Movado Group Inc (MOV) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Movado Group's fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company. I would now like to introduce Ms. Suzanne Michalek of Movado Group.

Thank you. 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 provision 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 2007 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. 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 fourth quarter and full year results. Gene will then review the financial details and Rick will provide you with an update on our operating 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. Fiscal 2006 was a great year for Movado Group with record sales of $471 million, strong gross margins and operating profits, and record net income of $33 million on an adjusted basis. Today in a separate press release we also announced a 20% increase in our dividend, marking the fourth consecutive year of increasing our quarterly dividend and underscoring our Company's powerful financial resources and consistent earnings growth. Fiscal 2006 marks the continuation of the successful and consistent track record of growth that we have established over the past number of years. In fact over the past three years our company has delivered a 16.2% compounded annual growth rate in sales and a 17.7% compounded annual growth rate in net income based on adjusted results which are detailed our press release.

In that same timeframe, we have split our stock two-for-one, increased our dividend four times, and generated well over $100 million in cash flow from operations. We have strengthened our balance sheet and recently repatriated nearly $150 million in foreign earnings while optimizing our global capital structure. We have also showcased our core brand building competencies on many fronts. We have transformed Movado from a celebrated 125-year-old watch brand into a unique accessories lifestyle brand through the introduction of now 27 Movado boutiques nationwide.

We have acquired a global luxury status brand in Ebel for a tremendous value. In fiscal 2006, Ebel was profitable for the first time in many, many years and we look forward to the significant global growth potential that lies ahead for this terrific brand. We successfully repositioned ESQ to take advantage of a void in the entry-level Swiss watch category for affordable luxury. With leadership product, integrated marketing support, and a strong advertising campaign, we are executing an accelerated growth plan as we grow ESQ into the leading brand in the entry-level Swiss watch category in North America.

We have also demonstrated ourselves to be a long-term value add partner to some of the most powerful brands in the world. Our success in extending major global brands such as Coach and Tommy Hilfiger into the watch category has made Movado Group a partner of choice for other world-class brands including HUGO BOSS, Juicy Couture, and LACOSTE. These actions collectively demonstrate the value we are bringing to our shareholders along with our confidence that Movado Group is poised for continued strong financial growth.

In fiscal 2006, Movado generated high single digit sales gains. We continue to infuse the brand's product in advertising with fresh elements to excite consumers, never compromising Movado's unique, modern brand identity. New products such as Fiero and Vivo were well-received during the holiday season, as were diamond watches including our patented Strato design featuring diamonds set under the Crystal. Retail sell-through was strong in the fourth quarter and we continue to outpace the competition.

Movado celebrates its 125th anniversary this year and it continues to dominate the $500 to $1500 watch category in North America. The kickoff to celebrating Movado's important anniversary took place this past week at the annual watch and jewelry show in Basel, Switzerland. Special watches commemorating the anniversary were met with enthusiasm. We introduced a 125th anniversary Sapphire Museum Limited addition collection in 18 carot pink gold featuring an ultra flat mechanical movement with power reserve. We have also created an M125 logo depicting Movado's 125 years of design and innovation. You will begin to see this commemorative logo now and throughout the year incorporated in our advertising and point-of-sale material.

Of course in addition to anniversary product we will continue to introduce other compelling products such as the new Movado sports edition and strongly support the brands with new executions of our Art of Time advertising campaign. In line with our strategy for this brand we also continue to focus on the development of the Movado brand in the Up-and-coming China marketplace. The Movado image and lifestyle continues to be reinforced in our Movado boutiques. Momentum continued to grow in our boutiques during the fourth quarter, with comparable store sales increasing a strong 14.4% for the quarter and 8.5% for the year. Throughout the year we have focused on building a strong management team for this growing business and we are well positioned for the future.

This spring we will seek to increase the synergies between our watch and jewelry designs by introducing the Ono watch inspired by our very successful Ono jewelry collection. The Ono watch and jewelry collection will be featured together in our spring advertising in major fashion publications. Looking ahead we plan to open three boutiques this year, bringing this business to 30 locations at year end.

Ebel enjoyed a spectacular year, with sales increasing over 40% and for the first time in many years Ebel was profitable. The strong performance reflects the cumulative impact of our efforts over the past two years. Since we acquired Ebel we have sought to establish an unquestionable brand identity based on products and communication initiatives which are entirely consistent with the brand's roots and values. And as a result we believe that Ebel has gained in relevance, power and desirability while gaining the confidence of our retail partners and consumers. The launch of the new 1911 collection in time for the holiday season was met with great enthusiasm by retailers and customers alike. Ebel also experienced significantly improved sell-through in the fourth quarter, driven by the bestsellers Beluga Tonneau and the Ebel Classic. We are very excited about the new Ebel Brasilia collection that launched at Basel only a few days ago. Brasilia is characterized by its rectangular case shape, smooth, sensual lines, sophisticated timeless design, and the incomparable comfort of its bracelet. Brasilia will now begin shipping to all markets. The collection will be strongly supported in the media featuring top model Giselle in the women's campaign and the work of world-renowned architect Oscar Niemeyer for the men's campaign.

Our Concord brand experienced a disappointing year; however, during the holiday season Concord experienced continued growth in Japan, with double-digit sell-through gains over the last year. We also concentrated our advertising efforts on the introduction of the new Mariner collection in the U.S. In fiscal 2007, the key strategic initiatives for the brand will be aimed at building a stronger foundation for future profitable growth. Over the next two to three years we plan to re-engineer Concord and ultimately make this business into a solid, profitable contributor to our Company for the long-term.

Fiscal 2006 was a banner year for ESQ, which exceeded our plan. Strong double-digit sales gains were fueled by leadership products in the men's sport luxury and women's fashion categories. Our new ad campaign, ESQ&YOU, was launched on national television in the holiday season and truly conveyed the lifestyle and multiple dimensions of the brand. We continue to execute on our accelerated growth plan for ESQ by expanding distribution with new customers and acquiring incremental space in the existing retail locations. ESQ is filling a void in the marketplace by bringing affordable luxury to the entry-level Swiss watch category and the response by retailers and customers has been tremendous.

At Basel we introduced a significant amount of newness to round out existing assortments in the sport luxury category, including new women's fashion diamond watches. We also premiered a new active sport Air, Land, and Sea collection for men and women. We are intensifying our brand building efforts in fiscal 2007 via our ESQ website along with continued strong advertising commitment behind the brand. In fiscal 2006, our licensed watch business grew approximate 21% from last year. Our close partnership with Coach, a leading marketer of modern classic American accessories, has enabled us to build a very successful watch business with one of the fastest-growing luxury brand names.

Our Coach watch business experienced solid high single digit sales growth in fiscal 2006. In fiscal 2007, we will continue our close alignment with Coach with the introduction of the new Cocktail Watch featured in our Coach watch advertising as well as in Coach's corporate advertising campaign. We experienced a terrific response to our Coach product offerings introduced at Basel this year. Led by the Legacy Sport, a new men's collection which will launch in the fall of this year.

Tommy Hilfiger watches also delivered a strong performance in fiscal 2006, generating double-digit sales gains for the fourth quarter and the year. Importantly we believe that the pending acquisition of Tommy Hilfiger will strengthen the overall brand. We are extremely pleased with the launch of HUGO BOSS at Basel this year. We introduced a brand-new collection which received a great reception from our partners worldwide.

In the second half of this year, we will launch our first collection of Juicy Couture watches. Our brand building approach to the watch business has enabled Movado Group to attract world-class brands and implement a selective licensing strategy with long-term partners. Last week we announced a new partnership we have established with LACOSTE effective January 2007. LACOSTE has achieved terrific momentum over the past number of years and we believe a LACOSTE watch collection by Movado Group (technical difficulty) excellent opportunity for both of our companies. With five powerful licensing partnerships now in place, we believe we have established a very well-rounded portfolio of world-class brands with great growth potential.

As you can see from our results, fiscal 2006 was a very successful year for Movado Group as we continued to focus on our business fundamentals and on the execution of our business plan. I would now like to turn the call over to Gene, who will review our financial results in greater detail.

Thank you, Efraim. Good morning to everyone. We are pleased with our financial performance in the fourth quarter and for the full year ended January 31, 2006. For the fourth quarter adjusted net income, which is described in our press release, increased 35% to $9.9 million for $0.38 per diluted versus net income of $7.3 million for $0.28 per diluted share in the year ago period. On a GAAP basis we reported fourth quarter net income of $3 million as compared to $7.2 million prior year. This year's results included a $7.5 million tax expense related to the repatriation of $148.5 million of foreign earnings under the American Jobs Creation Act and a pretax benefit of $0.8 million related to the reversal of the previously recorded liability into income.

This translated into fully diluted earnings per share of $0.11 as compared to $0.28 in the prior year period. For the year, adjusted net income increased 27.7% to $32.7 million or $1.25 per diluted share versus net income of $25.6 million or $1.00 per diluted share in the year ago period. On a GAAP basis we reported net income for the year of $26.6 million or $1.02 per fully diluted share while prior year net income was $26.3 million or $1.03 per fully diluted share.

This year's net income includes the previously mentioned items recorded in the fourth quarter, as well as the pretax gain of $2.6 million generated from the sale of the building acquired with Ebel and a pretax loss of $1.6 million associated with accounting for foreign currency hedge derivatives. Now let me discuss the operating results for the fourth quarter.

Sales for the fourth quarter increased 5.1% over last year to $126.1 million. Sales in the wholesale segment increased 2.8% to $95.2 million. The domestic wholesale business was up 5.7%. ESQ, Tommy Hilfiger, and Coach were up double digits. Movado was up high single digits. Concord and Ebel were below prior year. If you recall, a significant portion of Ebel sales last year were in the fourth quarter.

The international wholesale business was down 4.8% year-over-year. Ebel and Tommy Hilfiger were up double digits and all other brands were below prior year. The retail business posted a 13.1% sales increase over last year. Sales in our Movado boutiques rose 22.4% in the quarter and comparable store sales in our boutiques increased a strong 14.4%. The Company Outlet store sales were above prior year by 4.6%. Gross margins for the quarter was $77.3 million or $5.7 million above last year, driven by our sales increase. Gross margin percentage for the quarter was 61.3%, as compared to 59.7% last year.

Operating expenses for the quarter were $62.7 million or slightly below last year. Excluding the prior year impairment charge, operating expenses were above last year by $1.7 million. Operating income increased 69.1% year-over-year to $14.6 million as compared to $8.6 million in the prior year period. Excluding the unusual items detailed in our press release, adjusted operating income was 29.7% above prior year.

Net interest expense increased by 15% to $1.2 million. This is due to higher average borrowings for the quarter. Our average debt for the quarter was $101.6 million, an increase of 63.1% from prior year, reflecting the additional Swiss borrowings required to complete the repatriation of the foreign earnings. Our average borrowing rate for the quarter was 5%, as compared to 5.4% prior year.

Taxes for the quarter reflect an effective tax rate of 77.9% as compared to a 5.4% tax rate in the prior year. Again reflecting the impact associated with the repatriation of foreign earnings as well as the prior year period's favorable tax ruling.

Turning now to our full year fiscal 2006 results, net sales are $470.9 million or 12.4% above prior year. For the year, sales increases were recorded in all our brands and business segments except Concord. Sales in our wholesale segment were $385.4 million or 11.7% above prior year. The domestic wholesale business was above prior year by 11.9%. Double-digit increases were recorded in Ebel, ESQ, and Coach brands and single digit increases were recorded in Tommy Hilfiger and Movado. Concord was below prior year in high single digits.

The international wholesale business was above prior year by 11.1%, led by the strong performances of Ebel in Europe and the Middle East, and Tommy Hilfiger in Europe and Asia. The retail segment increased 15.7% for the full year. Sales increased in the Movado boutiques by 26.2% with comparable store sales in our boutiques increasing 8.5%. The Company Outlet stores recorded a total sales increase of 8.2% year-over-year. Gross margins for the year was $286.3 million or above last year by $36.2 million, driven by higher sales volume. Our gross margin as a percent of sales was 60.8% as compared to 59.7% in the prior year.

Operating expenses of $238.3 million reflect a 10.8% increase in prior year expenses of $215.1 million. The increase of $23.2 million is primarily due to increased spending in support of our retail expansion, higher marketing spend to support our existing brands as well as new brands, and added headcount and infrastructure cost in support of our brand growth and expansion. This was somewhat offset by the prior year period's non-cash impairment charge.

Operating income for the full year was $48 million or 37% above prior year. Excluding the unusual items mentioned previously, adjusted operating income was $47.5 million or 28.1% above the prior year periods. Net interest expense for the full year is $4.1 million or 19.8% above last year. This is the result of higher average borrowings which were partially due to the Swiss borrowings related to the repatriation of foreign earnings in addition to a higher borrowing level to fund our working capital needs. Our average borrowing rate for the year was 5.2% versus 4.9% prior year.

Income taxes are recorded at a 40.8% effective tax rate versus a 20.5% effective rate in prior year. Now I would like to discuss our balance sheet. Our cash at January 31 was $123.6 million versus $63.8 million prior year. The higher cash is the result of the added borrowings in Switzerland to pay the repatriation dividend.

Accounts Receivable of $109.9 million increased by $5.2 million or 4.9% above last year as compared to our sales growth of 12.4%. Our Days Sales Outstanding at year-end are 70 days versus 74 days in the prior year period. Inventories of $198.6 million increased $13 million or 7% from last year. The growth includes an increase in Concord primarily due to the sales shortfall for the year, an increase due to our retail growth and expansion, and an increase in Ebel as a result of the new product launches during the year as well as for introductions at the Basel Watch Fair.

Our long-term debt is $110 million versus $45 million last year. This increase represents the borrowings in Switzerland for the repatriation of foreign earnings. Our capital expenditures are $16.4 million and depreciation expense is $16.6 million. Our capital expenditures include the construction costs for five new retail stores as well as the buildup and renovation of existing retail stores such as our expanded space for Movado Boutique in Short Hills, New Jersey, the expansion of our headquarters in Paramus, New Jersey, and the further automation of our distribution facility in Moonachie, New Jersey. Our remaining intangible assets from the acquisition of Ebel is $0.3 million. This is significantly below the $9.1 million in intangible assets we acquired. Over the past two years, we were able to utilize a portion of the acquired net operating loss carryforward with Ebel. This has resulted in an actual as well as a projected future cash tax savings on our Swiss earnings in excess of $8 million and in essence a reduction in our purchase price for Ebel.

Our cash flow from operating activities for the year is $30 million and as Efraim indicated we have generated over $110 million in cash flow from operations over the past three years. In summary we are pleased with our financial performance in all respects. Delivering a very strong P&L performance and maintaining a solid balance sheet. Now let me turn the call over to Rick.

Thank you, Gene. Good morning everyone. As Efraim and Gene have reviewed, fiscal 2006 was a very exciting and profitable year for Movado Group. We achieved record sales and record profits for the year while also maintaining a strategy of strong and consistent investment in our business. Our balance sheet is strong as we continue to focus on optimizing our working capital. Companywide productivity initiatives have resulted in increased levels of operating efficiency and improvements in our supply chain. We have put our cash flow to work not only by investing in our core businesses but also by enabling our stockholders to share in the Company's successful achievement through a 300% increase in our annual dividend over the past five years.

Now let me turn to fiscal 2007 and outline our operating initiatives for the year. First, we will focus on the expansion taking place in our existing businesses. We will continue to invest in and build upon the success of our Movado boutique initiative with the opening of three new boutiques this year. In Atlantic City, Century City, and Northpark, these openings will bring us to 30 locations at year-end, which we define as critical mass. When these stores have completed their first full year of operations, our business plan is that our boutique business will convert from an investment mode into a profitable operation.

In our ESQ brand we will continue to execute on an accelerated growth plan which calls for a doubling in the size of this business. Significant market share growth has already taken place and we will seek to continue that with iconic product leadership in the entry-level Swiss watch category, along with superior brand building and advertising initiatives.

We'll also continue with the revitalization of Ebel to its historical stature as a global luxury watch brand. Our focus will be on growing Ebel in key markets such as the United States, Europe, the Middle East and Asia. Finally as Efraim discussed, we are embarking upon a review of our Concord brand strategy and support infrastructure as we work toward restoring the health and profitability of this business.

The second major focus for our Company in fiscal 2007 is on our newest businesses; HUGO BOSS, Juicy Couture, and now LACOSTE, which we announced last week. Last week at the Basel Watch and Jewelry Fair we launched our new HUGO BOSS watch collection, which we project will generate over $10 million in revenue in fiscal 2007. Also throughout the year we will invest behind our new Juicy Couture business, including product development, sales, and marketing infrastructure. The Juicy Couture watch collection will launch in the fall of this year and we are anticipating a terrific response. Finally we are very excited about our new partnership with LACOSTE to develop a collection of watches. In fiscal 2007, our investments will focus on product development and establishing a sales and marketing infrastructure in preparation for our takeover of the LACOSTE watch license on January 1, 2007.

As with all of our licensed businesses, we continue to partner with superior brands that have demonstrated staying power and long-term strategic visions. As each of our licensed businesses mature, we would expect sales in excess of $20 million and ideally in the $30 million to the $50 million range and obviously be significant profit contributors over the long-term.

Our third major focus this year is continued improvement of our financial metrics. Over the long-term we are well positioned for strong sales growth. We'll also have a great opportunity to expand our operating profit as a percentage of sales, primarily by enhancing our gross margin beyond the current level. Along the way we'll continue to invest behind our portfolio of businesses while still producing a 10 to 15% profit growth rate. Finally we will continue to focus on strong cash flow generation.

Now I would like to turn to our financial outlook, specifically for fiscal 2007. We are projecting full year net sales to grow between 9% and 11% from fiscal 2006 sales of $471 million. Gross margin as a percentage of sales is expected to be in line with fiscal 2006 levels. We anticipate full year operating expenses to grow slightly slower than sales in the 8% to 10% range, even as we continue to invest in the business initiatives I have outlined earlier.

In fiscal 2007 we will also incur an additional $2.9 million expense associated with the adoption of FASB 123R. And a shift and the composition of the Company's equity based management compensation plan from options toward restricted stock.

Our tax rate in fiscal 2007 is projected to return to its normalized 25% rate. As a result of these factors, we anticipate earnings per diluted share to be in the range of $1.35 to $1.39. This range includes an approximate $0.08 per diluted share expense associated with the adoption of FASB 123R and the shift in the composition of the Company's equity based management compensation plan from options toward restricted stock.

On a GAAP basis, this EPS projection of $1.35 to $1.39 represents a 32% to 36% increase from $1.02 recorded in fiscal 2006. On an adjusted basis, and excluding the $0.08 per diluted share incremental expense related to equity based compensation included in our fiscal 2007 projections, earnings per share in fiscal 2007 are estimated to increase 14% to 18% and range between $1.43 and $1.47, versus the $1.25 achieved in fiscal 2006.

Turning to our guidance for the first quarter of fiscal 2007, we would expect Movado Group's profit to range between a breakeven and a slight profit of $0.03 per diluted share. First quarter projections include an approximate $0.03 to $0.04 per diluted share incremental expense related to equity based management compensation and severance costs associated with the reengineering of Concord and a realignment of our management structure in Asia.

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

(OPERATOR INSTRUCTIONS) Pamela Brown with Gabelli.

Thanks. I'm just looking at your '06 guidance or your guidance for '07 next year. I just wanted to focus on your SG&A and what your thoughts are on those expenses continuing to remain at a level that we have often discussed, 50% being kind of high for the Company and reducing that to 45%. I wonder if there were any initiatives in place to do that this year.

I think the key thing is that we are continuing to invest behind our businesses because the amount of new businesses and the amount of new initiatives that we have in place. Clearly we do continue to focus in on productivity improvements, but as we are continuing to invest behind those businesses, we have seen our SG&A growing at close to our sales level and we certainly start seeing that declining this year and certainly over the next number of years we see it growing at less than our overall sales growth level.

Just in terms of the top-level in terms of your guidance, this has kind of been a continuum in the last couple of years. I think you have been very conservative in terms of the way that you look at your gross profit margins expanding to the 62% that you have been focused on kind of pre Ebel acquisition levels. You are getting back to that nicely and that is really where my numbers have been all along with your company and continue to be kind of more right than your conservative guidance. And looking at the next year, I would continue to remain optimistic in terms of your gross profit potential. Is there any reason that I should think about being more negative than I have been historically?

Two things first of all -- and this is Efraim. On our operating expenses you also have to recognize that we continue to build complete brand new businesses, so over the last year we have been building HUGO BOSS and over the next -- over the following part of this year we will build two brand new businesses in LACOSTE and Juicy. So that also adds to our expense levels.

One major focus the Company has been continued improvement of our gross margin. I think we made good progress in that this year, especially along the improvements with Ebel. And we will continue to focus on that, but I think we are still our guidance is that we will have relatively flat gross margins this year with last year.

Okay, thanks. Excellent job.

Kristine Koerber, GMP securities.

A couple of questions. First of all I am assuming your guidance includes the launch of Juicy in the fall. Is that correct?

That is correct.

Can you tell me what your CapEx guidance is for this year?

Basically our CapEx is going to be consistent where it has been which is basically in that $16 million or so range.

Talked about operating margin expansion. I think your goal was midteens, low to midteens over the long-term. Are you still on track to achieve that? And what is the time frame we are looking at?

We continue to focus on increasing our operating profit and we believe that as a percentage of sales, and we believe that one opportunity over the next several years is on improving our gross margin. And then also as we get our new businesses up and running on rationalizing our expense structures throughout those businesses.

Okay, but it is still a midteen operating margin?

Be the midteen over the next several years to achieve each year an incremental improvement as we have this year.

Okay, and then lastly HUGO BOSS, how many SKUs did you launch?

From a standpoint of SKUs that's basically in about the 150 range number of SKUs that we have there and we would expect a similar level with Juicy and LACOSTE down the road.

That is great, thank you.

Jason Asaeda with Standard & Poor's.

Great quarter. I just had two quick questions. Could you talk about your average price points in Q4? Did you have any sort of increases across your different brands? Also if you could go over again the reason why the international wholesale sales declined for the quarter. Thanks.

Well, our average unit price per brand probably increased slightly as we solidified the positioning of Ebel through the year. And then in Movado it probably increased also slightly; and then we have the brands like Tommy Hilfiger and Coach were it was relatively flat in terms of price points. Then your second question?

Could you go over again the reason why the international wholesale sales declined during the quarter?

Most of that decline was in our Concord brand and which as we talked about earlier we are in the midst of beginning of restructuring process as we speak.

But you did say the brand was doing well in Japan?

The brand did very well in Japan but suffered in the Middle East, where it had been highly dependent on some corporate business but is no longer there.

Okay, thank you.

David Taylor, David C. Taylor & Company.

I hope you can hear me. I'm speaking on a cellphone this morning. I assume given your forecast of about a 10% sales gain that if you stripped out HUGO BOSS and Juicy from that forecast and then you stripped out the retail stores, particularly the big boutiques, that the wholesale watch business is going to be growing 5,6%?

Of the brands that we have as we speak.

Right, that sounds in the right range. We do expect a slight decline this year in Concord, so that will be offset by the growth in Movado, ESQ, and our other existing brands.

Okay. You announced last quarter the Concord restructuring. I was wondering if you could talk about what seems to have gone wrong in Concord in the last few years and to the extent that you formulated plans, how are you going to change things going forward.

There are several steps that we are taking and really I think the whole middle price range in that category has been a difficult category over the last 18 months as the top end solidified where brands like Ebel sit and as the really accessible luxury categories like Movado, ESQ, and Coach thrive. So there has been a squeeze in that middle range and what we will do over the next several quarters really is analyze that business and come with a stronger positioning for the Concord brand and at a two to three-year plan to rebuild the Concord brand. It is obviously today a much smaller part of our business then it had been in the past and so therefore should not have a major effect on the Company and the brand is still profitable.

Thank you.

(OPERATOR INSTRUCTIONS) Arnold Brief, Goldsmith & Harris.

Could give us the number of doors that you anticipate going into with HUGO and Juicy and LACOSTE? Then just to hit a whole question, and then what would be a normalized -- I realize it can vary from brand to brand a little bit, but what would be a normal expectation to, one, get those brands profitable, and then two, to get the margins on those brands normalized?

One, we expect all those brands to be profitable initially as we launch them. Obviously there is an investment in the brands that you make and we expense as we build the business with no revenue. In terms of -- I'll talk a little bit about HUGO BOSS first. We expect really to begin with several hundred -- probably about 400 to 500 doors -- but that is on a global basis over the next -- and really BOSS has been in business over the last few years. So we took over a business that we have relaunched this year at the Basel Fair and predominantly those doors will be in Europe and Asia, with some presence in the U.S.

On the Juicy side, we expect to launch that in the United States in the fall with a very limited distribution. And we will really be able to give better guidance in terms of doors at the end of the second quarter. And then finally LACOSTE is really for fiscal 2007. Again we will have a global distribution but a limited distribution at first as we relaunch that brand. That brand is also currently existing in a limited way internationally. Both HUGO BOSS and LACOSTE have a major retail presence as well of their own boutiques and obviously the watches will be featured in their boutiques as well. Juicy is actually in the process of opening up several flagship stores around the world, I think with a very important one coming in Japan later this year.

Just an add-on for that. You mentioned that initial sales of your licensed brands would be $20 million and then it could go to $30 million to $50 million. I was not clear whether you are not including Tommy Hilfiger and Coach. I think you're talking just about the three new introductions.

I think we and that was Rick's comments. What we look at and when we have looked at, because I think our portfolio is very well rounded today, in looking at licensed watch businesses we look at brands that can be a minimum of $20 million in watch sales over the first several years. And reach at maturity at least $40 million to $50 million in sales.

Each licensed brand?

Each licensed brand.

That wasn't clear. Thank you.

(OPERATOR INSTRUCTIONS) David Taylor, David P. Taylor & Company.

I was a little surprised in the last several months that you announced two new licensed brands and it seems like you are going to be introducing a new licensed brand about every six months. HUGO was just released and Juicy in the fall and then LACOSTE, I guess in about 12 months at the next Basel Fair. Is this a sort of pace that can be maintained?

I don't think we're looking to maintain that, David. And I think we have as I said earlier I believe now a very well-rounded portfolio of licensed brands, so we're not looking at more licenses. A number of these have been in the works for a long time. They take a long time to negotiate, so I think it is by coincidence that Juicy came about six months ago and now LACOSTE today. But we are not in the process of looking for other licenses by any stretch of the imagination because we believe we have great brands that have a tremendous growth potential for the future. And we want to do that 100% correctly like we have with Coach and like we have with Tommy Hilfiger. And we are focused again on building the management structure and continuing to invest in these brands so that they have this great growth potential for the Company as our first two licenses. So we're not in the process of -- nor will you see expect any additional licenses.

Thank you.

Jason Asaeda, Standard & Poor's.

I just wanted to ask one additional question. You talked about the growth potential of Movado in China. Could you talk a little bit more about that? I guess my understanding is that you're trying to or you believe that Movado is well positioned for China because perhaps the Chinese market -- they sort of emulate what Americans like. So are you finding that Movado watches are being purchased as mostly for gifts or are they being purchased for personal use? Can you share any thoughts on that?

Obviously I think there is a lot of hype with the Chinese marketplace. We do believe that it is a major market for the future, so we are investing in it currently and we will continue over the next several years. But we also see that there will be a huge emerging middle-class that will want to begin to show their improvement in economics and begin acquiring fine watches. Movado is at the entry level of that category and we -- but we have also found is that we have some initial success in terms of sell-through so that the consumer is buying our product and they are buying those products for themselves and as well as gifts. So but that is a long-term investment for the Company and really to build a second or really a third strong market for the Movado brand because Movado is also strong in the Middle East as well as Latin America, which we consider part of the Americas.

That is good to know. Thanks a lot.

Arnold Brief, Golden Harris.

Two related questions and then I am finished. One, you have got a number of product categories which are anticipated to show margin improvement in the next few years including Ebel, three licenses, Concord I would assume. Movado in China, as well as your retail business. It would seem as if for a few years once you get through this year, that the margin improvement would be above both trends. In addition you have indicated you probably got a full portfolio in terms of licenses, so the question is am I right that the margin improvement for a few years until some of these growth initiatives or margin initiatives normalize? Or are there other growth initiatives that we have not seen yet which could arise, i.e. other acquisitions like Ebel?

I think and as Rick mentioned earlier I assume that you're talking about operating profit, percentage of sales. And we have made it clear that we would like to improve our operating profit as a percentage of sales incrementally over the next several years. So that is a clearly stated objective of the Company and as some of these investments come to fruition, that should improve our operating profit as a percentage of sales. So it is a focus of the Company.

Are acquisitions still on your quiver so to speak?

Well I think that look if we can make another one like Ebel, which we believe is a homerun for the Company and as Gene said, we have actually probably reduced the purchase price by approximately $8 million due to the use of tax loss carryforwards. We have had 40% growth and a return to profitability. If we could find something like that, I will buy it in a minute. Those are hard to find.

That concludes our question-and-answer session today. I will now turn the call over to management for any closing comments they might have.

I would like to thank all of you for participating today and for your continued support. We are obviously very pleased with the results of our fourth quarter and our fiscal year and we're looking forward to fiscal 2007 being another excellent year for Movado Group. Thank you very much.

This concludes today's conference call. Thank you for your participation.