Movado Group Inc (MOV) 2005 Q4 法說會逐字稿

Welcome to the Movado Group Inc. fourth-quarter earnings conference. (OPERATOR INSTRUCTIONS).

As a reminder, this call is being recorded on March 23, 2005.

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

Go ahead, please.

Thank you.

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

With me today on the call are Efraim Grinberg, President and Chief Executive Officer, and Gene Karpovich, Chief Financial Officer.

Before we begin, I would like to refer you to our fourth-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 fiscal 2006 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 agenda for today's conference call.

Efraim will begin with an overview of our business, Gene will then review the financial details, and Efraim will return to discuss our operating initiatives, as well as our financial outlook for the new year.

We would then be glad to answer any questions you may have.

With that, I would now like to turn the call over to Efraim.

Thank you, Suzanne, and good morning, everyone.

I will be handling the call this morning along with Gene as our Chief Operating Officer Rick Cote is home recovering from a bad case of the flu.

The strong pace of our business continued in the fourth quarter and enabled our Company to conclude fiscal 2005 in an excellent position.

Our performance was broad-based, and our success can be attributed to the appeal of our diverse portfolio of brands that encompasses multiple channels of distribution, reaches multiple consumer demographics and offers some of the most well-recognized brands in the marketplace.

Fiscal 2005 was an exciting year for Movado Group with significant accomplishments delivered across our organization.

From a financial standpoint, we reported a banner year with our brands and our businesses delivering significant sales gains.

We maintained a strong gross margin even with a weakened dollar and a shift in the mix of our business.

We delivered double-digit percentage growth on the bottom line, even with the dilution of the Ebel acquisition.

We maintained a strong balance sheet with $64 million in cash at year-end.

We generated approximately $30 million in cash flow from operations, and we are pleased to have announced this morning a 25% increase in our quarterly cash dividend to $0.05 per share.

On the operational front, we successively integrated Ebel's worldwide business in the Movado Group, while keeping a steady focus on the disciplined execution of our base business.

We have leveraged the flexibility of our supply chain to support the expansion of our businesses while maintaining an appropriate cross structure for our products and protecting our gross margin.

We are very pleased with the accomplishments we have made towards compliance with Sarbanes-Oxley.

Strategically we strengthened our brand awareness and position in each area of the market in which we compete.

We have also enhanced Movado Group's portfolio with the addition of the Hugo Boss global watch license.

And in a few moments, I will touch on how we are positioning our organization to take advantage of our global growth opportunities.

First, let's take a look at some of the brand highlights in fiscal 2005.

Throughout the year, our flagship brand, Movado, continued to be a dominant force in the marketplace.

Movado delivered mid single digit revenue increases for the year and high single digit gains in the quarter, reflecting growth both domestically and abroad.

Retail sell-through was particularly strong in the fourth quarter as consumers responded enthusiastically to a renewed emphasis on our women's product assortment.

These introductions were reinforced with new executions of our high impact advertising campaign featuring Mia Maestro and Ashley Tuttle.

Outside of North America, Movado also reaped the benefits of a recovery in Asia along with its expansion in China.

Our Movado boutiques have truly elevated the Movado brand image, and we continue to build this business.

Throughout the year, our boutiques generated comparable store sales gains, and in fiscal 2005 this business recorded an 11% same-store sales increase.

In the fourth quarter, we reported a 3% comparable store sales gains on top of a 15% increase last year.

During the quarter, we also recorded a $2 million non-cash impairment charge on our Soho boutique, recognizing that this location has never fully recuperated from the events of September 11.

We will continue to operate this boutique.

With seven new openings in fiscal 2005, we currently operate 24 boutiques nationwide.

We anticipate opening an additional three locations this year -- Beverly Center in Los Angeles, Cherry Creek in Denver, and Walnut Creek in Northern California.

We have now owned Ebel for just over a year, and we are very pleased with the progress we have made to date.

The launch of Ebel's global advertising campaign has enabled the brand to reconnect with its consumers and to recapture attention in the marketplace.

A comprehensive marketing program, including an upgraded point-of-sale system and new packaging, now truly conveys Ebel's luxury status.

New product introductions launched in the back half of the year, including SportWave are only a sign of the many exciting things to come for this business.

In December Ebel started seeing increased sell-through as our initiatives began to gain traction.

And in the fourth quarter of this year, Ebel recorded a small profit.

Next week we will introduce an impressive array of newness and excitement across Ebel's product collections at Ebel's first real Basel fair under Movado Group's ownership.

Concord made significant strides in fiscal 2005.

As you know, we have worked hard to solidify Concord's luxury positioning in the marketplace, and our initiatives have translated into solid results.

This year Concord delivered double-digit sales gains in both the quarter and the year with a record performance in Japan.

The relaunch of the Delirium commemorating its 25th anniversary fueled global momentum and led to strong demand.

And our Style Defined advertising campaign continued to resonate strongly with consumers around the world.

We're very excited about the launch of our new Mariner collection which will debut in Basel and will be supported with new executions of our Style Defined campaign.

We're very pleased with the mid single digit growth that ESQ delivered in fiscal 2005.

Our team has worked hard to return ESQ to its roots as a leader in the entry-level Swiss watch category.

We have developed a strong brand identity with distinguished leadership products, and we have introduced our beautiful new displays and packaging to the market.

With all of the elements in place, we are placing a big emphasis on ESQ in the North American marketplace.

This spring we will introduce new dimensions of ESQ that will excite retailers and consumers alike.

New product families, along with expansions of our very successful Quest family will be standouts in the category.

We will also support ESQ with a brand-new bold advertising campaign that directly appeals to our target consumer.

The campaign features the tagline "ESQ and You" and ties people together with our products to make the brand come alive.

Our close partnership with Coach has enabled us to build a very successful watch business with one of the fastest-growing luxury brand names.

We experienced double-digit sales growth throughout fiscal 2005 with strong performances in Coach's key markets, the U.S., Japan and Japanese travel destinations.

Coach watch is well positioned for growth this year with terrific new products inspired by Coach leathergoods creative design.

We're especially pleased with the initial success of the recently introduced Scribble C collection, and we look forward to the launch of many other exciting products.

Tommy Hilfiger's growth exceeded 50% this year with excellent results both domestically and abroad.

We first launched Tommy watches in fiscal 2002 in North America.

Since then, this business has grown into a global operation, and at the end of fiscal 2005, Tommy reached $29 million in net sales.

This strong base of growth is a testament to our team, our strategies and appeal of the Tommy Hilfiger brand-name worldwide.

We continue to focus on new product introductions and building upon our strong presence in the fashion watch category.

We are seeing strong and increasing appeal for our brands in important markets around the world.

Recently we completed a project with an outside consulting firm to research, analyze and identify major international growth opportunities for each of our brands.

It is clear that the international arena presents excellent growth potential for our brands, but we will be prudent and targeted in our approach.

For Movado, we will place a strong emphasis on the fast-growing China marketplace where we have already established a fast-growing although still quite small business.

For Concord, there will be an increased focus on the Middle East and Asia, and for Ebel, we will take a broader more global approach with an initial emphasis on North America, Europe and the Middle East.

Clearly these are large opportunities.

In a few moments, I will discuss how we are strategically positioning our organization to support expansion and growth on a more global basis.

With that, I would now like to turn the call over to Gene.

Thank you and good morning, everyone.

We're pleased with our financial performance in the fourth quarter and for the full year ended January 31st, 2005 with double-digit gains in sales and profits.

We posted fourth-quarter net income of 7.2 million as compared to 6.2 million prior year.

This resulted in fully diluted earnings per share of $0.28, an increase 16.7% over prior year results of $0.24 per fully diluted share.

For the year, net income increased 15.1% to 26.3 million.

This translated into fully diluted earnings per share of $1.03, an increase of 12% over prior year's earnings of $0.92.

Increases in earnings per share for the fourth quarter and the year were achieved on top of an increase in our diluted shares outstanding of 1.8% and 2.8% respectively, primarily resulting from a higher average stock price.

Our fourth quarter and total year results were impacted by a few non-recurring events.

First, the $2 million non-cash impairment charge was taken on our Soho boutique in New York City.

In accordance with FAS 144, we determined that while improvements in the operations of the Soho boutique have been realized since September 11, 2001, our revised business plans necessitated the impairment at this time.

Second, the Company recorded tax benefits, which reduced the annual effective tax rate to 20.5% and to 5.4% for the fourth quarter alone.

The tax benefits included a favorable retroactive tax ruling, resulting in a cash refund of a portion of prior year's taxes and the benefit associated with the previously mentioned impairment charge.

The net effect of these two non-recurring fourth-quarter events was a reduction in operating income of 2 million and an offsetting reduction of tax expense with no material effect on net income or earnings per diluted share for the quarter.

Additionally in the second quarter ended July 31st, 2004, the Company recognized pretax income from a litigation settlement with Swiss Army brands in the amount of 1.4 million.

This increased annual earnings per share by $0.03 per diluted share.

The combination of these three non-recurring events for the fiscal year ended January 31st, 2005 was an increase in net income of .9 million or $0.03 per diluted share.

Now let me discuss the results for the fourth quarter.

Sales during the fourth quarter increased 29.4% over last year to 120 million.

Ebel accounted for sales of 17.3 million.

Sales in the wholesale segment increased 33.6% to 92.6 million.

Ebel accounted for 16.1 million of wholesale sales.

The domestic wholesale business was up 20.8% and excluding Ebel up 6.9%.

Tommy Hilfiger and Coach led the way with sales up a strong 30% plus over prior year.

Movado was up high single digits, and Concord and ESQ were below prior year.

The international wholesale business was up 85.9% year-over-year and excluding Ebel was up 24.3%.

Double-digit growth was recorded in Concord, Movado and Tommy Hilfiger.

The retail businesses posted a 16.8% sales increase over last year.

Total sales at Movado boutiques rose 49.3% in the quarter, and comparable store sales increased 2.9%.

The Company outlet store sales were below prior year by 2.6%.

Gross margin for the quarter was 71.6 million or 16.4 million above last year driven by our sales increase.

The gross margin as a percent of sales is 59.7%, including the impact of Ebel and compares to 59.6% last year.

Operating expenses for the quarter increased by 17 million from last year to 63 million.

Ebel accounted for 8.2 million of these expenses.

The principal reasons for the increase in expenses in addition to Ebel are spending in support of our Movado boutique expansion, the impairment charge related to the Soho boutique, and sales programs to support the increased sell-through at retail during the holiday season.

Operating income decreased 6.5% year-over-year to 8.6 million as compared to 9.2 million in the prior year period.

Excluding the non-recurring impairment charge, operating income was 10.6 million or a 15.4% increase over prior year.

Interest expense increased 56.3% to 1.1 million.

This is due to higher average borrowings for the quarter.

Our average debt for the quarter was 62.3 million, an increase of 17.3% from prior year reflecting the 20 million drawdown we made on our private shelf debt agreement in the third quarter of fiscal 2005.

As a result of the favorable tax benefits and impairment charge mentioned earlier, the tax rate for the quarter was 5.4%.

Turning now to our full-year fiscal 2005 results.

Net sales were 419 million or 26.9% above prior year.

Ebel accounted for sales of 45.4 million.

For the year, sales increases were recorded in all our brands and business segments.

Sales in our wholesale segment were 345 million or 28.1% above prior year.

Ebel recorded wholesale sales of 44.2 million.

The domestic wholesale business was above prior year by 14% and excluding Ebel up 7%.

Double-digit increases were recorded in the Coach and Tommy Hilfiger brands, and single digits increases were recorded in Concord, Movado and ESQ.

The international wholesale business almost doubled year-over-year.

Ebel accounted for 28.5 million in international wholesale sales.

Tommy Hilfiger sales increased 90.5% as a result of market expansion.

Coach, Concord and Movado were above prior year in double digits with the growth primarily recorded in Asia.

The retail segment increased 21.5% for the full year.

Comparable store sales increases of 11.2% were recorded in the Movado boutiques.

In addition, the increases were recorded as a result of our boutique expansion and a 3.7% sales increase in our Company outlet stores.

Gross margin for the year was 250.1 million or above last year by 49.8 million driven by higher sales volume.

Our gross margin as a percent of sales was 59.7%.

This is below prior year due to the impact of Ebel and the growth of the lower margin Tommy Hilfiger brand.

Operating expenses of 215.1 million reflect a 29.9% increase from prior year expenses of 165.5 million.

Ebel recorded operating expenses of 28.3 million.

In addition to Ebel, the increase is primarily due to increased spending in support of our new Movado boutiques, higher payroll and related costs, the $2 million Soho boutique non-cash impairment charge, added spending in Asia and Europe to support Movado and Tommy Hilfiger's expansion, and increased administrative costs, including Sarbanes-Oxley implementation.

Operating income for the full year was 35.1 million, which was slightly above prior year and includes the previously mentioned $2 million impairment charge.

Interest expense for the full year is 3.4 million or 12.7% above last year.

This is the result of higher average borrowings, which were 58 million or 14.9% above prior year.

The increased borrowings were to take advantage of the low long-term rates and to improve our capital structure.

Income taxes were recorded at a 20.5% effective rate due to the aforementioned tax benefits.

Now I would like to discuss our balance sheet.

Even with the all-cash payment for Ebel of 43.5 million and capital expenditures of 15 million, we were able to end the year with 63.8 million cash balance versus 82.1 million last year.

Accounts Receivable of 102.6 million increased by 13.8 million from last year.

Excluding Ebel receivables and the negative impact of currency translations, our Accounts Receivable is below last year despite our 13.1% base business sales growth.

The decrease is the result of our strong cash collections and a favorable mix of sales growth in Tommy Hilfiger and our Movado boutiques.

Inventories at 187.9 million increased by 66.2 million from last year.

The growth includes 41 million in Ebel inventories, 6 million in retail growth due to new store openings, 3 million as a result of currency translation and 16 million in base business inventory growth.

The base business inventory growth includes new product inventory for introduction at the upcoming Basel watch fair.

Our long-term debt is 45 million versus 35 million last year.

As I indicated previously, capital expenditures are 15 million, and depreciation expense is 12.6 million.

Our capital expenditures include the construction cost for seven new retail stores, the expansion of our headquarters in Paramus, New Jersey, and remodeling of some of our older retail stores.

Finally, we generated strong cash flow from operations of 30 million and over the past six years have generated over 175 million in operating cash flow.

Included in our cash flow from operations is a 2.7 million favorable impact resulting from the utilization of our acquired net operating loss carryforward related to Ebel.

This represents a cash return of 6% from our original purchase price of 43.5 million.

For accounting purposes, this is not reflected as a P&L gain, but rather as a reduction in our taxes payable and a decrease in our acquired goodwill.

In addition, as a result of our future projections of the ongoing utilization of the net operating loss carryforward, the acquired goodwill was written down by approximately 4.5 million, and a deferred tax benefit was generated, which will provide cash benefits in the future.

Our remaining goodwill from the acquisition of Ebel is approximately 2.2 million.

In summary, we are pleased with our financial performance in all respects, delivering a very strong P&L performance, maintaining a solid balance sheet and providing consistent generation of cash flow from operations.

Now let me turn the call back to Efraim.

Thank you, Gene.

In fiscal 2006, we continue to be focused on generating strong growth while delivering improved profitability and a steady focus on other key financial metrics.

We will seize opportunities for growth in each of our brands across our portfolio and in the global marketplace.

Now let me summarize our growth strategies.

First, we will continue to strengthen our brands with innovative new products and strong marketing support across our portfolio.

Second, we will capitalize on the fast-growing pace of our younger businesses, including the ongoing revitalization of Ebel, the worldwide growth of Tommy Hilfiger watches, the continued expansion of our Movado boutiques and the establishment of our newest business, Hugo Boss Watches.

Third, on the international front we have identified key target growth markets for each of our brands as we look to expand our portfolio globally.

In addition to these strategies, we have also identified incremental growth opportunities behind which we plan to invest significantly as we believe these opportunities will pay large dividends for our Company and our shareholders in the future.

First, accelerated growth for ESQ.

We believe ESQ is strategically poised to take advantage of opportunities we have identified in the entry-level Swiss watch category.

The combination of great products, comprehensive marketing support and the launch of the new "ESQ and You" advertising campaign in print, through its website and on TV will be prominent in the marketplace beginning this spring.

To support this initiative, we will dedicate an incremental $5 million in brand spending to ESQ in fiscal 2006 as we aggressively pursue growth with the ultimate goal of doubling ESQ's business in the North American marketplace.

Second, accelerated growth for Movado in China.

We believe China presents a strategic growth market for the Movado brand.

We see a large more affluent population emerging there and believe that Movado is an excellent fit for these aspirational consumers as it has proven to be in North America.

We have already experienced initial success in the fast-growing China market.

Looking ahead we plan to significantly increase our resources in China as we develop Movado into a major accessible luxury brand.

We also plan to continue investing behind the faster paced growth of our younger businesses, including our Movado boutiques and Tommy Hilfiger.

In our boutiques, we will continue towards our goal of reaching critical mass and converting this image building investment into a profitable operation.

In Tommy Hilfiger, we have significant growth opportunities in the U.S. and abroad through new markets, as well as expansion in existing markets.

In our newest businesses, Ebel and Hugo Boss, we have a lot to look forward to.

Throughout the year, we will intensify our advertising and marketing initiatives as we re-establish Ebel to its premier luxury status in the global marketplace and begin to bring the business to an appropriate level of profitability.

The Hugo Boss watch license is a great addition to our portfolio of brands, and we're very excited about the growth opportunities it presents.

We officially took over the business earlier this week and expect fiscal 2006 to be a transition year.

We have made and will continue to make investments in people and infrastructure to support this new business.

However, as this is a transition year, we would expect Hugo Boss Watches to not have a material effect from a financial standpoint in fiscal 2006.

To support our growth and the specific initiatives I've just outlined, in fiscal 2006 we will prudently increase our investment both domestically and internationally.

Infrastructure spending will ensure that our organizational structure, systems, processes and talent are in place to support the achievements of our Company's long and short-term business objectives.

With that, let me now turn to our financial outlook for fiscal 2006 and the first quarter of this year.

We believe we're well poised for solid sales growth across our brands and businesses with fiscal 2006 net sales projected to grow between 10 and 12%.

Gross margin is expected to improve from fiscal 2005 levels and be slightly in excess of 60%.

The improvement can be attributed in part to the full integration of Ebel and to Movado Group's supply chain organization.

Full-year operating expenses are expected to grow in line or slightly below sales growth as we make significant investments to support our organization for the future and to fund the specific initiatives which I outlined earlier.

Interest expense is also expected to increase approximately 15% in fiscal 2006.

We project our tax rate in fiscal 2006 to be 25%.

We also anticipate continued growth in our diluted shares outstanding of approximately 2 to 3%.

With all of these factors, we still anticipate growing earnings per share to between $1.15 and $1.21 versus $1.03 earned in fiscal 2005.

This fiscal 2006 guidance includes an approximate $0.07 per diluted share expense related to our Company's equity compensation, which consists of both stock options and restricted stock.

In fiscal 2007 we would expect our annual equity compensation charge to be in the $0.10 to $0.12 range.

We plan to adopt FAS 123-R Accounting for Share-based Payment in the third quarter of this year.

Fiscal 2006 EPS guidance assumes Ebel will be slightly accretive to earnings as its financial position improves and our revitalization initiatives begin to gain traction.

We will also continue to focus on productivity improvement and on improving cash flow through effective working capital management.

As a result, we project continued cash flow generation from operations at least commensurate with earnings.

Now I would like to provide you with our guidance for the first quarter of fiscal 2006.

As you know, the first quarter is our smallest in terms of revenue and profit.

As a result, the increase in our level of investments and resource building for future growth will disproportionately impact our first-quarter results.

Additionally we anticipate continued growth in our diluted shares outstanding of approximately 2 to 3%.

Therefore, we would expect first-quarter bottom-line results to range between a loss of $0.03 and a profit of $0.03 versus earnings per share of $0.03 achieved last year.

All of the guidance I have just provided excludes any potential impact associated with the American Jobs Creation Act, which we are currently evaluating this opportunity, and we plan to make a decision during the first half of the year.

Of course to the extent that we repatriate any international earnings, we would incur a onetime income tax charge.

We would now like to open the conference call for questions.

(OPERATOR INSTRUCTIONS).

Chris Baumann (ph), Morgan Joseph.

Good morning.

It is Carole Cranmer.

Congratulations on a good year.

A couple of questions.

One, thank you for providing guidance for the quarter and for the year.

I wonder if you could comment, as you say that Ebel will be slightly accretive this year, should we think of that in terms of any dilutive impact in the smaller first and second quarters and accretive impact in the second half of the year?

And on a separate issue, a question with respect to your retail stores, if you could just remind us where you see critical mass and profitability being achieved in the boutiques?

Sure.

We believe that Ebel will be slightly accretive to the Company this year and mostly in the second half of the year and probably a small loss in the first half of the year.

But it will be slightly accretive for the whole year.

On the retail side, we believe 30 stores are about critical mass.

We will be at about 27 at the end of this year.

And that is 30 stores that have been open for more than a year because they do take a little while to ramp up.

Are you pleased with the performance of your other stores across the board?

We're very pleased with the performance of the stores.

We had a good comp store sales gain for the year, and we are very excited about the new product introductions that we will have throughout the year this year.

Susan Ng, Sidoti & Co.

I have a question.

I don't know if you mentioned the CapEx projections for this coming year?

I know that this year that just completed was about 15 million.

Do you have an idea of what it will be for this coming year?

Yes.

Our projections for the upcoming year are in the neighborhood, in the range of 12 to 15 million.

Somewhat in line with the year that just --

Similar to where we have been, right.

Okay.

And can you provide some more details about the Hugo Boss license?

I know you mentioned it is a little premature, and it is probably not material for this year.

But in terms of the lines, you are planning to develop an introduction in terms of regions.

Sure.

Well, we are very excited about the Hugo Boss watch license as it represents a real global opportunity for the Company.

And as you can tell, a lot of our focus is also now on becoming more global and on our international growth opportunities.

But it also presents we believe a real major opportunity in the upper end of the fashion watch category, and really different than anything else we have given Hugo Boss' really modern design sensibilities that we believe will present exciting design opportunities for product as well.

And when again were you planning to launch the first --?

Our first real collections that will be launched under Movado Group's ownership will be in Basel 2006.

We will transition the current assortment that they have throughout this year.

But our first new product introductions will be in Basel 2006.

And can you talk about the market itself?

What kind of trends you are seeing?

The growth seems pretty phenomenal in terms of luxury and high-end.

Can you talk about what you're seeing out there and what styles are more popular I guess?

We have seen really I think exciting growth over the last year and opportunities both domestically and internationally.

Both -- probably also in several extremes at the high-end of the market has been good, but so has been the accessible luxuries.

More people aspire to own luxury, so that has really been driving growth behind brands like Movado and Coach.

And then also opportunities have seemed to be very strong in the fashion watch market, especially in Europe as that market has taken hold in the European marketplace.

For Tommy and Coach, can you break down again what percentage is U.S. versus international?

Gene will get that in a second.

For Coach it is about 60% -- 70% U.S., 30% international.

And then for Tommy, it is about 60% domestic and about 40% international.

So 60/40?

Yes. 40% domestic, 60% international for Tommy.

Okay.

There still seems as you mentioned a good opportunity for international growth for both of them.

Absolutely.

Thanks for taking my questions and good luck.

Melissa Otto, DE Research.

Congratulations on a good quarter.

Nice end to the year.

Just a question on the SG&A.

It looks like for the fourth quarter it was a little bit on the high side from some of the initiatives you guys have got going on, and I was just wondering if you could give a little bit more color on the SG&A going forward for the next couple of quarters, and what sort of expenses we can expect coming into the flow?

Well, we obviously continue to invest strong marketing support behind our brands.

I think one of the things that in the fourth quarter, as Gene mentioned, there was a non-cash impairment charge that drove up the percentage in the fourth quarter.

And I think I highlighted earlier in my comments that we will invest this coming year in incremental support to the ESQ brand, as well as continuing support of our new boutiques and the incremental cost of opening those boutiques as well, as well as our international growth opportunities with a major emphasis being in China for Movado, as well as the continued development of the Ebel brand on the international front.

Pamela Brown, Gabelli.

I just want to get your sales projections for the next year.

I'm thinking about kind of the mix with Ebel coming into the year -- this year was 45 million -- how you are going to expect to grow that with the new product developments?

I think we expect to have healthy growth in Ebel, but it will probably be slightly better than the brand average -- than the Company average, and really because probably most of the new product will be delivered in the back half of the year.

Okay?

But we believe that this has fantastic long-term growth opportunities for the Company, and this has proven to be an excellent acquisition for us as well from a financial perspective.

Sure.

Okay, that is helpful.

Also, I wanted to see if you had any near-term plans outside of your CapEx for your growing cash in terms of --?

Not right now.

We did increase our dividend this morning, and we announced that as well.

Yes.

And also I wanted to think about your working capital in terms of now that you have built your inventory for Ebel, how we should see that going forward?

Yes.

Certainly the way we are looking at it is we see our working capital, especially our inventory, growing at a rate in the future far less than our sales growth.

It's an opportunity for us going forward, especially with Ebel and all of the inventory that we acquired.

Receivables, as I mentioned in my comments, we are doing a great job.

And certainly maintaining receivables below our sales growth is still our target, and it has been an excellent performance.

Thank you very much.

David Taylor (ph), David P. Taylor & Company (ph).

Could you expand a little on your vision for Hugo Boss?

I guess I am a little confused.

You talk about the high-end of the fashion business, and yet when I search the net for Hugo Boss Watches that are current -- obviously made by the former licensee -- they are like $500 the manufacturer's suggested retail, which to my mind is well above the fashion watch --

That is right.

We will position Hugo Boss between $200 and $500, which is the high-end of the fashion watch market.

We will bring the opening price point down, and the beauty of -- this is a major global brand.

It is a $1.5 billion company.

Its largest markets are the U.S. and Germany, Germany being the largest, which is the parent market for the brand.

And both of those markets are really markets where the Hugo Boss watch brand was never distributed.

So we see a major opportunity really beginning next year with this brand.

It's a great brand.

It has great brand equity.

It offers great value to the consumer.

And in fact, one of our feelings was that the previous products -- so I think you hit the nail on the head -- was that the previous products were too highly priced for the category that Hugo Boss watches belong in.

Did you acquire the inventory of the former licensees?

No, we did not.

How were you supplying watches during this transition?

We have an agreement with Hugo Boss that as we need to acquire inventory to supply to the distributors and the markets we do that.

So Hugo Boss owns the former licensees inventory?

It's a combination of several entities that own the product, okay?

Okay, and you don't have the --?

No, we did not acquire inventory.

Or receivables?

No receivables, no.

We did not acquire business.

We entered into a new licensing agreement.

Okay.

When you acquired Ebel, which is I guess what about 15 months ago now, the 10-KA -- it was not a 10-KA -- the 8-KA noted that there was a $50 million reserve against Ebel's inventories as acquired from Louis Vuitton, and I have been very curious about that reserve ever since I saw that.

Has there been any change in the status of that reserve or how you view the merchandise that has been reserved?

Well, first let me just correct one thing.

It actually may seem like 15 months ago.

We only acquired Ebel in March of last year, so it is actually only a year.

We had announced it 15 months ago.

Okay.

Gene, on the inventory reserve --

The inventory reserve is -- it is still the same as it was when we acquired it.

There is a lot -- a mass amount of subcomponents that Ebel owned in their manufacturing facilities.

And basically we have not yet had the opportunity to weed through all that stuff, but we certainly anticipate that a lot of it we're just going to throw away.

But we have not used any of the reserve thus far.

Okay.

And my last question revolves around same-store sales.

The fourth-quarter numbers, at least to my way of looking at it, were somewhat disappointing.

I guess you were flat between the two chains.

Is there a problem there?

Is it something you are addressing?

Not really, not at all.

Let me start with the outlet stores.

We are you know -- we're very committed to doing our transition in our company stores in a very orderly way, and we protect our gross margins.

So when the market gets competitive there, we don't drive that market.

And in the other, in our boutiques, we are basically committed to sticking to the strategy that we set out.

We did pass price increases which did have a certain impact on sales to cover increased costs in material costs protecting our margins.

As you know, we are very focused on gross margins and investing in this business for the long-term.

So we were pleased with the overall results of the boutiques for the year.

Is your goal to have higher than fourth-quarter levels of same-store sales going into the current fiscal year?

Our goal for the fiscal year is probably to have mid single digit same-store sales growth for the boutiques.

Okay.

And sort of related to that question, the New York -- the SoHo store, how much longer do you have on that lease?

I think it is five more years with options.

But that area never recovered from the events of September 11th, and we decided to take that it was required at this time that we take the impairment charge.

What was the $2 million?

Was it leasehold improvements?

Yes, it is primarily leasehold improvements and some key money that we needed to pay on the front end.

Suzanne Sansberry (ph), Miller Tabak.

Thank you.

Going back to inventories, would you be willing to quantify the year-on-year growth objectives that you have for inventories this year?

You said they were going to be far less than the sales growth.

Yes.

We are certainly looking to inventories growing in the 8 to 10% range rather than the 10 to 12% main sales growth.

Another question on the raw material cost front.

How much did -- what type of raw material cost pressures did you incur last year?

What is the forecast for the current fiscal year?

And correspondingly how much do you think you had to increase average unit retail to hold your gross margins?

How much do you think you're going to have to do the same for in the current fiscal year?

The raw material costs were really in our boutiques because where we buy gold and diamonds, and that had an impact last year probably of 8 to 10%.

We don't see it having an impact this year.

No impact?

Right.

Okay.

And finally, can you give us a brief outlook on currency?

Is it going to be plus or negative?

Well, obviously we have -- we are impacted by currency, but we do have a very comprehensive hedging program in place, and we are comfortable with the gross margins that we outlined earlier.

Richard Friary, Delphi Management.

Well, most of my questions were just answered.

But can you just give me an update on duty-free?

Has anything changed there both in the Caribbean and the Far East or with the Asian customers?

We have had excellent results in the fourth quarter in our duty-free businesses.

In the Caribbean and Mexico, we also have a substantial duty-free business as well, and we had excellent growth in our duty-free business in the Far East, which is predominantly our Coach business.

You also mentioned the number of boutiques you're going to open this year.

But I may have missed this, but did you give a same-store sales forecast for the boutiques?

Somebody had asked the question, so we did say that we expect same-store sales to be in the mid single digits.

Right.

Sorry, I must have missed that.

And what about business from Middle East customers?

How is that doing?

Business in the Middle East is very strong.

David Liebowitz, Burnham.

Let me add my congratulations for a fine quarter.

A couple of items that seem to be incomplete in the answer.

On the foreign currency, how much was your translation gain in the year just ended, and b), how much are your hedging charges against it?

Well, let me answer the first question.

The net of our translation was immaterial.

It was far less than a penny.

And how much does it cost you to put on your hedging programs?

I think it varies by year and by quarter, and it is built into the cost of goods sold.

So it flows through the gross margin.

Okay.

Second of all, I heard you say that on inventory you plan to be up 10 to 12% this year.

Is that off of the current base of $188 million?

What we said -- what I mentioned was 8 to 10% below our 10 to 12% sales growth, and it would be off the current base.

And how much of that is Ebel?

We don't necessarily look at it by brand, but certainly Ebel because of all the newness that we're introducing, you know Ebel will grow without a doubt.

And your receivables, how much of a reserve is there against it this year versus a year ago?

David, we usually don't disclose that.

I mean certainly we will publish in our 10-K our bad debts and other receivable reserves, and we usually don't disclose that at this time.

Okay.

And in looking the company-owned stores, what is your markdown policy, and do you move merchandise between locations?

What you mean by moving merchandise between locations?

That if the product is selling well in a certain region, it's not selling well in a current region, you'll have the --?

Yes.

We obviously adapt our boutique's merchandising strategy according to the market and the level of performance of the stores.

And in terms of our boutiques, you know we have very very limited markdown policies.

Arnold Brief (ph), Goldsmith & Harris.

Could you review -- I'm a little confused over the inventory situation.

As I understand it, $46 million of the increase in inventory last year was due to Ebel, which has a $50 million reserve and did 45 million in sales.

Could you discuss that Ebel -- you did indicate a lot of it was components that you're going to just chuck out.

But -- (multiple speakers) the quality of that inventory, and I assume it goes up with sales, but it also should go down substantially as you get rid of that inventory.

Why is Ebel inventory still rising?

One second.

The 46 million -- the 41 million of inventory is net of the reserve.

Okay?

So we do expect to reduce some of that 41 and then add incrementally new product.

But we don't expect really any major growth in Ebel inventory this year.

We actually acquired almost 100 million in gross inventory.

So you have worked off a substantial amount is what you are saying?

No, no.

There's a $50 million (multiple speakers)

Have you worked off any of the old inventory?

Of course, of course.

I mean again until we had the opportunity to redesign the products, it was all the old inventory that we were selling in the early parts of the year.

Am I wrong but the reserve now exceeds the current inventory at Ebel?

I don't want to get confused.

We still carry roughly 91, 92 million post-inventory and have a 50 million reserve against it.

I think that should clarify it.

It has a substantial inventory reserve against a large inventory.

Well, okay.

What is left after the reserve is still almost equal to sales?

Yes, it is.

That is right.

We expect to increase sales and over the next two to three years bring the inventory in line for Ebel.

Okay?

But one of the substantial things that we acquired in Ebel was inventory.

Really predominantly that was the acquisition price of Ebel was in the inventory.

So transition from inventory that is not usable to inventory that can be sold?

Right and transitioned from inventory -- we believe that the big cash opportunity in Ebel over the next two to four years to generate cash from the inventory and --.

This was an excellent acquisition for the Company in a number of different perspectives, and one of them was the substantial inventory that we acquired but that we need to move through in an orderly transition.

Can you tell us how much of the inventory is finished product?

Of the 40 million?

Of the 91 million.

I think you have to look at the $40 million net number, and of the $40 million net number, it is predominantly over half of it is finished product.

And the other components that can be finished into products.

Okay.

Could you give us some feel on how the boutique stores did in theory?

As you add stores, the losses from that operation decline.

On the other hand, you did have opening expenses of more stores last year.

Did the operating losses from the boutiques go down last year?

They did decline slightly over the past year, and we expect them to decline further this year.

The decline this year should be better since you have less opening expense?

That is right.

My last question, and I hate to do this on the phone, but I'm a little confused.

If you look at last year's $1.03 and you take out litigation and impairment and taxes and Ebel's losses, you were $1.11.

If you look at your projection, take a mid-range point before the stock options, you're up about $1.25.

With Ebel's losses going down and the Movado boutique losses declining a little bit more than they did last year, it would look to me like your core business is increasing earnings under, well under 10%, maybe in the 6, 7, 8% area.

Is there a reason for that?

Is it going into investment spending for expansion this year?

Are you using the swing in Ebel and the boutiques to fund product support?

I think -- I think -- let me answer your question.

We looked -- there were increases -- we should be increasing earnings this year after adding back the Ebel losses and removing the equity compensation from the equation of anywhere from 10 to 15%.

And as I think I highlighted earlier in my remarks, I think we are very pleased with that type of growth given the fact that we are going to continue to invest in the long-term growth opportunities for the Company.

I think I highlighted those that we were going to continue to put a major investment behind ESQ, our international growth opportunities where we have experienced substantial growth over the last year in Movado in China, Concord in the Far East, in the Middle East and then also behind Ebel and its global opportunities.

(OPERATOR INSTRUCTIONS).

Pamela Brown, Gabelli.

They were answered.

Thank you.

(OPERATOR INSTRUCTIONS).

Arnold Brief.

Could you just -- I know it's a minor increase -- but the depreciation for this year?

You gave the capital expenditures and not the depreciation.

I mentioned that it was 12.6 million.

Last year?

This year?

For the upcoming year, about the same.

About the same?

Yes.

It appears we have no further questions at this time.

I would like to thank all of you for participating today and for your continued support.

We are obviously very pleased with the results for both the fourth quarter and our fiscal year, and we are looking forward to fiscal 2006 being another excellent year for our Company.

Thank you again for your questions and for participating today.