Movado Group Inc (MOV) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

My name is Nelson and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Movado Group's third-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to your host, Suzanne Michalek.

Ma'am, you may begin your conference.

Good morning, everyone, 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 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 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 preventing future estimates at any time.

During the course of today's conference call, management may present certain non-GAAP figures.

For a reconciliation of these figures along with information required under SEC Regulation G, please view our earnings press release which has been posted on our website at www.movadogroup.com.

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

Efraim will begin with the highlights of our third-quarter results.

Gene will then review the financial details and Rick will provide you with an update on our growth initiatives along with our financial outlook.

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.

I hope you all had a great Thanksgiving holiday.

In a period that presented several challenges including hurricanes and high-energy prices, we are very pleased today to announce solid third-quarter and nine-month results.

While Hurricane Katrina did not really pose a factor on our Company, Hurricane Wilma, which affected the Caribbean, Southern Florida and Mexico, did impact some of our businesses.

We are working closely with our retailers in these markets as the situation stabilizes and begins to improve.

Nevertheless during the third quarter, the power of our diverse portfolio of brands coupled with the focused execution of our business fundamentals enabled our Company to deliver a strong 12% increase in sales on top of a 26% increase last year and an even stronger 19% increase in operating profit.

Now let me turn to some of the brand highlights during the quarter.

The strength of Movado continued in the third quarter as the brand posted high single-digit percentage growth.

During the quarter we delivered a tremendous amount of newness including the successful launch of Vivo, an exciting lady's bangle, and Strato, which features an advanced patent pending setting.

We also relaunched the Iconic Museum Classic in a larger size in line with today's style and trend.

New product introductions during the quarter were tied in closely with our advertising campaign as we worked together with our Movado brand ambassadors to reinforce the brand's luxury image.

For example we introduced Fiero, a scratch proof hard metal watch which was promoted with limited edition timepieces etched with Wynton Marsalis' signature; and Movado SL, an evolution of the SE, epitomizing sport luxury with launch with the powerful presence of Pete Sampras.

During the quarter we also continued to focus on strengthening Movado's distribution network, which will allow each of our retailers to become more productive while further reinforcing the appropriate brand image for Movado.

By now you have likely seen the strong and powerful presence of Movado in the marketplace, sparking excitement with consumers and retailers as we enter the important holiday season and we look forward to building on Movado's momentum with the introduction of national television spots which just began running this past weekend.

The strength of the Movado brand was also seen in our Movado Boutique's during the quarter.

Though Hurricane Wilma did affect some of our locations including boutiques in Boca Raton, Aventura and Dadeland, we are very pleased with the 10.6 comparable store sales gain generated by this business.

The initiatives we have taken to develop and strengthen our Movado Boutique business including bolstering our management team to support our now 27 boutiques nationwide are translating into results.

During the third quarter we introduced a significant amount of newness in our boutiques with an emphasis on yellow gold and diamond fashion jewelry.

New products include the Trembrili collection as well as additions to existing families.

To support these introductions, we launched a new direct-mail vehicle in September featuring a portfolio of postcards focused on key items and tied in with Movado's brands ambassadors.

Just last week we dropped a beautiful new holiday catalog just in time for the important shopping season.

Additionally during the quarter we relocated our boutique in short hills to a larger and more prominent location in the mall.

This location is the first in the New York metropolitan area to feature our current boutique design.

The store is truly beautiful and I encourage all of you to visit as you do your holiday shopping.

As we enter this important season, we are well-positioned and ready to execute in all of our boutiques with a terrific and full assortment of jewelry, watches, tabletop and other gift giving items.

Turning to Ebel, we have made great progress towards returning Ebel to its true global luxury brand status.

Our strategy of returning Ebel to its roots through its product, its marketing material, and its advertising campaign is beginning to bear fruit.

In the third quarter we launched two important collections, the 1911 series and a brand new family, the Ebellissimo.

Both of these collections showcase Ebel's technical expertise and fine watch making capabilities with the exclusive use of mechanical movement.

We continue to support Ebel in the marketplace with a powerful global advertising campaign featuring Claudia Schiffer.

Additionally, I'm very pleased to announce that beginning in the spring of 2006 we will introduce Supermodel Gisele to the Ebel brand.

The new global advertising campaign will now feature the powerful combination of two of the most beautiful women in the world who truly embody the beauty and sensuality of Ebel.

Concord experienced a challenging third quarter.

One bright spot was the recent introduction of the Mariner collection, which was well received by retailers and consumers alike.

While the midprice level luxury market has been tough overall, we believe now is the right time to better differentiate Concord's positioning and image.

Concord, established in 1908, has been in our portfolio since 1970 and has since grown into approximately 10% of our overall revenue.

We are committed to restoring Concord to its strong position in the luxury market.

Our Company has a successful track record of rebuilding brands including Movado, ESQ, and most recently Ebel.

While we're just now entering the planning phase for Concord, initially we plan to shrink the Concord business and rationalize its expense structure as we position the brand for long-term healthy growth in the future.

A key first step toward rebuilding Concord will be to conduct in-depth consumer research.

We will continue to take the appropriate actions and communicate them to you as we move forward.

ESQ recorded strong double-digit increases in the quarter as we continue to build this brand into a leader in the entry-level Swiss watch category.

Our strategy of delivering distinct Swiss leadership products at sharp price points into a category that has previously been lacking is on target.

During the quarter we launched a number of new products for men and women including Bracer, a new sport elegant timepiece.

Our new fall creative for the ESQ&U advertising campaign was first launched in May of this year and the new ESQ website was launched in September to enhance consumers overall experience with the brand.

We are also launching a new ESQ&U television commercial to reinforce our holiday advertising campaign.

ESQ is poised for a strong holiday selling season and is demonstrating a great potential as we move towards our goal of doubling the size of this business in North America.

Coach's distinct accessible luxury proposition continues to resonate strongly with a loyal consumer base both in North America and internationally.

During the quarter our Coach watch brand delivered a mid single digit sales increase in line with the philosophy of the Coach brand, we closed approximately 200 doors in the third quarter to increase productivity and these actions led to strong double-digit sellthrough rates per door.

Fashion newness continues to drive our coach watch business and during the third quarter we experienced strong deliveries of new products including the new studio signature.

We also introduced a new gallery signature watch in a fashion size with five interchangeable bezels which is captured in a beautiful product shot and featured in our advertising campaign.

Our strong product focused advertising campaign will continue to run throughout the holiday season and we will also participate in some high impact media vehicles including outdoor advertising in New York City.

Also in the fourth quarter we plan to deliver even more bold new products as we continue to closely partner with Coach to align and maximize our product offering with the Coach customer.

We are very pleased with the growth generated by our Tommy Hilfiger watch business in the quarter, especially considering the uncertainty surrounding a potential sale of the Tommy brand.

During the quarter, our Tommy watch business delivered a low double-digit sales gain.

The domestic fashion watch business has remained challenging; however, Tommy's international business remains strong particularly in Europe and Latin America.

During the quarter we introduced Naples, a ladies fashion model with genuine Swarovski crystals and Riverside, a sport model introduced for both men and women.

Our new advertising campaign features both of these products and integrates them into the Tommy Hilfiger lifestyle.

In the fourth quarter we are intensifying our merchandising efforts at the point-of-sale including shop in shop locations in certain international markets.

Our team continues to prepare for an exciting launch of our new Hugo Boss watch collection at the annual watch and jewelry fair in bottle Basel, Switzerland in March of 2006.

Internationally we are already developing excellent relationships with appropriate retailers to ensure a strong distribution network for the brand.

Hugo Boss is a powerful global brand and we look forward to building the watch business into a significant contributor to our Company.

Finally we recently announced that we have entered into an exclusive global licensing agreement with Juicy Couture.

Juicy Couture is one of the fastest-growing brands in the upscale contemporary category.

With the support of Liz Claiborne, Juicy is becoming a global status brand with great innovative products introduced across many product categories.

While already the brand has made major inroads in becoming a leader in accessories including handbags priced between 100 and $800 and jewelry priced between 25 and $300.

Most recently, Juicy Couture was a recipient of the 2005 Accessories Council Excellence Award.

We look forward introducing our Juicy collection in the fall of 2006.

As we enter the important holiday selling season, our brands are distinctly positioned at retail, in print and on television.

Together with terrific products, innovative advertising campaigns, and comprehensive marketing programs, we are delivering a great amount of excitement in the marketplace which should drive consumer purchases during the important gift giving season.

Our strong financial position enables us to fully support and develop our strongest asset, our brands, as well as to continue to execute our growth initiatives.

I would now 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, 2005.

Sales for the third quarter were 141.7 million or 11.6% above prior year.

Sales in the wholesale segment increased 10% to 121.9 million.

The domestic wholesale business was 93.3 million or above prior year by 10.1 million or 12.1%.

Movado and ESQ brands increased by 4.4 million and 3.1 million respectively, primarily the result of increased demand from our chain and department store customers.

Ebel sales increased by 2.6 million primarily due to the sell-in of new product introductions.

Sales in the international wholesale business were 28.6 million, above prior year by 1.1 million or 3.8%.

Tommy Hilfiger and Ebel had increases of 1.7 million and 0.6 million respectively, driven by sales in Europe.

Concord was below prior year by 1.4 million primarily due to reduced sales in the Middle East.

The retail business posted a 22.2% increase over last year to 19.8 million.

Movado Boutique sales increased by 33.1%.

This was the result of a 10.6% comparable store sales increase along with sales volumes from 10 noncomparable stores year-over-year.

The Company outlet stores recorded a sales increase of 16.4% above prior year.

At October 31, 2005, the Company operated 27 Movado Boutiques and 29 outlet stores.

Gross profit for the quarter was 86.2 million or 9 million above last year, driven by our sales increase.

Gross profit as a percent of sales is 60.8% compared to 60.7% last year.

Our operating expenses were 67.2 million, above prior year by 6 million or 9.8%.

The principal reasons for the increase are added spending to invest in the Company's strategic growth initiatives.

This included higher marketing expenditures of 2.1 million, added spending of 1.6 million in support of the retail expansion, and increased people related infrastructure cost of 1.4 million.

In the third quarter we recorded two unusual events.

First, we recognized a pretax 2.6 million gain on the sale of a building we acquired from Ebel last year.

The gain was recorded as other income.

Second, we recorded a charge to other expense of 1.6 million related to our foreign currency hedging activities.

Our corporate policy enables us to hedge our expected Swiss franc denominated purchases for up to two years.

Under accounting standards, the hedge derivatives must be designated to a specific period when the future purchases are expected to occur.

A portion of our forecasted purchases were no longer probable of occurring during the designated periods.

Therefore the unrealized losses associated with these derivatives were charged to other expense in the current period.

Interest expense is 1.2 million or 0.3 million above prior year.

Our average debt for the quarter was 88.8 million or 25.5 million above last year.

The higher borrowings is a result of the issuance of 20 million of new senior promissory notes in the third quarter last year.

Our average borrowing rate is 5.2% versus 4.7% last year.

This higher rate is the result of the mix of our borrowings with the greater portion related to the higher long-term debt rates as well as a general increase in short-term interest rates.

Income taxes were provided at a 25% effective tax rate for both years.

As reported, net income increased 24.5% to 14.1 million versus 11.3 million last year.

Earnings per diluted share rose 22.7% to $0.54 versus $0.44 last year on slightly higher average diluted shares outstanding.

The aforementioned unusual items recorded in the other income and expense line benefited earnings per diluted share by $0.03.

Looking now at the year-to-date results, sales for the nine-month period were 344.8 million or 15.3% above prior year.

Sales in the wholesale segment increased 15% to 290.2 million.

The domestic wholesale business was 215.8 million, above prior year by 26.7 million or 14.1%.

Ebel sales grew 9.3 million, which reflects the sell-in of the new product introductions.

Movado and ESQ brand sales increased by 8.7 million and 5.81 million respectively.

The international wholesale business was 74.4 million, above prior year by 11.1 million or 17.5%.

Ebel and Tommy Hilfiger recorded increases of 6.7 million and 4.2 million respectively, primarily driven by sales in Europe.

Concord was 1.2 million below prior year, primarily due to weaker sales in the Middle East.

The retail businesses posted a 17.3% increase over last year.

The increase was driven by an overall 29% increase in Movado Boutique sales.

This was the result of a 5% comparable store sales increase along with sales volume from non-comp stores year-over-year.

The Company outlet stores recorded an overall sales increase of 10%.

Gross profit year-to-date was 209 million or above last year by 30.5 million.

Gross profit as a percent of sales is 60.6% or 90 basis points above last year's 59.7%.

Our operating expenses were 175.6 million, above last year by 23.5 million or 15.5%.

The principal reasons for the increase are increased marketing spending of 8.1 million; increased spending to support our retail expansion of 4.9 million; and higher compensation and related costs of 4.2 million.

Other income and expense includes the unusual items recorded in the third quarter of this year, which I mentioned earlier.

In fiscal 2005, we recorded other income of 1.4 million, which represents a onetime gain on a legal settlement with Swiss Army brands.

Interest expense for the nine months is 2.9 million or 0.5 million above prior year.

Our average debt is 71 million versus 56.7 million prior year.

Our average borrowing rate is 5.3% versus 4.7% last year.

Taxes were provided at a 25% effective tax rate in both years.

As reported, net income increased 23.7% to 23.7 million versus 19.1 million last year.

Earnings per diluted share increased 21.3% to $0.91 versus $0.75.

The unusual items recorded in the nine-month periods of both fiscal 2005 and fiscal 2006 benefited earnings per diluted share by $0.03.

Now taking a quick look at our balance sheet, our cash as of October 31 is 56.1 million as compared to 35.9 million last year.

Accounts receivable of 144.5 million increased by 6.6 million from last year.

This reflects an increase of 4.8%, which is less than our sales growth of 15.3%.

Inventories of 211.4 million increased by 18.6 million from last year.

The increase is comprised of 3.7 million for retail expansion and increases of 21.8 million across virtually all brands.

These increases were somewhat offset by the favorable effect of 6.9 million resulting from translating our Swiss inventory with a stronger U.S. dollar.

Our short-term debt is 44 million versus 16.3 million prior year.

Capital expenditures year-to-date were 10 million and depreciation expense was 10.3 million.

Our capital expenditures were primarily used for the buildout of our retail businesses, renovations of existing retail stores, hardware and software purchases, and the continued automation of our distribution facility.

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

Now let me turn the call over to Rick.

Thank you, Gene.

Good morning, everyone.

We are pleased to have delivered strong increases in sales and profits in the third quarter even as we continue to invest behind our brands and businesses.

Throughout fiscal 2006, we have prioritized our initiatives and focused on key areas where we have identified significant growth opportunities that require an increased level of investment.

First, we are investing strongly behind ESQ to take advantage of opportunities in the entry-level Swiss watch category.

Second, the faster paced growth of our Boutiques and Tommy Hilfiger businesses demands continued investment.

Third, we are also significantly investing in our newest businesses, Hugo Boss and Ebel.

As you know, fiscal 2006 is a transition year for Hugo Boss watches and we continue to invest behind this business as we position the brand for a major relaunch after Watch and Jewelry Fair in Basel Switzerland in 2006.

Turning to Ebel, we are making great strides toward re-establishing Ebel to its premier luxury status in the global marketplace and we continue to work toward building this business to an appropriate level of profitability.

Our efforts have been met with great enthusiasm in the market and as a result, this year Ebel will be slightly accretive to the bottom line.

We are also very pleased that during the quarter we closed on the sale of a building which was originally acquired with the Ebel business.

We received $4 million of cash proceeds for the building, which represents approximately 10% of the Ebel's total purchase price.

Finally as Efraim mentioned, we have entered into a global license agreement with Juicy Couture.

Our plans call for the new collection to launch in the fall of calendar 2006.

Leading up to launch we will make appropriate investments in people and infrastructure to support this business.

Now let me provide you with some guidance on our financial outlook for the full year fiscal 2006.

We now expect consolidated net sales to grow approximately 12% to $470 million.

Fourth quarter sales are expected to grow in the mid single-digit range as we compare against strong sales growth of 29.4% last year and as we plan to uncord sales down accordingly reflecting the initial stages of rebuilding the brand.

Additionally we expect slower sales from these markets impacted by Hurricane Wilma as these areas begin to recover.

Finally, our fourth quarter sales projections reflect the anticipated negative impact resulting from currency translation of our international sales due to the strengthening of the dollar.

We expect to maintain strong gross margins for the year in the 60.5% arena.

In terms of operating expenses, we will continue to be aggressive in supporting our brands and businesses primarily due to the investments I previously discussed.

Operating expenses are expected to grow in line with our sales growth for the year.

Nevertheless earnings growth is expected to outpace sales growth.

Accounting for all of the factors I just discussed, we continue to project fully diluted earnings per share for the year to be at the upper end of the $1.18 to $1.24 range versus $1.03 earned in fiscal 2005.

Included in our guidance is an estimated $0.05 per diluted share expense related to the equity compensation of restricted stock.

Beginning in fiscal 2007, we will expense options in accordance with FASB 123R.

As a reminder, last year's earnings of $1.03 per diluted share included a onetime gain of $0.03 per diluted share associated with a legal settlement that the Company reached with Swiss Army brands.

Fiscal 2006 EPS guidance does not include the net gain associated with the two unusual items which Gene mentioned previously.

That will record in the third quarter of this year.

Additionally this guidance excludes any potential impact associated with the American Jobs Creation Act of 2004 which we continue to evaluate.

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

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

(OPERATOR INSTRUCTIONS) Carole Cranmer, Morgan Joseph.

It's nice to see such a strong quarter.

Could you give us some more detail on Ebel's sales as you have done in past quarters?

We have had -- obviously as we turn around the Ebel brand and as we look at it for a nine-month period, our Ebel business has grown in excess of 60%.

And now represents for nine months a little bit north of $38 million.

Was it indeed accretive in this particular quarter?

Yes, it was.

Thank you.

Elizabeth Montgomery, SG Cowen.

Congratulations on a really good quarter and on your progress with Ebel.

I had two questions.

I guess the first one; can you give a little bit more color about what is driving the really continued strong comps in the peak business?

Whether that has increased traffic or new customers or existing customers maybe purchasing higher price point items?

Then additionally I think you were talking about the Hugo Boss license in transition.

It seems to us that we see more of an emphasis on watches in there own stores and in their holiday mailer that went out over the past couple of weeks.

I wondered if -- I believe that those are not your sales yet and I wondered if you could speak to the level of inventory that they have in the existing watch business?

Sure.

Let me talk first about the Boutique business.

What has really been driving our Boutique sales is we believe a stronger assortment of jewelry, a focus on yellow gold where we felt there was a gap previously, as well as moving up the average price points and the average sale with our customer.

So all those things have been driving our comps and we are very pleased with the strong comps that we experienced in this quarter that actually would've been a little bit stronger had our Florida stores not been so heavily impacted at the end of October with Hurricane Wilma.

Then on the Hugo Boss side, I think they are obviously with their relationship with us feeling more positive with the watch business.

We are also -- we are refilling their inventory on their old models, updating them slightly and I think they are getting more enthusiastic behind the product.

But our real first introductions will be in Basel of 2006 but we currently supply them with watches when they need them from their existing inventories actually.

Okay, and I guess a final question.

In terms of the Hugo Boss license and now Juicy Couture, is this -- does it signal change in your strategy to kind of pursue the licensing agreements a bit more aggressively or is it still opportunistic to leverage the infrastructure you have for your own brands?

I wouldn't call it either, okay?

I don't view it as opportunistic.

I view it as really doing licensing agreements with what we believe are the elite powerful brands.

In the case of Hugo Boss, obviously a massive brand globally.

In the case of Juicy Couture, one of the fastest-growing brands in the business and in fact in today's Women's Wear Daily there is a report about their increasing presence at retail including opening up of a number of stores in the United States.

And very impressively also an opening of a flagship store in Tokyo as well as several stores in Hawaii.

So we believe that that will be a major global relationship for us as well.

But they are all power brands and very carefully chosen and selectively partnered with.

So it's not I don't think any shift in our strategy.

It is actually a very focused strategy of partnering with powerful global companies where we can both achieve excellent synergies together.

Okay, great.

Thanks a lot and congratulations again.

Kristine Koerber, JMP Securities.

A couple of questions.

First can you quantify the impact that Wilma had on your business during the quarter?

Well, it had both the affect on our retail business, which was not material to the overall Company because of the size of our retail business but they'd probably have a several percentage point affect on comps.

And it also had an affect on our duty-free business in Mexico and the Caribbean.

Maybe Rick can give you a little more color on that.

And in the third quarter impacted us a little bit but more is going to impact us in the fourth quarter primarily because of the Mexican resorts where we have a strong business that really are going to be opening up either later this year or maybe even in the beginning of the first quarter of next year.

Again that is not material to the overall performance of the business but it certainly will impact us from a standpoint of a few percentage points of growth.

Okay, great.

As far as Concord, you talked about shrinking the Concord business.

Right now it's 10%.

What are you going to shrink that down to?

Can you maybe give us a little more color on exactly what is going on in the midprice luxury market?

Why it is so difficult?

Sure.

I think that the markets have really differentiated themselves now into the luxury, upper and luxury market were Ebel is gaining a presence as well as the other upper end brands as well.

And then the entry price level which is brands like Movado are extremely strong.

The middle is becoming a little more challenging as some of the luxury players become -- offer more accessible price points as well.

Concord also needs to be differentiated as a brand.

We have been focusing for many years on really on delivering excellent value to consumers and now I think it needs to have a different point of differentiation.

And that is what we are going to work on over the next three to six months in developing a plan to that area.

But when we talk about shrinking, we are shrinking the top line but also shrinking our expense structure to make the brand more profitable as we restructure it as well for the Company.

Okay and then lastly, can you just update us on where the Ebel inventory is?

Are you still working through some of the old inventory?

There really has been no major change in the Ebel inventory in the quarter.

We did in fact authorize the scrapping of more of the subcomponents that we had in stock because there was in fact no use for them, but basically it still is the same inventory and reserve position that we had at year end.

Thank you.

Kirum Hibel (ph), Decision Economics (ph).

This is Kirum Hibel, Minnesota's associate from (indiscernible) Research and I have actually two questions.

What is your view of the holiday selling season?

Which markets and products are you most upbeat about the holiday season?

You know, I think it is a little early to give an opinion on the holiday season.

I think people are slightly more optimistic than they were three months ago and I think predominately because of the fact that energy prices have come down; gasoline prices have come down over the last several months.

I think that that should have a positive affect over what people were thinking about two or three months ago.

I think one of the exciting opportunities this fall is going to be really in the sense of our Movado brand where we have introduced a number of new products and including some higher price points like Fiero, which is a hard metal watch which is quickly becoming one of our best sellers at a price points around $2000.

And then we also believe there are great opportunities in jewelry and we are seeing a lot of strength in that area.

Then in Ebel we are seeing strength on a global basis as we rebuild that brand.

Our fashion watch brands also continue to do very well internationally.

So we think there's growth opportunity in that area as well.

Okay and can we get an update on the progress made in Chinese market?

We continue to make progress and sell through in our Chinese marketplace.

It is still a small market for us and we continue to remain focused on building that market over the next several years.

We are putting continued emphasis on that market over the next two years.

Thank you very much.

Arnold Brief, Goldsmith and Harris.

Just a couple of quickies.

You mentioned that you were strengthening the distribution of Movado.

Could you elaborate a little bit?

Does it include more doors or fewer doors?

What direction are you going in there?

It actually includes fewer doors.

During the quarter we closed several hundred doors to really increase productivity per door.

So that is one of the things that we're focused on as a long-term strategy to the Movado brand.

How far do you want to take that?

From how many doors now to how many --?

We haven't really finalized that yet but we believe that we will continue to partner with some of our existing retailers to begin to limit the availability of Movado in the number of doors to increase the penetration on a per door basis.

How many doors is it in now?

It is in about 2500 doors in the United States.

Could you give us some idea of your share of market in the mechanical watch area and what plans you have in that area?

Do you see it growing?

Do you try and increase share?

Is your participation there --?

Sure.

We have a very small share in that market so it is not really -- there are no share statistics for that market but we have a small share.

We do see that growing with Ebel but really more from an image point of view.

And our men's emphasis in Ebel over the next several years is going to be focused on mechanical offerings.

Could you give us some idea how big the mechanical end of the market is relative to --?

On the luxury end of the market, which probably accounts for about one-third of the business, probably half of that at least is mechanical.

And the only watch that you're really going after that market share with is Ebel?

Ebel.

A little bit with Concord, but mostly Ebel.

Lastly, could you give some idea of doors and price points for the new ventures with Hugo Boss and Juicy Couture?

Hugo Boss -- we are not really fully developed on the number of doors.

The price points will range from 150 to $500 and predominately most of that distribution again will be in Europe and the Far East, with some presence in the United States.

And we are looking at approximately 700 doors to launch with worldwide.

In terms of Juicy, again a very focused launch.

That we will probably launch in several hundred doors in the United States and then in the following year internationally.

Price points there will range from about $200 to about $1000 or $1500 on the Juicy Couture side.

And then later we will launch with a higher end Couture/Couture collection to follow what Juicy is doing in their clothing.

Thank you very much.

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

Gene, could you talk about what happened to the tax loss carryforward from Ebel during the quarter?

Especially both in operating profit and the sale of an asset.

Yes, David, sure.

There was an affect in the current quarter on the NOL carryforward.

We were able to utilize a bigger portion of it and as a matter-of-fact it was in the area of 3 million further write downs so that we are now dealing with approximately 2 million remaining in the intangibles.

And as you know -- this is Rick -- as you know the NOL utilization does not impact our P&L.

It first impacts our intangible assets that we have and obviously that number continues to decline.

So I think we started with about 10 or 12 million of goodwill and it’s down to whatever Gene just mentioned.

About 2 million.

However that did impact your cash flow to the tune of 3 million, am I correct?

Certainly it will.

It's a function of the timing of when the tax liability shows up and actually we don't have to pay the taxes.

I see.

Very good.

I have one other question.

I noticed in the recent ads for the chronometer for Ebel 1911, it had said it was an Ebel made movement.

I guess I was a little surprised by that because I know the Movado business model in general is to source that sort of thing.

Can you talk about what you are doing in terms of movement manufacture?

One of the things that we acquired in Ebel is a workshop that manufactures a specific line of movements called the 137, which is an automatic chronograph.

And one of the few companies with the capability to do that, so we have maintained that workshop.

That is part of our ongoing philosophy is to continue to manufacture that movement and derivatives of that movement.

We believe it is a great asset as we move forward to have a very focused movement manufacturing capability, but a very small part of our overall business.

David Leibowitz, Burnham.

A couple of brief questions on Concord and I may have missed it.

Did you indicate how much capital you are going to commit in the repositioning of the brand or revitalization excuse me for the wrong word?

We actually don't believe that it will take any capital.

We will actually -- and by shrinking it we will make the brand more profitable and actually ultimately improve its return on capital.

The second question, at this time is the brand losing money?

No, it is not.

Excellent.

Thank you very much.

Josh Hector (ph), of (indiscernible).

Good morning.

Can you comment on the changes in the department store space?

Federated is going through some shrinking.

We were wondering if when you acquired the license or were working with Juicy and Hugo if this was an opportunity to add additional counter space in individual departments?

Sure.

We actually look at the acquisition of May Company by Federated as a very positive thing for the overall business.

Federated is a very good operator and very focused at what they do.

And the doors that will be closed are the lower performing doors to begin with.

So they will have very little affect on the overall business and especially since we are in general at the luxury segment for department stores where they are much better performing doors.

So we see it as a great opportunity to expand and grow the business and the addition again of Juicy and Hugo Boss obviously will strengthen our position in both of those channels of distribution.

And when the add brands we do obviously look for additional space.

We don't want one space, one brand to take over space from another brand.

So is it essentially -- if you look at the counter space you're not taking a piece of your ESQ business to insert the Hugo Boss business?

Absolutely not.

These are all incremental businesses that are operated in independently and we have great relationships with Federated, with Macy's and we think they are fantastic operators and are doing a great job in moving forward.

Just two quick points then.

If you think about Juicy as one of the hotter brands that you can utilize today, you can't insert an actual freestanding counter inside a Federated store with Juicy.

And therefore the dynamics of a regular counter space that you have at Federated apply to their ex number of stores.

Is that how we should think about it?

Well in Juicy -- if you look at it as a very focused department store business really at the upper end of the department stores including stores like Neiman Marcus and Bergdorf’s and Barnes and Saks and Bloomingdales, which is part of the Federated family, so they have a very focused distribution.

We are going to obviously mimic that distribution and be able to build Juicy visuals and displays within the given framework.

Gene, one last.

If you look at the balance sheet and you look at your cash flow, which is able to meet your requirements, why carry any debt?

Why carry the 88 million except for the low interest rate period that most people have, why do it to yourself?

This is Rick responding.

It's basically from a standpoint of our timing and obviously our purchases are from around the world and using our credit lines basically to handle the cyclical nature of the business.

So basically when we look at the locations that we have around the world and the purchasing needs, that is really why we use the debt.

Generally as you know at year end we have all that debt paid off.

How much money -- cash have you actually repatriated back to the U.S.?

We have not yet.

Not yet?

You haven't taken anything back?

To evaluate the American Jobs Creation Act and obviously once we make a decision, we will disclose that.

Thanks guys.

A follow-up from Arnold Brief, Goldsmith and Harris.

Could you give us just an update and make sure the numbers haven't changed on your store expansion for next year?

We currently have approximately three stores on plan for next year that we expect to open throughout the year.

I'm sorry, five did you say?

No, three.

And that would take us from our 27 today to 30 by the end of next year.

So in theory then the following year the retail should be profitable?

The following year after that, yes.

Secondly, I asked you the question about mechanical watches before.

Is it an area that you think will continue to grow?

Is it an area that you want to longer-term increase your participation in? (multiple speakers)

I think we do participate in a number of different areas and maybe I was a little negligent.

We participate at the upper end with Ebel and we'll continue to grow that presence in Ebel.

That is really where we're focused on doing it.

But we also do offer the Museum Automatic which is a mechanical watch and a very strong seller in Movado at an accessible price point.

I don't think that I can really be -- predict where that trend is going to go, but on a global basis mechanical watches are certainly an important part of the business but there are a lot of people that still want the reliability and dependability of quartz watches.

This is a strategy?

Is it something you want to or you would be seeking to make maybe an acquisition or something like that to increase your participation?

We don't need to make an acquisition to increase our participation in that business just because Ebel will become fairly focused on the men's side in automatic and chronographs and mechanical complications.

So I think Ebel lends itself to that area.

It can do the job for you.

And then finally, if I had a chance to figure this out I think I could handle it but I haven't had a chance and maybe you can make it a lot easier.

There's a couple lines on the balance sheet that -- if you could give us a little detail on, three of them in particular.

Other assets declined pretty sharply year to year and deferred and current taxes declined quite sharply year to year and what's my other line?

Deferred and noncurrent income taxes went up quite a bit.

Could you go through those few lines a little bit?

Let me talk to you a little bit about the other current assets first of all.

The main and almost exclusive reason for that is the mark-to-marketing of our hedging derivatives.

And in fact when the dollar has in fact gotten so much stronger we prior year had them as an asset but they are now a liability because in fact the rates that we have are contracts.

The deferred taxes are simply a function of our current accounting for the timing differences and the activities related to this NOL utilization and it is usually just a reclass between whether or not it is a deferred tax asset and liability.

(OPERATOR INSTRUCTIONS) Sir, there appear to be no further questions.

Okay, I would like to thank all of you for participating today and asking some great questions.

We are looking forward to the holiday season and we remain very focused on ensuring that our brands remain strong in the marketplace.

I'd like to wish all of you happy and healthy holiday season and thank all of you again for participating today.

This concludes today's Movado Group's third-quarter earnings conference call.

You may now disconnect.