Movado Group Inc (MOV) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to Movado Group's fiscal 2007 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 written permission from the Company.

I would now like to introduce Ms.

Suzanne Rosenberg of Movado Group.

Thank you.

Good morning everyone and thank you for joining us today.

With me on the call is Efraim Grinberg, President 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 2008 and beyond.

We currently expect 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 our fiscal 2007 performance, 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, and good morning everyone.

Movado Group's continued success in fiscal 2007 demonstrates the distinctive positioning of our brands, the clarity of our strategy and the power of our business model.

We delivered record sales, strong gross margins, an 18% increase in adjusted operating income and a record net income of $41 million on an adjusted basis.

These outstanding results were achieved as we continued to support our existing brand portfolio and launched new business initiatives.

Today, in a separate press release, we also announced a 33% increase in our dividend, marking the seventh consecutive year of increasing our quarterly dividend and underscoring our Company's strong cash flow and financial position, along with our ongoing commitment to building value for our shareholders.

Now let me turn to our luxury brands performance in fiscal 2007.

Ebel enjoyed a strong year with solid double-digit sales gains over last year.

The fourth quarter was marked by the introduction of Ebel's 1911 BTR Collection, an exclusive collection of men's watches powered by Ebel's proprietary mechanical movement.

This introduction was supported by strong marketing and advertising initiatives, as well as targeted public relations activities worldwide.

In recent times, Ebel has predominately targeted the female consumer.

As we continue to expand Ebel, we expect to take a more balanced approach to reaching both male and female consumers.

Next month at Basel World, the international watch and jewelry trade fair, we will introduce several important extensions in Ebel's Brasilia collection which was first introduced in April 2006.

We'll also introduce a new family of luxury sports watches for men, the 1911 Discovery collection.

Ebel continues to gain in relevance, power and desirability while gaining the confidence of our retail partners around the world.

Fiscal 2008 will be a year of repositioning for the Concord brand.

As you know over the past year, we have rationalized Concord's expense structure and shrunk the overall size of the business while maintaining its profitability.

At Basel, we're very excited to be introducing Concord's new brand vision and strategy.

In preparation for a worldwide relaunch, we have pared Concord down to the very essence of the brand -- Swiss expertise with a passion to innovate and lead -- and we will use that brand DNA to create a powerful new Concord.

The new Concord will be a brand defined by its bold philosophy, aggressive positioning, daring product and exclusive pricing.

It will be a resolutely upscaling and unique niche brand with a modern, edgy point of view.

Our accessible luxury category, comprised of Movado and ESQ, delivered low double-digit increases for the year.

Movado capped the year with a strong holiday selling season.

We continued to infuse Movado's product and advertising with fresh elements to excite consumers, never compromising Movado's unique modern brand identity.

The second half of fiscal 2007 was fueled by new products, such as the updated SE, a signature piece for Movado which experienced terrific success and continued momentum in our hard metal Fiero collection.

We also placed a strong focus on our jewelry inspired by Ono watch collection during the holiday season.

Phase I of the launch of Movado's Series 800 collection has been completed and we're now strongly positioned in 500 doors throughout North America, representing an exclusive selection of Movado's overall distribution.

We look forward to continued success in the sport luxury category as we introduce new products and support Series 800 with a strong advertising campaign, featuring Derek Jeter and Tom Brady.

Looking ahead to Basel, we will kick off a major celebration for the Movado brand, the 60th anniversary of the iconic Museum Dial.

Our celebration will pay tribute to 60 years of modern design and to the Museum Dial creator, Nathan George Horowitz.

This special anniversary will be totally encompassing for the Movado brand, both at wholesale and retail.

In the second half of fiscal 2008, we'll deliver special watch and jewelry collections commemorating this important anniversary, such as the 60 millimeter 60th anniversary watch, a beautiful skeleton museum watch and a new piece called Concept 60.

We will also incorporate 60 years of modern design in our advertising and point-of-sale material.

We will to continue to strongly support Movado with a compelling advertising and marketing campaign, supporting the arts, revolutionizing design.

Movado will continue to strengthen its position as the market leader in the accessible luxury category in North America while continuing to focus on the development of the brand in the emerging China marketplace.

Our Movado boutiques experienced a challenging fiscal 2007 and we are disappointed with the results.

We're in the process of refocusing and streamlining our efforts in this important brand-building initiative.

As a result of these actions, we expect a delay in the timing by when Movado boutiques will achieve profitability.

The investment in this business has brought Movado a tremendous amount of exposure and we're committed to its future success.

Branded jewelry presents a major growth opportunity and we're taking the right actions in terms of product design and development to create jewelry that is truly iconic and purely Movado.

As you know, we have delivered strong gross margin improvements in our jewelry offering.

However, in the process, we believe we vacated certain key price points.

Moving forward, we will backfill these categories with terrific products at the right price while continuing to generate strong gross margins.

In terms of advertising and marketing support, in the second half of the year we will focus on promoting greater synergies between Movado watches and jewelry.

We're also streamlining our operations in this business to create a flatter organizational structure that is more efficient and more responsive to our customers.

Additionally, we will close two underperforming locations -- Northbrook, which is outside of Chicago, and our SoHo store in New York.

We plan to open two new locations in the first half of this year -- Topanga Plaza in Canoga Park in Southern California, and South Coast Plaza in Costa Mesa, California.

We expect to end the year with 31 boutiques nationwide.

ESQ experienced a very strong holiday season, driven by strong reception to our Land, Air and Sea collection.

We continue to solidify ESQ's positioning in the accessible luxury category with the recent introduction of Verona for women.

And in May and June publications, we will support ESQ's diamond fashion product through beautiful executions of our ESQ and you advertising campaign.

Throughout fiscal 2007, we successfully expanded ESQ's distribution with new customers and acquiring incremental space in existing retail locations.

ESQ is filling a void in the marketplace by bringing affordable luxury to the consumer and the response by retailers and customers has been tremendous.

In fiscal 2007, our licensed watch business posted strong double-digit increases from last year with five powerful licensing partnerships in place.

We have established a very well rounded portfolio of world-class brands with great growth potential.

We are pleased to have recently extended our close partnership with Coach.

A continuous flow of new and relevant product remains key to Coach's success, and our watches are no exception.

Collections such as Signature, Gallery, Lexington and Madison continue to bring success to our Coach watch business.

In fiscal 2008, we will continue to execute the Coach brand strategy, targeting the younger demographic with bold colors and designs while maintaining our appeal to the traditional Coach consumer.

This year, additional focus will also be placed on the Japanese marketplace.

For the first time, we will introduce Coach watches exclusively designed for Japanese consumers in terms of size, color palette and design.

Additionally, we will incorporate our advertising efforts with the Coach parent brand, conveying a comprehensive brand presentation to the consumer.

Tommy Hilfiger watches also delivered a strong performance in fiscal 2007, generating very strong double-digit sales gains for the year.

New product introductions, such as Shane and Blackbird, were standout performers during the holiday season and kept consumers excited for what's to come.

Our watches are keeping in step with the overall marketing and merchandising direction of a more refined Tommy Hilfiger.

In the first quarter, our Tommy Hilfiger watch collection is very focused on highlighting classic styling with great sport and fashion looks.

Since launching the collection at Basel last year, our Hugo Boss watch business has been excellent.

New products are being strongly received with the majority of the sales generated outside of North America.

France, Spain and the United Kingdom are proving to be strong markets for the brand, as is Asia.

In fiscal 2008, we will focus strongly on Hugo Boss's home market of Germany.

Also, this year, we will launch a completely new collection under the Boss Orange name, with watches featuring more urban and sportier designs.

In the second half of fiscal 2007, we launched our first collection of Juicy Couture watches to a great reception with signature Juicy dials performing extremely well.

This year, we will debut Juicy Couture watches on a much larger scale at Basel and throughout the year, we will focus on growing our specialty store business while enhancing our performance in high-end department stores.

This year at Basel, we were also very excited to introduce our new Lacoste watch collection.

As you can see from our results, fiscal 2007 was a very successful year for Movado Group as we continue to focus on building and managing the aspirational positioning of all of our brands.

Looking ahead, we will maximize the potential in our existing portfolio while remaining focused on continuing to improve our financial returns.

I would now like to turn the call over to Gene, who will review our financial results in greater detail.

Thank you, Efraim and good morning to everyone.

We are pleased with our financial performance in the fourth quarter and for the full ended January 31, 2007.

In fiscal 2007, we recorded four unusual items which I would like to discuss first.

In the quarter, we recorded a $2.2 million pretax gain from an out-of-period adjustment related to foreign currency.

We recorded a charge -- a change in estimate of the Company's reserve for accounts receivable.

This resulted in a $6 million pretax non-cash charge in the third quarter.

Also in the third quarter, we recorded an income tax benefit resulting from the further utilization of our Ebel NOL, which resulted in a full-year tax rate of 5.4%.

In the fourth quarter, we recorded a gain on the sale of the nonfinancial asset resulting in an after-tax gain of $0.5 million.

In fiscal 2006, we also recorded a number of unusual items which are detailed in the reconciliation table attached to today's press release.

For purposes of today's conference call, my comments will refer to adjusted figures which exclude these items which are outlined for you in the reconciliation table.

We believe these adjusted figures present a more accurate picture of our ongoing operations and allow for an apples-to-apples comparison when discussing year-over-year results.

My comments will focus on the year, but first let me provide you with some highlights for the fourth quarter.

Sales for the fourth quarter increased 12.8% over last year to $142.3 million.

During the quarter, we liquidated additional discontinued non-core Concord and Movado product which we initiated in the third quarter.

The liquidation amounted to $4.4 million.

Excluding the liquidation, net sales were $137.8 million, or 9.3% above prior year.

Gross margin for the quarter was 61.1%.

Excluding the liquidation sales, gross margin was 63.1% compared to 61.3% last year.

Operating profit increased by 8.7% year-over-year to $15 million as compared to adjusted operating profit of $13.8 million in the prior-year period.

Adjusted net income increased 15.2% to $11.4 million, or $0.42 per diluted share versus adjusted net income of $9.9 million, or $0.38 per diluted share in the year-ago period.

Turning now to our full-year fiscal 2007 results.

Net sales were $532.9 million, or 13.1% above prior year.

Excluding the liquidation sales of $16.6 million, net sales were $516.3 million, or 9.6% above prior year.

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

Sales in our wholesale segment were $443.2 million, or 15% above prior-year and excluding the liquidation, was 10.7% above last year.

The U.S.

wholesale business was above prior year by 14.8%, and excluding the liquidation, by 7.9%.

The international wholesale business was above prior year by the 15.4% to $166.2 million, led by the strong performances of our licensed brands, primarily in Europe and Asia, as well as Ebel in Europe and the Middle East.

The retail segment increased 4.8% to $89.7 million for the full year.

Sales increased in the Movado boutiques by 9% with comparable store sales in our boutiques increasing 2.3%.

The company outlet stores recorded a total sales increase of 1.3% year-over-year.

Gross profit for the year was $322.9 million, or above last year by $36.6 million, driven by a higher sales volume as well as a higher gross margin.

Our gross margin was 60.6% as compared to 60.8% in the prior-year.

Excluding the liquidation, gross margin was 62.5%.

Adjusted operating profit for the full year was $56.1 million, or 18% above prior year.

We recorded other income of $1.3 million versus $1 million in the prior year.

Net interest expense for the full year is $0.5 million versus $4.1 million last year.

This is the net result of higher average borrowings of $97.2 million with an average borrowing rate of 3.7% versus $78.7 million last year with an average rate of 5.2%.

In addition, we earned 4.9% on our invested cash.

Income taxes were recorded at a 5.4% effective rate versus a 40.8% effective rate in the prior year.

Last year's rate included a $7.5 million charge related to foreign earnings repatriated under the American Jobs Creation Act.

This year's rate reflects the continued utilization of the Ebel NOL.

Adjusted net income increased 26.1% to $41.2 million, or $1.54 per diluted share, versus net income of $32.7 million, or $1.25 per diluted share in the year-ago period.

Now I would like to discuss our balance sheet.

Our cash at January 31 was $133 million versus $123.6 million in the prior year.

The higher cash is the result of strong cash flow from operations.

Our cash flow from operating activities for the year is in excess of $67 million, which represents a record for the Company.

Accounts receivable of $111.4 million increased by $1.6 million, or 1.4% above last year as compared to our sales growth of 13.2%.

Our days sales outstanding at year end are 62 days versus 70 days in the prior-year period.

Inventories of $193.3 million decreased $5.2 million, or 2.6% from last year.

The decrease was primarily due to the previously mentioned liquidation.

Our long-term debt is $80.2 million versus $110 million last year as we paid down a portion of the debt from the excess cash generated throughout the year.

Our capital expenditures are $20.2 million and depreciation expense is $16.6 million.

Our capital expenditures principally included the construction cost for new retail stores as well as the build-out and renovation of existing retail stores, further automation of our distribution facility in Winaukee, New Jersey and systems, hardware and software acquisitions.

In summary, we are pleased with our financial performance in all respects, delivering a very strong P&L performance and maintaining a solid balance.

Now let me turn the call over to Rick.

Thank you, Gene, good morning, everyone.

Fiscal 2007 was an excellent year for Movado Group as we delivered record sales, record net income and exceptionally strong gross margin, along with record cash flow.

Appropriate investments made in our brands and businesses continue to pay off in the form of brand image, sales growth, margin expansion and earnings growth.

This is a strategy that we will continue to employ in fiscal 2008 as we optimize our current brand portfolio, growing both domestically and abroad.

Now let me outline our operating initiatives for fiscal 2008.

First, we are focused on maximizing growth opportunities in our existing businesses, particularly in our newest brands -- Hugo Boss, Juicy Couture, and now Lacoste.

All three of these businesses are in their infancy stage and have significant global growth potential.

Of course, each of these businesses also requires a certain level of investment.

Hugo Boss was launched in early fiscal 2006, Juicy Couture in the fall of 2006 and we will debut our call Lacoste collection at Basel.

In addition to our newest businesses, across our portfolio we continue to see significant opportunities both domestically and internationally.

Ebel continues to experience solid global glow growth trends as retailers and consumers respond strongly to new product introductions and a consistent brand image.

Fiscal 2008 will be a repositioning year for Concord as we finalize the brand's new direction following the preview of our concept at Basel.

In our Movado brand, we will focus on tightening distribution and improving productivity in existing retail doors.

Turning to our Movado boutiques, as Efraim mentioned, fiscal 2007 was challenging for this division.

As you know, our original strategy was to grow to approximately 30 boutiques nationwide, achieve a certain sales level, or what we define to be critical mass, and then convert into a profitable operation.

We're now pleased with our boutiques' performances last year, and while we still anticipate this division to become profitable, it will take more time than we had originally projected.

The second major focus for our Company in fiscal 2008 is a multiyear rollout of a worldwide enterprise resource planning system.

We have signed an agreement with SAP and are now in the beginning stages of the implementation process.

This is an important undertaking for our Company and will ultimately provide us with a fully integrated end-to-end view of our multiple businesses.

We have added and developed key talent, leadership and a dedicated team of resources within our organization that makes us confident that our approach in activities related to the implementation will have a profoundly positive impact on our business.

The implementation of SAP will support the Company's growth strategy and integrate our global sourcing, wholesale and retail operations.

We're bringing our organization to a whole new level of sophistication by reengineering our business processes and by harnessing technology to make a significant and sustainable impact on our global operations.

In addition to the gross margin expansion and increased scale, the implementation of a new enterprise resource planning system will be a key enabler toward enhancing our overall cost structure, improving our operating margin performance and enhancing our customers' experience.

Our third major focus this year is continued improvement of our financial returns; namely, operating margin, which remains a top priority for our Company.

Our goal is ultimately expand our operating margin from the historic 10% level to the mid-teens.

This improvement will be driven by increased scale, along with a combination of gross margin expansion and the leveraging of our existing infrastructure.

In the near-term, our operating margin goal is to reach 11.5% in fiscal 2008, which represents a 150 basis point improvement from fiscal 2006.

Another component of improving our financial returns and an ongoing focus of our Company is reducing inventory and improving our overall inventory mix.

During the second half of fiscal 2007, we took advantage of an opportunity to convert a 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 and would expect further reductions of discontinued product in fiscal 2008.

We continue to exclude these discontinued sales in our financial guidance as we view them to be above and beyond our normal course of business.

We remain focused on driving shareholder value over the long-term and believe our Company is positioned to achieve that goal.

Now I would like to turn to our financial outlook for fiscal 2008, which assumes continued economic strength.

As a reminder, in fiscal 2007, we reported full-year net sales of $532.9 million.

This includes $16.6 million of excess discontinued product.

We project net sales to range between $550 and $560 million in fiscal 2008, excluding the potential for any future discontinued product sales.

As I mentioned earlier, given the dynamics in our brand portfolio, top-line growth will be driven predominantly by our newest businesses as we focus on increasing productivity at retail in our more established brands, beginning the transition of Concord to its new direction and streamlining the boutique business.

Additionally, on a quarterly basis, net sales will be impacted by a shift in retailers' buying patterns given the shift in the 4-5-4 retail calendar.

Therefore, we would expect slower sales growth rates in the first half of fiscal 2008 than our full-year projection.

I will discuss the impact of the calendar shift on our profits in a few moments.

Gross margin is expected to remain strong and in line with adjusted fiscal 2007 levels of approximately 62.5%, which represents a 170 basis point improvement from fiscal 2006.

We anticipate full-year operating profit in fiscal 2008 to grow approximately 14% from the adjusted operating profit recorded in fiscal 2007, what you can see in our reconciliation table attached to today's press release.

Expanding the differential between our sales growth and operating profit growth is part of our long-term strategy.

This will result in operating margin growing from our historic 10% level to its projected 11.5% in fiscal 2008.

Our tax rate in fiscal 2008 is projected to return to its normalized 25% level and excludes any potential impact associated with the adoption of FIN 48, which we continue to evaluate.

In terms of diluted shares, we project our share count to increase approximately 2.5% from fiscal 2007, which is in line with our historic growth rates and dilutes earnings per share by approximately $0.04 from last year.

Finally, we anticipate earnings per diluted share in fiscal 2008 to be approximately $1.72.

This represents a 12% increase from adjusted EPS of $1.54 recorded in fiscal 2007.

As you know, in the second with of last year, we made the decision to cease providing quarterly earnings guidance as it is not consistent with the long-term view we apply to our business.

However, certain unusual situations, such as the shift in the retail calendar of which we're not on, does significantly impact our business, and therefore we would like providing with a better understanding of that impact on our quarterly earnings.

As a result of the shift, we would expect approximately $8 million of sales to shift from the first quarter into the second half of fiscal 2008.

Since the first quarter is our seasonally smallest, clearly this will have a material effect on our first quarter results.

Therefore, we would expect to record a small loss in the first quarter.

Capital expenditures for fiscal 2008 will approximate $30 million.

This cost includes costs associated with the SAP implementation, the majority of which will be incurred this year and next year.

Capital expenditures will also be made to support our retail operations, including three new stores, one outlet and two boutiques, our brand positioning at retail and efficiency improvements in our worldwide operations.

We will also continue to focus on generating strong cash flow, at least commensurate with net income.

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

(OPERATOR INSTRUCTIONS).

Jody Kane, Sidoti & Co.

I was wondering if could sort of get a better idea of the slower growth rate in '08 than we just saw in the previous years.

Anything that you can sort of put your finger on while we're now sort of looking at sort of 18 to 20% growth?

I will take a crack at answering that.

We believe that we are very well positioned to continue to expand our operating profit as a percentage of sales, and that is what we are focused on doing, at the same time continuing to build a healthy and strong base for future expansion.

And we believe that the range that we're in of approximately 14% is the correct range for the year.

And then it sounds like the licensing brands are doing very well.

Is there more expansion opportunities there, or is there a -- can we look for a bigger jump over the next several years in core proprietary brands?

I think that the expansion opportunity in the licensed brands is organic, meaning that one of these brands we have not even launched yet, Lacoste; two of the brands -- Hugo Boss and Juicy Couture -- we just launched this past year, so we see accelerated growth opportunities over the next several years in those brands, as well as we believe that the Concord brand not this year but next year will return to sales growth and we continue to experience very healthy sales growth in Ebel, as well as a very solid improvement in the Movado and the ESQ brand.

One more question.

The advertising expense for '08, is that going to be in line with what it was this year, this previous year, or was going to be increased?

Pretty much in line from a standpoint of a percent to sales.

From a dollar standpoint, that pretty much grows each year, almost in line with sales growth, but obviously, in support of the new businesses that we're launching.

But as a percent to sales, it should remain reasonably consistent.

And the 60th anniversary, that is not going to cause increase more than it usually does?

No, it just means we're reallocating our investment within the Movado brand towards the 60th anniversary in the second half of the year and it will also give us an opportunity to link both the boutique and watch advertising much, much more closely and effectively.

Great.

Thank you very much.

Elizabeth Montgomery, Cowen.

Congratulations on the good year.

My question is about the boutiques, and I apologize if you mentioned this Rick, but do you think it's a function of maybe your initial store pro formas being a bit too aggressive on the boutiques, or do you think it's location?

I know you mentioned that you thought part of it was product, but do you think it also could be a case where you just need to get a greater number of boutiques before you really hit that leverage point, in terms of infrastructure costs?

I think from a standpoint of the strategy we outlined, which is getting to that critical mass of around 30 stores, we are very comfortable with.

I would say to you that, from a sales standpoint, it's taking a little bit longer and perhaps we were a little aggressive early on from a standpoint of some of the new stores, particularly in new regions of the world where we have opened some new stores.

So really, it's the sales level.

Obviously we're taking the opportunity of obviously focusing on product and focusing on the sales to be able to help drive that, but also taking the opportunity of saying we had two underperforming stores, get out of those because we had the opportunity to do that at virtually no cost, and also focusing on streamlining our expense structure a little bit.

So we're still committed, it is a vitally important strategic initiative for us.

We're very comfortable with it, that it will be a profitable business, it will just take probably a few years longer than we had originally anticipated.

And could you remind me again on what the mix of jewelry versus watches in the boutiques has been over the past year.

It's approximately 40% watches and about 43% jewelry, and then the balance is after sales, service and gift items.

Okay, great.

Thanks guys and good luck.

Jeff Blaeser, Morgan Joseph.

Good morning.

A couple of quick questions.

Could you talk a little bit about investments in the new brands and its impact on current margins and potentially fiscal year '08?

One of the things is that, as we continue to grow the licensing part of our business, we've gotten synergies in that business.

So our gross margins continuously improve in those brands, and that's one of the things you're seeing flow through our income statement.

The investment is really more when you start up a brand and in the first year as you build the critical mass.

And I guess the Coach license -- any change in the terms there and the projected CapEx for fiscal year '08 -- is the year-over-year difference primarily the SAP system?

From a standpoint of the Coach contract, really no major change at all in that, and I think [we probably made a K] a couple of weeks ago on that.

From the standpoint of CapEx, our CapEx is predominantly growing from $20 million to $30 million because of the first year of that SAP investment.

Kristine Koerber, JMP Securities.

A couple of questions.

First of all, can you give us a little more detail on the timing of the SAP implementation?

It sounds like it's a two-year project.

When will it be fully implemented and when are we going to start to see some of the savings flow through?

Basically, that's a two to three-year project.

We will first focus in on bringing in our wholesale business and our global back office operations, and then the second tranche will be doing the front end of retail.

So, yes, it's approximately a two- to three-year program.

And as you recall when we talked about our strategy of growing from the historical 10% level of operating margin to the mid-teens over the next number of years, we said the first early part of that would be focusing and we'd see improvement in the gross margin, whereas the latter part, you would see benefits coming out of the operating expense line.

And obviously, the SAP in the business re-engineering -- our business process re-engineering -- will be a vitally important part in helping us achieve those synergies in the latter part of that strategy.

Okay.

And then looking at the Concord repositioning, it sounds like -- at least you mentioned taking it up to scale.

Can you talk about the price points of some of the new introductions at Basel?

Sure.

We basically identified that we believed Concord belonged and had a bigger opportunity to be a smaller, healthier successful brand in $5000 to $15,000 and even up to $20,000 arena, and an image that it had worldwide outside of the United States.

And so we're repositioning it in that area, really focused on one new product that we'll introduce in Basel of this year entitled C1, and that we have previewed with some of our major partners around the world and have begun to get very good reaction to.

So we're taking the whole strategy there.

We believe there's an opportunity in the niche marketplace in that area, and the Concord brand will continue to be profitable for the Company in that area.

Still in major focus outside of the U.S.

though?

Absolutely.

We view that Concord is a brand that really should ultimately be 30% North America based, 70% outside of North America.

Okay, great.

And then lastly, as far as the boutiques, you mentioned something about backfilling some of the price points.

What price points are you going to -- are you missing?

They're in two areas.

Predominately as we increase prices, we vacated some opening price points in sterling silver, and so we have backfilled some and we will continue throughout the year.

And the other area is in the entry price points for what we call diamond fashion, which is 18-carat gold in diamond which used to be in the $1000 to $2000 range, and today, we're in the $1500 to $3000 range.

So we will be backfilling some of those areas.

One of the areas I also commented on that we will be very focused on but will have a greater impact in the second half of the year is our design focus.

And one of the things is we got a little unfocused in that area and we are now refocusing our efforts and really producing designs that clearly identifiably Movado.

And we believe that there's a great opportunity, especially with the return of the desire for modern design products, and whether it's in the world of furniture, jewelry or watches, and Movado is the brand in jewelry and watches to do that.

Okay, thank you.

David Taylor, David P.

Taylor & Company.

Thank you.

What was the nonfinancial asset that you sold?

If you saw the note that we had in the reconciliation table, it was piece of artwork that we had owned, and it's on the bottom in the notes, David.

Okay.

The performance of the boutiques, I guess it's just continuing albatross it seems to me.

Is there going to be any change in the management of that division?

We have actually streamlined the organization of that division; both Rick and myself are intimately involved.

I would not say it's an albatross.

I think it has done a tremendous amount to continuing to build the strength of the Movado brand that is number one in its category in this country and far exceeds the second brand in the category.

So we believe what it has done image-wise is invaluable.

And although we didn't say that the boutiques had a difficult year, the financial results still improved year-over-year over last year and we expect them to continue to improve.

And just as a reminder, I would also like to remind everybody that our overall retail business, which includes our Company stores and our boutiques, is quite profitable for the Company.

Rick said in answering a question that it would take a few years more for this division to become profitable.

So it doesn't look like it's going to be profitable even in fiscal '09.

Is that correct?

We're really looking at fiscal '08 and we do believe it will improve over fiscal '07, and fiscal '07 was an improvement over fiscal '06.

And to the boutiques are on a four-wall basis actually quite profitable, and really it's just the infrastructure and the marketing costs that does further reinforce the brand image for the Movado brand.

So they are not that far away from being profitable.

We're not giving an exact time frame on when they will turn profitable.

I don't quite understand the -- going to a different subject -- the shift in the seasonality of the business, why it's occurring.

Could you enlighten me, please?

Sure.

Basically from a standpoint of a 4-5-4 calendar this year coming up, basically the quarter end for a retailer is approximately a week later than a calendar quarter end.

And basically, the retailers are extremely focused on their inventory and their productivity.

So they take approaches of basically saying that after a certain period of time they won't accept any deliveries.

So from that standpoint, that is an unnatural shift in what they are doing, and obviously we are customer focused so we'll obviously be satisfying their needs.

And with that, that's going to have a shift in the first, second and third quarter.

At the end of the year, it gets back to a normal level.

So it's just I think a phenomenon that happens every seven years or so with the 4-5-4 versus a normal quarter end calendar.

Thank you.

(OPERATOR INSTRUCTIONS) Jeff Blaeser, Morgan Joseph.

One follow-up question.

You mentioned that you are not forecasting for any discontinuing sales.

Do you expect any in fiscal year '08, and is the typical margin impact around 100 to 200 basis points per $10 to $15 million -- is that in the ballpark?

First of all, yes, we would expect some discontinuance of sales this year because from a standpoint of, as I said in my comments before, we initiated last year and I think there's an opportunity this year, particularly from a standpoint of Ebel and older product that we had acquired that we had not incorporated in there.

So there's an opportunity of that.

However, when you are done, the margin improvement that has taken place had nothing to do with the discontinued.

It was entirely from our ongoing business and that's why it's important when we talked about our margin, excluding the discontinued product, was more for the full-year at that 62.5% level which is a sizable improvement versus the last couple of years and that's really a new level for us on gross margin.

Great.

Thank you very much.

Thank you.

If there are no other questions, I would like to thank all of you for participating today and thank you again for your continued support.

We're obviously very pleased with our results for the fourth quarter and our fiscal year.

New initiatives are in place across all of our brands for fiscal 2008 and we look forward to the exciting products we plan to introduce at the Basel Watch Fair, including the debut of our new Lacoste watch collection.

Again, thank you very much for participating today.

Thank you.

This concludes today's conference call.

Thank you for your participation.