Movado Group Inc (MOV) 2007 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Movado Group conference call. [OPERATOR INSTRUCTIONS] Thank you. It is now my pleasure to turn the floor over to your host, Suzanne Rosenberg. Ma'am, you may begin your conference.

Good morning, everyone. 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 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 Movadogroup.com. Let me now outline the order of speakers and topics for today's conference call. Efraim will begin with the highlights of the third quarter. 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 will 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. Today I am very pleased to announce strong third quarter and nine month results, both on a GAAP basis and adjusting for unusual items recorded in the third quarter. These items have been reconciled and a table attached to our earnings press release which Gene will detail later in the call.

Some highlights for the quarter include adjusted gross margin of 63.5%. A 32% year-over-year increase in adjusted net income. And a 28% increase in adjusted earnings per share from last year. We are also very pleased with our ability to further utilize the NOL acquired with the Ebel brand which enabled us to record a tax benefit for the quarter and lower our tax rate for the year. By all accounts, Ebel has been a great acquisition for our company and its hidden assets have only provided upsides to a brand that is on its way towards returning to its roots as a global luxury leader.

Now let's turn to some of the brand highlights. First, in our luxury category, Ebel posted strong double digit growth for the year to date period. Even as we anniversary to very strong third quarter sell-in last year with the introduction of the Ebel classic and a new 1911 collection. Building on the momentum generated by the launch of Brasilia in the first half of this year, we recently introduced the 1911 BTR collection. Remaining true to Ebel's roots as the architects of time, the 1911 BTR features a truly unique mechanical collection of watches powered exclusively by Ebel proprietary movement. This new collection strongly positions Ebel in the men's mechanical market and further elevates the brand's profile in the luxury watch market. The introduction of the 1911 BTR generated tremendous editorial coverage in both trade and consumer magazines. Demand is outpacing supply and we expect this trend to continue as we experience double digit sell through increases around the world. This holiday season Ebel will maintain a strong presence with powerful advertising to support Brasilia and the BTR while continuing to build its luxury brand image.

We continue to restructure and reposition Concord in the luxury category . And we expect to present our strategy to customers at the annual watch and jewelry trade show in Basel, Switzerland, next year. As we reengineer Concord, we are taking the opportunity bring down the brand's inventory and convert discontinued product into cash. Concord remains a profitable contributor to the Company and we look forward to sharing more details with you about our strategy at the end of our fiscal year.

Our accessible luxury category comprised of Movado and ESQ continues to be a source of huge strength for our company. During the quarter, we delivered great new Movado products including a fresh updated Movado sports edition and Fiero, a scratch proof hard metal watch. We also launched additions to our jewelry inspired Ono watch collection Safiro, a sleek watch design with a sapphire crystal. Sell through in Movado continues to be strong as we enter this holiday season. To support these new products we have launched new executions of Movado's Art of Time advertising campaign featuring Wynton Marsalis, Mikhail Baryshnikov, Mia Maestro, and Kerry Washington. Also in the third quarter we launched Movado Future Legends, an exciting program which continues our tradition of aligning Movado with the arts. Future Legends is unique initiative that will help nurture a future generation of artists with exceptional abilities and a commitment to their craft. Movado has long known for its support of the arts and we are excited to support the next generation of exceptional talent and to build upon our commitment to some of the world's leading artistic institutions.

By now you have likely seen the strong and powerful presence of Movado Series 800 in the marketplace and we are off to a great start. Sell through trends are strong on existing styles and we recently shipped a new Chronograph version which will take Series 800 to a whole new level. Movado is redefining sports luxury with Series 800 and infusing this category with excitement. During the quarter we welcomed Derek Jeter to the Series 800 people. In Derek Jeter and Tom Brady we have not only selected two great athletes, but two exceptional sportsmen who are great leaders. Both are featured in our Art of Performance advertising campaign developed exclusively for the Movado Series 800 collection. In addition to the print campaign, tremendous support for Series 800 this holiday season can be seen on major national cable television stations.

Movado Boutiques recorded a slight comp increase for the quarter with significant gross margin expansion. We were able to improve gross margin in our boutiques even as we offset increased material costs in our jewelry with price increases. Looking ahead to the spring, we will refill attractive price points with great new product introductions. In the fourth quarter we are very excited about new jewelry introductions such as Journey Dia and new categories of the Movado diamond. All are featured in a beautiful holiday catalog that E-mailed before Thanksgiving and can be viewed on our website at movadoboutique.com.

We now have 31 boutiques nationwide. During the third quarter we opened locations in San Francisco Center and North Park Center in Dallas. Additionally in the beginning of the fourth quarter we opened Century City in Los Angeles. As we enter this important holiday season we were well positioned to execute in all of our boutiques with a terrific assortment of jewelry, watches, table top, and other gift giving items.

ESQ delivered strong double digit increases in the quarter with very strong sell through rates recorded in all distribution channels. Recently we launched a powerful collection of active watches. This land, air, and sea collection adds another dimension to ESQ's product assortment and is being supported with a new execution of the ESQ and you campaign along with a great new consumer brochure. We are also introducing new diamond fashion product for women including this Simone and diamond venture. Both of which are featured in our national advertising campaign. These collections will attract more women to the ESQ brand and truly round out ESQ's product assortment. ESQ continues to be a standout in the entry level Swiss watch category and with a strong television campaign now airing on national cable channel, ESQ is more visible to consumers than ever before.

Our license category generated tremendous growth in the third quarter with increases recorded in each of these businesses. We continue to embrace the Coach brand philosophy. Focusing on product synergies and productivity in the United States, Japan, and with the Japanese travel. Our success with Coach is based on a continuous flow of new and relevant product and the third quarter was no exception. This fall Coach is celebrating its 65th anniversary. Coach introduced a new handbag collection and advertising campaign that pays homage to its past. The Coach legacy. Truly integrating Coach watches with the overall Coach lifestyle we are featuring the new Whitney watch in our legacy advertising campaign.

We are very pleased with the growth generate by our Tommy Hilfiger watch business in the quarter as the brand positions itself higher in the fashion category, so do our fall and holiday offerings. Classics have been redefined with styles like Fairfax and Bay Head. We also launched a limited edition release, Heritage with an automatic movement and skeleton front and back display. The Tommy Hilfiger fall advertising campaign has debuted in all major markets and highlights our Shane watch with shearling and leather cuff. Hugo Boss watches delivered a very strong third quarter performance. A very new business to our company we are focused on developing Hugo Boss watches into a key global player in the high end of the fashion watch category . In the third quarter line extensions of our initial collection were extremely well received. In the fourth quarter, we will see the first significant media support behind the brand with focus on our key European market along with Asia to continue fueling the positive momentum throughout the holiday season.

In the world of Juicy Couture we launched Juicy Couture time pieces at the end of September to strong demand in high end department stores specialty stores and Juicy retail stores. The signature born in the glamorous USA watch has been a strong performer as has the fairy tale watch. Our collection is being highly advertised in a variety of vehicles including catalogs, national newspapers and major fashion magazines as we begin to generate customer awareness of the juicy time piece collection. We are very pleased with this new partnership and look forward to building Juicy Couture time pieces into a significant brand in the high end of the fashion watch category .

In Lacoste, we are in the final stages of developing our great new product assortment that will be previewed to our customers at Basel next year. We look forward to taking over this business effective February 1, 2007. As we enter the important holiday season, our brands are highly visible and powerfully positioned at retail, in print, and on television. With great products, innovative advertising campaigns, and comprehensive marketing programs, we are delivering a tremendous amount of excitement in the marketplace. Which should drive consumer purchases during the important gift giving season. 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, 2006. Today my comments will focus on GAAP figures. However, as Efraim mentioned, you have been provided with the reconciliation table of key adjusted figures which provide a picture of our ongoing business. Sales through the third quarter were 166.3 million or 17.3% above prior year. Excluding discontinued product sales of 12.1 million, sales for the third quarter were 8.7% above prior year. Sales in the wholesale segment increased 20.1% to 146.4 million. Excluding discontinued product sales, our luxury category recorded a double digit decline in the third quarter. This reflected the repositioning of the Concord brand and the anniversarying of strong sell in of new product for eval in the prior year.

Our accessible luxury brands are above prior year by 16.3%. Movado continues to achieve very good sell through at retail in our major chain and department store business. ESQ continues to generate positive response from our retail customers through the new model introductions and new marketing campaign. We also continued to expand ESQ's domestic distribution.

Our licensed brand category was above prior year by 46.9%. All brands were above last year. The growth was primarily the result of the launch of Hugo Boss and Juicy Couture watches as well as growth for Tommy Hilfiger globally. The domestic wholesale segment was up 22.7% from 93.3 million to 114.5 million. Excluding the discontinued product sales mentioned previously, the domestic wholesale segment was up 9.8% with sales of 102.4 million. The international wholesale segment was up 11.3% with 28.6 million to 31.9 million.

The retail business posted a 0.4% increase over last year. Movado Boutique sales increased by 1.3% over last year. This was the result of a 0.5% comparable store sales increase along with new stores. Company outlet stores were below prior year by 0.2%. This was primarily the result of a 5.6% comparable store sales decrease reflecting reduced traffic and product assortment. As of October 31, 2006, the Company upgraded 30 Movado boutiques and 30 outlet stores. Gross profit for the quarter was 97.9 million or above last year by 11.7 million. Gross profit as a percent of sales is 58.9% versus 60.8% last year. Excluding the previously mentioned discontinued product sales, the gross profit percentage for the quarter was 63.5%. The increase of 270 basis points was driven by higher margins in the Movado boutiques due to the sales mix and higher margins from jewelry products and margin percentage improvement across most brands due in part to higher margins on new model introductions.

Our operating expenses were 78.1 million or 16.3% above last year. The increase of 10.9 million is primarily attributed to a change in estimate of the Company's reserve for accounts receivable of approximately 6 million and higher payroll and related costs of 4.2 million. Reflecting salary and benefit cost increases, increased head count to support the growth of both new and existing brands and higher equity compensation costs. In addition, increased spending of 1.4 million was made in support of retail expansion and added spending of 0.6 million reflects the consolidation of the majority owing joint venture established to distribute the licensed brands in Germany and France. The increase was partially offset by 2.2 million out of period adjustment recorded in the third quarter of fiscal 2007 related to foreign currency. We recorded other income for the three months ended October 31, 2006 and 2005 of 0.4 million and 1 million respectively. Net interest expense of 234,000 versus the prior year expense of 1.2 million.

Increased cash invested in the U.S. generated significantly higher interest in income in prior years. More than offsetting the interest expense from our borrowings in Switzerland. Our average debt for the quarter was 96.3 million compared to 88.8 million prior year. Our average barring rate was 3.9% versus 5.2% prior year. We recorded a tax benefit of 2 million for the three months ended October 31, 2006, as compared to a tax expense of 4.7 million for the three months ended October 31, 2005. At October 31, 2006, as result of a revised income projection the Company recognized it would be able to utilize a greater portion of the Swiss net operating loss carry forward.

The taxes recorded in the three months ended October 31, 2006 reflect a discreet benefit of 3 million as well as adjustment to reflect the projected 11% effective tax rate. For the three months ended October 31, 2005, the annual effective tax rate was 25%. Net income was 21.9 million versus 14.1 million last year. Earnings per diluted share was $0.82 versus $0.54 last year.

Looking now at our year-to-date results. Sales for the nine month period were 390.6 million or 13.3% above prior year. Excluding the 12.1 million of discontinued product, sales for the nine month period wee 9.8% above last year. Sales in the wholesale segment increased 14.9% to 333.5 million. Excluding discontinued product sales our luxury category recorded a single digit decline in the year to date period. This reflects the repositioning of the Concord brand partially offset by the double digit growth of Ebel. Our accessible luxury brands were above prior year by 11% both Movado and ESQ were above prior year. Our license brands were above prior year by 41% reflecting the launch of Hugo Boss and Juicy Couture watches and global growth of Tommy Hilfiger.

The domestic wholesale segment was up 13.2% from 215.8 million to 244.2 million. Excluding the discontinued product sales mentioned previously, the domestic segment was up 7.5%. The international wholesale segment was up 20% from 74.4 million to 89.3 million. The retail business posted a 4.5% increase over last year. The increase was driven by an overall 11.6% increase in Movado Boutique sales. This was the result of a 5% comparable store sales increase along with new stores. The Company outlet stores were below prior year by 0.6%. This was the result of a 3.7% comparable store sales decrease due to the factors which I stated earlier.

Gross profit for the nine month period was 236 million or above last year by 27 million. Gross profit as a percent of sales was 60.4% versus 60.6% last year. Excluding the previously mentioned discontinued product sales, the gross profit percentage for the nine months was 62.4%. The increase of 180 basis points was driven by the same factors as indicated for the quarter. Our operating expenses were 198.7 million or 13.2% above last year. The principal reasons for the increase in expenses are primarily the same as outlined for the quarter. We recorded other income for the nine months ended October 31, 2006 and 2005 of 0.4 million and 1 million respectively. Net interest was 589,000 versus a prior year expense of 2.9 million. Our average debt for the nine month period was 100.6 million versus 71 million in the prior year period. Our average borrowing rate was 3.7% versus 5.3% prior year. The Company recorded a tax expense of 1 million through the nine months ended October 31,2006 as compared to a tax expense of 7.9 million for the nine months ended October 31, 2005. Net income was 36.1 million versus 23.7 million last year. Earnings per diluted share was $1.35 versus $0.91 last year.

Now taking a quick look at our balance sheet. Our cash as of October 31, 2006, is 79.9 million versus 56.1 million last year. Accounts receivable of 159 million is above prior year by $14 million. This increase is attributable to the sales mix with higher sales growth in our wholesales business versus the retail business. Our DSO's as of October 31, 2006 has remained consistent at about 90 days year on year. Inventories of 207.7 million decreased by $1.2 million from last year. The decrease is due to the discontinued product sales previously mentioned offset by seasonal build of inventory in support of holiday sales.

Total debt consisting of both short and long-term debt was 87.4 million versus 89 million last year. Capital expenditures were 12.3 million and depreciation expense was 11.9 million. We expect our capital expenditures for the year to be approximately 20 million and depreciation expense for the full year to be approximately 16 million. Overall we are very pleased with our financial performance in all respects. Delivering a very solid P&L performance and maintaining a good balance sheet. Now let me turn the call over to Rick.

Thank you, Gene, good morning everyone. Our strong financial results and balance sheet speak to the fundamental strength of our business model. As you know one of our key operating initiatives is continued improvement of our financial returns. Namely operating margin and working capital. Throughout the year our global team has demonstrated strong operating disciplines which have translated into expanded gross margins and operating profit growth. Going forward, we will continue to focus on growing our operating margin through a combination of gross margin improvement and the leveraging of our existing infrastructure. Our goal is ultimately to expand our operating margin from the historic 10% level to the mid teens over the next several years.

Another component of improving our financial returns and a key focus for our company is reducing inventory and improving our overall inventory mix. As Gene mentioned, during the third quarter we took advantage of an opportunity to convert discontinued product into cash thereby reducing inventory, improving our inventory mix, and driving cash flow. We will continue to work diligently on improving our inventory position. Our expectations for the remainder of fiscal 2007 are for further reductions of discontinued product. Albeit smaller than levels recorded in the third quarter. We exclude these discontinued sales in our financial guidance as we view them to be above and beyond our normal course of business.

In addition to improving our financial returns, our team remains focused on executing our strategy and achieving our long term objectives which include realizing the opportunities taking place in our existing businesses. These include the continued growth of our Movado Boutique business as we convert this business into a profitable operation next year. Our accelerated growth plan for ESQ. The ongoing revitalization of Ebel to its historic stature as global luxury watch brand and the restoration of the health of the Concord brand. In second, a continued focus and ramp-up of our newest businesses. Hugo Boss, Juicy Couture, and the spring 2007 launch of Lacoste watches.

Now I would like to turn to our financial outlook. On a GAAP basis, we project fiscal 2007 diluted earnings per share to range between $1.77 and $1.82 versus GAAP earnings of $1.02 recorded in fiscal 2006. This range is based on an approximate 5% tax rate given the further utilization of the Ebel NOL which Gene discussed earlier. This CPS range compares to our previous GAAP earnings guidance for fiscal 2007 of $1.53 to $1.58 which was based on a 17.5% effective tax rate. On an adjusted basis, which excludes the unusual items cited in the reconciliation table, and based on a normalized 25% effective tax rate, our fiscal 2007 diluted earnings per share range of $1.77 to $1.82, translates to a range of $1.45 to $1.50. This represents a 16% to 20% increase from fiscal 2006 adjusted EPS of $1.25 which also excluded unusual items and was based on an effective tax rate of 25%.

Our guidance continues to include an approximate $0.08 per diluted share expense associated with the adoption of FAS 123R and the shift in the composition of our equity based compensation plan from options toward restricted stock. Net sales for fiscal 2007 are expected to grow approximately 10% from last year. Gross margin for the year is expected to be slightly below the adjusted gross margin of 62.4% recorded in the year to date period. And we expect operating expenses to continue to grow in support of our new business initiatives previously discussed. With that, I would like to open up the call for your questions.

[OPERATOR INSTRUCTIONS] Our first question comes from David Taylor of David P. Taylor & Company.

Thank you. I'm calling on a cell this morning so I might break up a little. I'm interested in some of these unusual items. The $12 million of excess discontinued product, was that all Concord? Were there other brands involved. How was it sold?

Predominantly it was Concord and it was sold through liquidation channels. And it's basically geared on the restructuring on the Concord brand which will introduce new product next year. There was some discontinued Movado, 14-karat gold watches because we discontinued the 14-karat gold market for the Movado brand.

And you chose to use wholesale channels rather than going through the Company outlets?

Because these are items where there was depth and they are older items. So there was also depth in the depth in the inventory and we felt the prudent decision was to turn that inventory into cash.

The accounts receivable reserve, was there a particular customer who is in difficulty or what?

What I mean, basically we increased our reserve for bad debt based on a change in our estimate to provide for aged customer receivables including unauthorized deductions. No, it did not relate to any particular customer from a bankruptcy perspective.

Just a more conservative way of forecasting reserves? Is that correct?

Well, again, I think it's to focus in on increasing our bad debt reserves to basically include the unauthorized deductions and from our standpoint we believe that we are adequately reserved in our position.

Thank you.

Our next question comes from Kristine Koerber from JMP Securities.

Yes, hi. Couple of questions. First of all, just looking at the guidance, I'm still a little confused. The guidance of 1.77 to 1.82 that compares to the guidance you gave in Q2 of 1.53, 1.58. You actually bumped up guidance. Is that correct?

We bumped it up based on a lower tax rate.

What we've done -- yes, it is an increase and the increase is due to the change in the unusual items that we've outlined as well, most importantly the change in tax rate. Our previous guidance had a tax rate of 17.5% for the year. The new guidance has a tax rate of 5% for the year and the guidance that we outlined including the unusuals and going to a normalized tax rate was at a tax rate of 25%.

Okay. So then it's actually -- I think the tax rate effects like $0.06 per share if I did my math right. So then guidance is actually down.

No. The guidance is pretty much the same. I mean, let me reiterate. The guidance that we gave last time was based on a 17.5% tax rate. The guidance I'm giving, taking out the unusuals and going back to a normalized futuristic tax rate of 55% is in that 1.45 to 1.50 range. If I gave you a guidance assuming it's 17.5 tax rate which is not our ongoing normal rate it would have been the same as our previous guidance.

Got it. What about top line guidance. You said you're targeting sales growth of 10 to 11% for the full year and it looks like if we back out discontinued sales in Q3 you didn't hit that 10 to 11. Are we still looking 10 to 11 for the full year?

Yes. I said it's approximately around 10% and obviously in the fourth quarter it would be a little bit -- slightly higher than where we have been year to date or right around that level, because I think year to date we are a tad under 10%.

Okay. Then lastly, the Boutique, the big comp number was not as strong as we've seen it in prior quarters. Anything going on at Boutiques?

Actually, we had a very strong quarter in the third quarter last year and we've had a very strong year to date number. We are pleased with the up 5% for the year to date and obviously the three months of the holiday season re the most important part, some of the products that we have for the holidays got in a little later as well as we are very focused on our gross margin and improving our gross margin which was significantly improved in the third quarter. So we absorbed also a price increase in the quarter and now it takes a few months for people to get used to the new pricing.

And then just any comment on the holiday season? What you are seeing thus far as far as sell through.

So far it looks pretty good. But the vast majority of the holiday season is ahead of us, how is that?

That's fair. Thank you.

Okay.

Your next question comes from Jody Kane of Sidoti & Company.

Thanks. I had a quick question about SG&A as a percent of sales, it looks like it was about 47% of sales this quarter versus about, around the same 47.4, third quarter of last year. I was just wondering how come there's no sort of expense leverage there?

Well, couple of things. As we talked on the leverage taking place. Realize that we are still in an investment mode from a standpoint of if you look at the initiatives that we have outlined from the standpoint of our ESQ extension program. Obviously the Movado 800, the Movado 800 Series taking place and even more importantly the licensed brands. Hugo Boss. This is really the first full year of operation that we've had. Juicy Couture. We just launched that in the third quarter. And Lacoste we are gearing up for the launch and taking over that business in February and obviously with those new businesses it's -- you've got a lot of investment up front particularly from a product development standpoint and all that. Again, without the unusuals we are looking at a 44.7% level of operating expenses.

So again, our focus is on driving gross profit percentage of which we have seen that and that's our primary and major focus that we see over the next number of years as we achieve our object of improving operating margins from that 10% level to the midteens. But also getting the leveraging of operating expenses and I would expect we would see the leveraging of operating expenses taking hold over the latter part of that five year plan. Getting some benefit but clearly we are still in a little bit of an investment and even those three new businesses we launched will still be an investment for another year or two as we grow those. Again, investment and operating expenses, they are profitable overall.

Great. And what was the benefit -- what part of the Series 800 did Derek Jeter and Tom Brady -- was that an expensive part of the SG&A?

It's part of our normal marketing investment and we are still on target so it's not outside of our normal targets. But we are very excited about those two relationships and that's why I mentioned them. We think they are first class individuals and really personify the Movado brand within the sports segment.

And do you think that there's sort of a bigger advantage of having two as opposed to just having one nationally recognized sports star?

Well, we wanted to -- they are in two different sports. Two different seasons. And really that is what we were looking for when we embarked on this. We didn't want to associate -- the Movado brand is really about the Movado brand and although we have ambassadors and associations we don't view them as direct endorsement relationships. More associations with people that match the Movado personality and that's why we are also very excited about the new program that we started with the Movado Future Legends award. And it's gotten a lot of press both locally and nationally.

And then on the higher end watches that have the diamonds in it and your sales of diamonds, are you seeing any price changes or increasing prices in diamonds that could affect margins?

Not really. We had seen previously last year diamond costs did go up. We've adjusted those within our gross margin models but not this year.

Great. Thanks.

Thank you.

Our next question comes from Elizabeth Montgomery of Cowen.

That's Cowen. Congratulations, guys, on a good quarter.

Thank you.

I guess I have a couple questions. The first one, I'm wondering I guess what would you attribute your better performance over the past year, year and a half relative to Fossil and kind of the more moderate brands at Swatch? Would you say it's the strength of the brands? Your better positioning of those brands versus a couple years ago. More streamlined distribution versus a couple years ago? Or the fact that you are competing at different price points do you think?

I don't really comment on other brands. What we focus on is executing on our businesses. I think the strength of our brands is one, the focus on really great partners to work with and we have that from Coach to coming up with Lacoste. We have very close working relationships with all of our partners and they are fabulous companies and fabulous brands and world class brands. The other area that I attribute to our success in that area is the strength of our product development and our supply chain as well. Where we have been able to make, I think, great product for each of our partners and that offer great value and image and association to the consumer.

Then in your core brands, the nonlicensed brands would you say it's just been that they have been more fortunate to be positioned in the part of the watch market that has been doing better? Or do you attribute--?

I think two things. We have the leader in this market in Movado in the accessible luxury category . It by far had the largest market share within that category and we continue to focus and build the image of the brand and again, develop great new product for the brand. ESQ has been a strong performer for us in the entry level market to accessible luxury. And then at the high end in Ebel we believe we -- and I don't think I've said it enough times, but -- or I have said it many times, we believe we have bought an unbelievable asset and we're really bringing it back to its rightful position at the top end of the luxury category. And as we've said in previous calls we are in the process of restructuring our Concord brand and are very excited with the initial direction that we are seeing towards developing that plan and being able to share it with you at the beginning of next year.

Great. And then just remind me about the current revenue run rate of the Lacoste license and then maybe how much is left of your NOLs from Ebel?

Well, we don't -- we take over Lacoste in February of next year. And I don't think we have given guidance yet on the size of that business or what we believe it will be next year. And I will turn over the call to Gene on the NOL.

When we acquired Ebel, we acquired about 180 million Swiss francs worth of an NOL and we have been able to utilize or project the utilization of 90 million of it. So there is still about 90 million left.

And what determines whether or not you can utilize them?

Future earnings in our Swiss operations.

Okay. Thanks, guys. Good job.

Thank you.

Our next question comes from [Steven Hill] of First Investors.

Hi, guys. How you doing? A few questions. First, I'm wondering if you can tell me if you are still in the M&A market and it you are can you just generally tell me are you seeing a deep pipeline and good pricing? Or is it the reverse. Second, I'm wondering if you could tell me when you think you might see scale in the Boutiques if you think you might see it in 2007? Then finally I'm wondering if you could explain to me again why your effective tax rate on guidance went up and if FIN 48 is going to be an issue for you guys.

And I will anticipate the last one first. Our effective tax rate on guidance did not go up. I think what Rick was giving you was what our guidance would look like had we had a 25% tax rate this year.

You were using 17.5 last quarter. Right?

Yes. And we--.

Why did that go up? Why did you go from 17.5 to 25?

The guidance that we had given last quarter was based on 17.5%. The guidance that we are giving on a GAAP basis is utilizing a 5% tax rate for the year because we further utilized some Ebel NOLs. Then what have I done is I have said now if you want to compare apples to apples which is comparing it to last year when we had a 25% tax rate. And we believe 25% is our more normal ongoing tax rate. I then said let me strip out the unusuals we talked about and let me assume a 25% tax rate for the year. If we did that, then we can compare this year to last year and this year's number would be in that $1.45 to $1.50 range versus last year of $1.25, I believe the number was at a 25% tax rate. That's a hypothetical. When we are done, our actual tax rate this year will be 5% and the guidance of $1.77 to $1.82 includes a 5% tax rate and it includes the unusuals that took place in the third quarter and that is a change from the previous guidance that had 17.5%.

And is FIN 48 a factor for you guys at all?

FIN 48 is a factor that comes into play next year. That is something that we are still assessing and analyzing. That's something that we would have to book if there is any change take place in the first quarter, but that's something we are assessing and analyzing.

If you could just address the pricing and the M&A market and the leverage at Boutiques.

Sure. On the M&A side, we have historically been an opportunistic buyer. And we remain that so it's an opportunity to present itself that we believe would present great value for the Company and its shareholders. We would obviously avail ourselves of that. We have a very strong balance sheet and in a very strong cash position. But usually in stronger economic times which we are still to be in one, opportunistic purchases become more challenging.

That I think will give you a little bit about the pricing of the market. On the Boutique side, I think Rick did say it in his comments as well, we are still looking for the Boutiques to be profitable next year which is fiscal 2008 for us. And we will see improved results compared with last year.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question is a follow-up from David Taylor of David P. Taylor & Co.

Thank you. A few housekeeping questions. Gene just mentioned that 90 million out of 180 million Swiss franc NOL was used. I wasn't clear as to whether that was at the end of the third quarter or what you expect at the end of the current fiscal year.

David, trying to clarify this, the utilization of the 90 million is to cover current year in addition to projective future years utilization through the life of the NOLs.

But that was as of the end ever the third quarter?

That is correct.

Okay. So there could be a change between now and fiscal year end.

Obviously our best estimates right now say that we will end up with the earnings mix as we projected but certainly there could be a change.

Okay.

I assume that the Boutiques must be approaching a break even in the current fiscal year. Is that correct?

They will not be approaching a break even in the current fiscal year but they will be substantially better than last year.

Thank you very much.

Thank you, David.

Our final question comes from Kristine Koerber of JMP Securities.

Hi. Just a quick follow-up. I want to make sure I have the guidance right. I understand the 5% actual tax rate for this year -- I guess my question is so should we be using 25% tax rate then for the full year even though the actual is going to be 5 because your guidance is at 1.45 to 1.50.

Yes. What I have done is -- the actual tax rate is 5%. Our guidance for this year on a GAAP basis is $1.77 to $1.82. However if you want to now look at a number that says how would I compare that to last year on an apples to apples basis and what's more representative of where we were going in the future. Last year our tax rate was 25%. On an ongoing basis we expect our tax rate to be more in that 25% range. So if I were to take this year's guidance and strip out the unusuals and assume a tax rate that's more representative of historical in future, that then gets to the guidance that I've outlined of $1.45 to $1.50.

Right, I understand that. But how -- how are you going to report, I guess that's--?

I'm reporting GAAP. When we are done we are going to report $1.77 to $1.82 for the full year.

That's what I need to know. Thank you.

What we report. We expect.

There appear to be no further questions at this time.

Thank you very much. I would like to thank all of you for participating today and asking some very good questions. We are looking forward to the holiday season. We remain very focused on ensuring that our brands remain strong in the marketplace. I would like to wish all of you a happy and healthy holiday season and thank you again for participating.

Thank you. This does conclude today's teleconference. You may now disconnect.