery.

I had a quick question on what is the driving strengths of the core watch business.

You seem to be gaining share and I was wondering if you think that was driven by marketing, new style introductions, changes in the distribution?

Are you talking about any specific brand?

I didn't hear that.

Just the core watch business.

I think take our Movado brand is the dominant brand between the 500 and $1500 price range and is definitely continuing to increase its hold on that market.

And we see that in improved sellthrough with our retail partners.

And then our ESQ brand continues to gain market share and continues to perform extremely well with iconic product and really offering accessibly-priced Swiss watches; really building kind of its own niche, which we believe has a big opportunity.

And then our Tommy business is definitely gaining market share within the fashion watch category.

That is actually a business probably that has not grown, meaning the fashion watch category, and we've grown significantly.

So I think we're getting significant market share in that market on a global basis.

Thank you.

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I would like a hand it back over to our presenters.

Thank you very much.

I would like to thank all of you for participating in today's conference call.

We're obviously very pleased with the quarter and the first 9 months of the year.

I would also like to wish all of you a happy and healthy holiday season and thank you again for your participation.

Thank you very much for joining us today, ladies and gentlemen.

This concludes today's conference and you may now disconnect.