Movado Group Inc (MOV) 2008 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Movado Group first-quarter conference call.

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

After the speakers' remarks, there will be a question and answer period.

(OPERATOR INSTRUCTIONS).

Thank you.

It is now my pleasure to turn the floor over to your host, Suzanne Rosenberg of Movado Group.

Ma'am, you may begin your conference.

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 provisions of the Private Securities Litigation Reform Act of 1995.

Factors which could cause actual results to be materially different from any future results expressed or implied are discussed in our filings with the Securities and Exchange Commission.

Such forward-looking statements include statements regarding Movado's performance for fiscal 2008 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 Web site 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 first quarter 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 that you might have.

I would now like to turn the call over to Efraim.

Thank you, Suzanne, and good morning everyone.

We're very pleased with the results of our first quarter.

As anticipated, sales growth slowed in the quarter, reflecting a shift in the U.S.

retail calendar which resulted in timing differences in purchases by certain of our customers and predominantly affected Movado and ESQ in the U.S.

market.

Nevertheless, we achieved a 190-basis-point improvement in adjusted gross margin and delivered earnings of $0.09 per share in our seasonally smallest quarter, demonstrating the focused execution of our operating strategies.

While the shift in the retail calendar will continue to impact our results in the second quarter, our portfolio of brands remains strong and more powerful than ever.

Clearly differentiated and high-quality products, compelling imagery and strong brand awareness continue to drive consumer demand and provide our retail customers with an unsurpassed assortment in the marketplace.

Across our portfolio, we received an excellent response from our retail partners to the powerful array of new products debuted at the Basel Watch Fair in April.

As we discussed in our year-end conference call, sales growth in fiscal 2008 will be primarily driven by our licensed brand portfolio, which in addition to Coach and Tommy Hilfiger, includes our newest businesses -- Hugo Boss, Juicy Couture and our recently launched Lacoste watch brand.

Our licensed watch portfolio delivered a very strong performance in the first quarter with a 38% increase in sales over last year.

Our licensed brands are extremely well positioned in the high end of the fashion watch category with strong product assortments and a bold presence at retail, each clearly embracing the DNA of its parent brand.

Our luxury category, Concord and Ebel, achieved plan, recording flat sales in the first quarter resulting from the timing of deliveries of new product introductions in Ebel as well as the continued repositioning of the Concord brand.

Both brands introduced a tremendous amount of excitement at Basel this year.

In our Ebel brand, we introduced very strong extensions within the Brasilia family, including steel and gold executions.

Building on the momentum generated by the introduction of Ebel's 1911 BTR and further establishing the brand's positioning in the men's category, we launched the 1911 Discovery which we will deliver to our customers in the second quarter.

To support these new products, we have a launched a new global men's advertising campaign, which is product-focused and features the emblematic architects of time.

At Basel this year, we unveiled a new Concord to the world.

Inspired by its avant-garde routes, we have taken the Concord brand resolutely upscale with a modern, edgy point of view.

We have integrated a new logo, a new strategy and a new team to lead our efforts as we develop Concord into a niche luxury brand.

Our new products for Concord center on the very exciting C1 collection, a breakthrough in technology and design.

Concord's new direction was extremely well-received by retailers and the press.

Throughout fiscal 2008, we will finalize our launch plan and begin deliveries in the fourth quarter.

Our accessible luxury segment was impacted by the shift in the retail calendar which shifted customer purchases for our change [rulers] and department store accounts from the first quarter into the second quarter of this year.

At Basel, retailer response to new products in both Movado and ESQ was tremendous.

This year, Movado is celebrating an incredible 60 years of modern design, paying tribute to the world-famous iconic Museum Dial.

In the honor of this anniversary, many limited editions of the Museum Dial were introduced at Basel, including the 60 millimeter Museum Watch.

Paying homage to the Museum Dial's creator, Nathan George Horowitz, we introduced a collection of original Museum Dials with an inscribed case back.

Our art of time advertising campaign reinforces the elegance of Movado and we continue to support the brand with new executions of our advertising campaign, featuring such investors as Kerry Washington, Mikhail Baryshnikov and Winton Marsalis.

During the second half of this year, we will launch an advertising campaign through various marketing vehicles, integrating all elements of the Movado brand from wholesale to retail, from watches to jewelry, a campaign that celebrates Movado's 60 years of modern design.

Outside of North America, we continue to develop the Movado brand in China.

While China is still a small market for Movado, we continue to make progress as sell-through grows and we're setting various alternatives for accelerated expansion in the Chinese marketplace over the next few years.

Series 800 has allowed Movado to gain market share with consumers.

We continue to introduce brass to the Series 800 product assortment through line extensions.

Our art of performance advertising campaign, featuring Derek Jeter and Tom Brady, brings great awareness and credibility to Series 800.

We've also leveraged our relationship to create a limited edition series of Tom Brady's Series 800 models, which will be introduced at retail in the second half of this year.

Our Movado Boutiques recorded a 1.5% comparable store sales decline in the first quarter.

Over the past few months, we have refocused this important brand-building initiative by streamlining the business, creating a flatter organizational structure and closing two underperforming locations -- SoHo in New York City and Northbrook in Illinois.

We also recently opened two new locations -- Topanga Plaza in Canoga Park in Southern California, and South Coast Plaza in Costa Mesa, California, bringing us to 31 boutiques nationwide.

Our infrastructure is where we want it to be and now our efforts are centered on improving our product design to create jewelry that is truly iconic and purely Movado.

Beginning in the second half of this year, we expect to gain traction in our product development initiatives by delivering a powerful jewelry assortment which clearly embodies Movado's modern design philosophy.

Movado Boutiques serve as a vital vehicle for the reinforcement and positioning of Movado's leadership brand image.

As I mentioned earlier, we will increase the synergy between our watch and jewelry designs in our advertising campaign as we celebrate 60 years of modern design.

ESQ continues to benefit from very positive retailer response to new product collections and an integrated marketing campaign.

Sell-through at retail has been very strong with double-digit increases.

At Basel, we took advantage of a big opportunity in the marketplace by introducing a strong assortment of ladies' diamond watches.

Building on the success of our Land, Air and Sea men's collection, we also introduced a very important new men's collection -- Fusion -- featuring a combination of advanced materials with sapphire crystal and a retrograde quartz movement.

Fusion is truly a leadership watch and will be sold in select channels of distribution on a limited basis and supported by a dedicated advertising campaign in the second half of the year.

Overall, we're very pleased with the results our Company achieved in the first quarter.

I would now like to turn the call over to Gene for a review of our financial results.

Thank you, Efraim, and good morning everyone.

Sales for the first quarter were $101.4 million, or 3.7% above prior year.

The net sales included $2.7 million of liquidation business with some residual deliveries from our transaction last year.

Sales in the wholesale segment increased by $2.1 million, or 2.6%, to $83.1 million.

The increase was driven by growth in our licensed brand category which was above prior year by $6 million, or 38.2%.

The expansions in the global Hugo Boss markets and the continued international growth of our Tommy Hilfiger brand were the primary reasons for the increase.

Our luxury brands were flat year-over-year while our accessible luxury brands are below prior year due to the impact of the shift in the retail calendar.

U.S.

wholesale business was below prior year by 10.5%.

The decrease was primarily the result of the impact of the retail calendar shift on our accessible luxury brands.

The international wholesale segment was above prior year by 21.4%.

This was the result of growth in our licensed brands primarily due to new market expansion at Hugo Boss as well as continued strong demand for Tommy Hilfiger.

The retail business posted an 8.8% increase over the last year.

Our Movado Boutique sales were above prior year by 6.9%.

This was the net result of sales increases from our new door expansion somewhat offset by a 1.5% comparable store sales increase.

The Company outlet stores were above prior year by 10.8%.

This was the result of a 2.1% comparable store sales increase along with the increases from noncomparable store business.

As of April 30, 2007, the Company operated 29 Movado Boutiques and 31 outlet stores.

As Efraim mentioned, during the quarter, we terminated two of our Movado Boutique leases which had no material impact on our financial results.

Gross profit for the quarter was $61.7 million, or above last year by $2.1 million.

The increase in gross profit is primarily due to higher gross margins from our base businesses.

Gross margin is 60.8% compared to 61% last year.

Excluding the liquidation sales in the quarter, gross margin was 62.9%.

The increase of 190 basis points was driven by higher margin in our Movado Boutiques due to higher margins from our jewelry products.

In addition, stronger margins across most brands contributed to the margin improvement.

Our operating expenses were $58.9 million, or 4.9% above last year.

The principal reasons for the increase were added spending in support of the retail expansion, higher equity compensation expenses, increased spending in customer support activities due to the increase in the number of brands and higher expenses incurred with our joint venture with TWC in Europe for our licensed brand distribution in France and Germany.

Net interest income is $368,000 as compared to a net interest expense of $52,000 last year.

This is due to less borrowings as well as higher cash invested year-over-year.

Our average debt for the quarter was $80.6 million compared to $106.5 million prior-year.

Our average borrowing rate was 4.2% versus 3.4% prior year.

The average interest rate earned on our cash was 5.2% versus 4.5% prior year.

Income taxes were provided at a 20.6% effective tax rate versus a 17.9% rate prior year.

As of February 1, 2007, the Company adopted FIN 48, a new accounting pronouncement related to measuring uncertain tax positions.

This new pronouncement will make it more difficult to project our tax rates and will result in swings in our actually quarterly rates.

Net income is $2.4 million versus $2.9 million last year.

Earnings per diluted share was $0.09 versus $0.11 last year.

This is despite a 3% decrease in the average number of diluted shares outstanding.

Now taking a quick look at our balance sheet.

Our cash as of April 30, 2007 is $101.8 million versus $82.6 million prior year.

Accounts receivable of $105.8 million is below prior year by $10.8 million.

Our days sales outstanding were 92 days versus 99 days.

This decrease in our DSO is due to strong cash collections during the quarter.

In constant dollars, our accounts receivable are below prior year by 10%.

Inventories of $212.1 million decreased by $1.7 million from last year.

The decrease is primarily due to the liquidation sales in the second half of last year as well as during the first quarter.

In constant dollars, inventory was below prior year by 2%.

Total debt, consisting of both short and long-term debt, was $76.5 million versus $102.3 million last year as we continue to pay down our debt with our excess cash.

Capital expenditures for the quarter were $6.1 million and depreciation expense was $3.8 million.

We expect our capital expenditures for the full year to be approximately $31 million, which includes spending associated with our new ERP system, and depreciation expense to be approximately $16 million.

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

Now let me turn the call over to Rick.

Thank you, Gene, good morning everyone.

Strong operating disciplines across our organization led to continued improvement in gross margin, a key driver toward achieving our goal of expanding operating margin into the mid-teens over the next few years.

In our last conference call, I outlined three key operating initiatives for fiscal 2008; first, maximizing growth opportunities within our current brand portfolio.

The primary driver of topline growth this year will come from our newest brands, Hugo Boss, Juicy Couture and Lacoste.

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

In support of our licensed brands, we considered joint venture opportunities with established partners in certain key markets.

Recently, we entered into such a joint venture agreement with [Sweco], an English Company with established distribution, marketing and sales operations in the United Kingdom.

As you know, we entered into a similar agreement a few years ago with TWC allowing us to introduce our licensed brands in France and Germany.

Our agreement with Sweco was a logical extension into the United Kingdom and allows us to build our licensed brands in this important market with a strong on-the-ground presence.

In addition to our newest businesses, Ebel is experiencing solid global growth trends, Concord is being repositioned as a niche brand in the high end of the luxury watch market and continued strength in our Movado brand will come from tightening distribution and improving productivity in existing retail doors.

Second -- the multiyear rollout of a worldwide enterprise resource planning system.

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

Finally, we are committed to improving our financial returns, namely our operating margin, which remains a top priority for our Company.

This year, our operating margin goal is to reach 11.5%, which represents a 140-basis-point improvement from fiscal 2006.

This projection excludes sales of discontinued product.

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

As you saw in the second half of last year and during the first quarter of this year, we've converted discontinued products into cash.

Looking ahead, we will continue to improve our inventory position and would expect further reductions of discontinued product in fiscal 2008.

As a reminder, we exclude these discontinued sales in our financial guidance as we view them to be above and beyond our normal course of business.

Now I would like to turn to our financial outlook.

Clearly, there has been a growing sense of uncertainty as to the outlook of the U.S.

economy.

Yet, assuming current business trends remain intact, we continue to project full-year diluted earnings per share of approximately $1.72 based on an estimated 25% tax rate.

This represents a 12% increase from fiscal 2007 adjusted diluted earnings per share of $1.54, fiscal 2007 adjusted diluted earnings per share, excluding the impact of the tax benefit resulting from the further utilization of an NOL acquired with Ebel in fiscal 2005 and previously disclosed onetime items related to accounts receivable, foreign currency and the sale of a nonoperating asset.

On a GAAP basis, fiscal 2007 earnings per share was $1.87 with a 5.4% tax rate.

Fiscal 2008 net sales are projected to range between $550 million and $560 million.

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

(OPERATOR INSTRUCTIONS).

Jeff Blaeser, Morgan Joseph.

Good morning.

Thank you for taking my question.

First one I guess comes to your guidance.

It looks like you maintained the guidance that you had going into the quarter, yet exceeded internal Q1 expectations.

Did something shift into Q1 or out of Q1, or is it more just being conservative going into the rest of the year?

Jeff, there are several things that go into it, and part of it is that less sales shifted out of the first quarter than we originally anticipated, so that enabled the quarter to be better than originally anticipated.

But also I think with rising gas prices and certain uncertainties in the second half of the year, I think we just feel comfortable with where our guidance currently remains.

Okay, fair enough.

And I think you mentioned in your comments that you expect the retail buying pattern to affect Q2.

Could you explain that a little bit more?

Well, under the retail calendar for some of our institutional doors that follow it, their first and second quarters end late into the following month.

So it has moved some of our shipments from the first quarter into the second, and we believe also from the second into the third.

Okay, great, and finally just I guess one more question on the gross margin and discontinued sales.

Do you expect to be completed in this fiscal year?

Or obviously it's difficult to give a specific time frame, but is like a 62.9%-63% gross margin reasonable in the out year?

Well, yes, we would expect that the discontinued excess inventory sales would wrap this year in fiscal 2008, and obviously as we said in our guidance that we would expect our gross margins to be consistent with where they were last year excluding the discontinued, which was 62.5.

And as you know, our strategy down the road is growing operating margin and a key factor to that is growing our gross margins to a higher level than where they are today.

So we certainly would expect improvements in gross margin over the next couple of years.

Thank you very much, and good quarter.

Kristine Koerber, JMP Securities.

Hi, congratulations on a good quarter.

Can you quantify the sales shift from quarter to quarter basically and the impact on earnings?

Basically, if you recall from the last conference call, I basically thought that approximately $8 million of sales would shift, and obviously it was less than that.

It was probably more in the $4 million to $5 million range.

In looking at the small first quarter, that having less shift obviously improves the bottom line.

So -- and basically, we would expect a similar level taking place in the second quarter and into the third quarter.

So, as we said in the conference call last time that the second half of the year will have a greater percentage of our sales growth, part of that impact because of the calendar shift from a retail and their managing of their inventories at their end of the their quarter.

Okay.

And can you comment on commodity prices and any impact that you may be seeing on your margin?

Well, we have been able to cover the rising gold prices.

We have protected our gross margins and that's one reason they're strong.

And I think even in our Boutique business, and I think Gene mentioned it, our gross margin improved quarter-on-quarter.

So gold is not as big a factor as it used to be because we make a lot of steel watches, but we have been able to protect our margins.

Great.

And then, the Lacoste launch -- when will we see -- are the watches in the stores now, or when will they be launched?

As you know, Lacoste had an existing watch business that they were licensing.

We have taken that over at the beginning of the year, so the watches that you're seeing in the marketplace now are really those same watches from the previous licensee.

We debuted the new designs that we will be launching into the marketplace basically now.

You will see them certainly in the end of the summer time frame.

We did Hugo's at Basel; it's a great reception, and so they will be a key part to the growth of the Lacoste business in the second half of the year.

Okay, great.

And then, lastly, can you just remind me on the price points for the new Concord designs that you're launching?

The new Concord watches range in price from about $10,000 to $15,000 for steel, and from $25,000 to $30,000 in gold, and we had an excellent, excellent reception to our Concord reintroduction in Basel from around the world.

So you have moved it upscale quite a bit, because weren't they the few-thousand dollar range?

Right.

We moved it upscale significantly, but the idea is also to do obviously a lower number of -- a significantly lower number of units and to really build an exclusive luxury brand in a very tight niche.

Okay, great.

Thank you.

Jody Kane, Sidoti & Company.

Hi, thank you very much.

I just want to make sure -- so the improvement in the first quarter was purely because of a smaller shifting in revenues?

Well, from the standpoint of the guidance that I had given, again, it's hard to estimate exactly what would take place and what the retailers would do, but basically the sales were a little better level than we would expect than we originally projected because of less shipping out, and also improvement in the gross margin percentages.

Okay, so it was originally a small loss, but there has been $0.09 and then -- so are you expecting it to be a lot softer in the second half?

I'm just trying to figure out why there isn't, so even a little bit of improvement into the second half because of a big first quarter?

Again, from a standpoint less sales shifted out of the first quarter, and again, if you have a $3 million or a $4 million improvement on the sales line adjusted to the bottom line, that could easily change it by $0.08-$0.10.

So it's really, again, the first quarter is our smallest quarter, so when you are done, you just kind of have that shift.

So I think we're still looking at a strong second rest of the year, and obviously there is always the economy risk that's out there.

Alright.

And then just the retail business, the sort of longer-term plans for store growth and store closures.

Can you talk a little bit about that?

We expect that, on a door basis, the retail business will remain stable, most over the next several years, one or two more doors.

We don't expect any significant closures either.

And we are really focused now on improving our product assortment in jewelry.

We have very strong plans for the second half of the year in that area, but it obviously takes a little bit of time to do that as well and to do it well, and that's what we're focused on doing.

Alright, great.

Thank you.

[Marie Dellucia], The [Dellucia] Foundation.

Good morning.

I would like to pick up on the commentary on the Movado Boutiques, and if you could discuss in a little bit more detail what gives you the confidence of improving trends.

Obviously, what happened with these Boutiques when they were on such a strong track, and then the deceleration?

And then I have a few other questions.

Thank you.

Good morning, Marie.

(MULTIPLE SPEAKERS) talked to you in a long time.

And really, I think we grew from a very small base, so the growth was an initial accelerated growth pattern.

And now, we have a larger base and I think we have had to refocus a little bit our jewelry assortment.

We did vacate, and as I said in earlier conference calls, a number of price points as commodity costs went up.

We did increase our gross margin significantly in these Boutiques, so our gross margin is improving, our financial model is improving and did improve last year as well.

It is -- so those are a number of positive things that have happened in the Boutique business and now we're focused on improving the product assortment, filling vacated price points that we believe we will also add additional business.

Okay, thank you.

I wonder if you could discuss your current operations in China.

And then, if you can, discuss with us a little bit about your thinking in terms of the expansion in that huge market.

And also, does Movado participate through a distributor in any way in Central and Eastern Europe?

Well, we do -- let me start with the latter part of that question.

We do do business in Eastern Europe with Movado and with most of our brands, as well with Ebel.

I don't believe we have really started yet with our licensed brands, although we're getting out feet wet in those markets.

In China -- and through distributors in those markets.

In China, the way we're structured is we have our own operation.

We announced last year that we hired a new president with a lot of experience in that market for the Movado brand and we have a local operation, but we also deal with local partners in the market for their expertise, their distribution capabilities as well.

We have a small business there, but one that has been growing on a sell-through basis very nicely over the last several years.

We believe it has a major potential for the future because we present an accessible luxury product and there is a growing middle class in that market.

And so we have a good management team in place there.

We are studying our opportunities very carefully and expect to really have a strategic plan for the region in the next several months.

Thank you.

(OPERATOR INSTRUCTIONS) David Taylor, David P.

Taylor & Company.

Thank you.

Efraim, I know you trace retail sales of your products through your retail customers.

Can you -- with the 10.5% decline in domestic Movado wholesale sales, can you talk about how the retail offtake looked like in the first quarter?

Sure.

I don't think it -- it's a good question, David, and I think our overall U.S.

wholesale business was down 10.5%, so it included Movado (MULTIPLE SPEAKERS).

Well, with Movado and ESQ, yes, okay.

We see a nice sales increase in Movado in the first quarter with our retail partners on a comp store basis, and so we believe that the trends out there remain fairly solid.

Although retail I will have to tell you, and I think it is no surprise, in the first quarter was not tremendously robust and that is the overall retail industry.

I'm not talking specifically our brands, and I think that's what gives us a little bit of caution as well.

But we were pleased with the retail sell-through of the Movado brand in the first quarter.

Second question, entirely different area.

The clearance of I guess mostly 14 karat gold merchandise in Concord and Movado, it's winding down.

Is it over, or is there another few million yet to come in the coming quarters?

Just two things, then I will turn it over to Rick.

Concord I think -- it's really mostly -- it's Concord now.

Because of the repositioning of the brand, we've eliminated most of the older inventory and we'll be doing I think that this quarter as well and some during the balance of this year.

And then really what is left for us after that is, and we have talked about it in the past, is the Ebel inventory that we acquired and we expect to make major inroads into the Ebel inventory over this year.

Would you like to add something to that, Rick?

Yes, I just want to reiterate that we would expect that between last year and this year, that that would then be behind us.

Okay.

But there's still ahead of us a few million dollars in these sales, correct?

There's still ahead of us continued sale of discontinued product in the manner that we've been doing it last year, yes.

Thank you.

Jason Asaeda, Standard & Poor's.

Good morning, thank you for taking my phone call.

In terms of the long-term plans for the jewelry business, do you think that it will be eventually sold through your wholesale partners?

No.

I think we have always talked that our jewelry business is really a retail business.

It's proprietary and it's exclusive to the Movado Boutiques and our strategy is for that to remain so.

So we don't foresee having a wholesale business in jewelry.

Okay, thank you.

[William Wigder], [Wigder] Associates.

Good morning, Efraim.

For many, many years, we have heard that the point of scale in the Boutique business was a level where you seem to be at today, and yet we are not -- don't seem to be close to breakeven on it.

Is there something else that that's a problem in these stores?

Have you looked at the stores on a comparable cost basis and a sales per square foot basis with other boutiques where you have information?

And can you tell us that cost and sales basis is comparable to what we might see in other stores and it's just a matter of maybe changing the product line, or something else, or is there a deeper problem here?

Good questions.

First of all, I would like to remind everybody that the Movado Boutiques are an important part of the overall brand equity that we have been building in the Movado brand and the strength of the Movado brand is a dominant brand in its marketplace.

And you have to remember that the predominant part of our Movado business, which is an extremely profitable business, is our wholesale business.

On the retail side, obviously what has happened is that our costs are -- we are not generating the sales yet in the stores, in the 31 stores that we have, that we need to cover our overhead because they are profitable on a four-wall basis and you must remember that.

What causes them to lose a small amount of money, actually not a major -- over our whole P&L, it's not a major amount of money -- is our marketing investment behind the Boutiques it supports and reinforces the overall brand as well as the overhead to manage that business.

And the opportunity lies and the challenge as well in increasing our sales per store.

And as we do that, the losses will decline and profits will ensue.

So there is that opportunity, and that's also as I said, it's the opportunity and it's the challenge and that's why we're very focused on driving the product assortment for the overall Boutique business.

Are we close to that profit level at this point, or are we still pretty far away?

From a standpoint, yes, we are close.

The investment this year is in the couple of million dollar range.

And again, as Efraim said, we spend even more than that on direct advertising for the Boutiques that support the overall Movado brand.

And we're there.

From the standpoint of some of the metrics, certainly our sales per square foot, we are going in the right direction and we're very comfortable with that.

We do spend, we do have a very luxurious store and we make sure that we do that, so we do stand at a high support level because we want to make sure that that reinforces the image of our brand.

And as you know, our stores are in the top malls and that's where a lot of our doors all as well for the wholesale business.

So we believe we're on the right track.

It's a relatively minor investment that we're making.

And like I said, our advertising is even greater than the investment that we're making.

So we're very pleased where it is and we're comfortable that we'll get to a level of profitability.

I just have one more question or thought here.

It seems to me that you have over the last few years really come through very, very well for investors.

Earnings have been up, you have done well with the Ebel brand, etc.

But, in each of the individual quarters, there seems to be some pessimistic thing.

And I know you're very conservative about it, but the pessimistic things tends to really wrench the stock on a near-term basis.

And I mean it seemed to me in the first quarter you had that pessimism about the quarter itself and maybe you were being conservative, and even in this quarter it looks like if you did $0.09 in the first quarter and you're expecting a loss, the question is implied -- are the earnings going to fall off a cliff later in the year?

So I mean is there something that you could do or change about the way you present the information that would give us a little more smoothness in terms of the message that is given out to the street?

I think we're trying to state the facts as we see them.

So we're not coloring them particularly and we're trying also always to give you a realistic point of view of where the Company's going.

We focus on the long-term and the long-term results of the Company, not on a quarter-by-quarter basis.

One reason we stopped giving quarterly guidance, we did for the first quarter because we thought it was an extenuating circumstance, and I think over the long-term we have done extremely well and that is what we are focused on.

-- building long-term value for our shareholders.

And that is our interest and that is our focus, and I think the Company has done a very good job.

You have done great, you have done great, really.

Thank you very much.

Old friends are on this call today.

It's scary, isn't it?

(OPERATOR INSTRUCTIONS) Kristine Koerber, JMP Securities.

Hi, I just wanted to follow up on the guidance.

So, should we assume that Q2, basically take $0.08 to $0.09 out of Q2 then, or is that -- it sounds like it may be spread over the next two quarters?

Let me respond to that.

Number one is, we don't really focus in on a quarter basis, we don't give guidance on a quarter basis.

We really focus in on the full year.

Obviously, as Gene mentioned in his comments, tax rates change quarter to quarter.

So when we're done refocusing on the full year and we're comfortable with the guidance that we've given for the full year and we really don't [harp in] on the quarters and don't give guidance on the quarters, and that is not our focus.

Our focus is on the full year.

Thank you.

Arnold Brief, Goldsmith & Harris.

Could you -- you mentioned, but I'm not sure I'm interpreting it right.

I gather part of the strategy for Movado has been to close some of the outlets, to reduce the number of doors that it's servicing.

Could you elaborate on that a little bit, what you've done in terms of doors, and then flesh that out a little bit with why in terms of what the strategy is?

Sure.

Over the last several years, we have evaluated our doors for the Movado brand.

We have looked at places, locations where we have multiple doors in certain malls and we have eliminated underproductive doors to increase productivity with our remaining retail partners.

And we worked on that with a number of our partners to be able to do that.

So -- and it has continued to increase Movado's productivity at retail and it has continued focus of the Movado brand for the next several years as well.

Can you give us some idea of how many doors were closed?

I think we did close over 300 doors over the last two years.

And the productivity of the existing doors obviously then (MULTIPLE SPEAKERS) has more than offset that?

Yes, I would say that's true.

One another question.

I understand that the contribution of the Boutiques relative to their infrastructure is the problem; they make money on a four wall-basis.

But if you go back in time, the comparable store sales increases of the Boutiques has been very high.

It slowed up recently, but over the years, it has been a pretty high number.

For the sales to still be below a level which doesn't cover that infrastructure after having many years of very high comps, these things must have started at a very low level.

And I don't know how many times your strategies have been changed or not changed, but it seems like there's a merchandising problem here.

You've left some price points, you are introducing new lines of jewelry.

Could you flesh out why that sales level is (MULTIPLE SPEAKERS).

I don't think -- one thing I would like to address -- there has not been a change in strategy.

So we do obviously make adjustments to try to drive improvement, and one of the things that has happened is that commodity prices within this area have gone up significantly over the last several years.

We have adjusted our prices to protect and improve our gross margins, and accomplishing that we have vacated certain price points so we are focused on refilling that.

What I did say I think in our previous conference call was also that we believe that our product had in a certain extent gotten a little too generic in certain areas, and now for the second half of the year is truly focused on being identifiably Movado which is the strength of our Movado brand overall.

And so we are focused on coming with product that is iconically Movado for the second half of the year that celebrates Movado's 60 years of modern design.

And there are very few -- when people look at the Museum Watch, they think it was designed five years ago because it is so modern.

It was designed in 1947.

There are very few brands that have a product that is still selling that was designed in 1947.

This is a very strong brand and our jewelry assortment that we'll have in the second half will be a similarly strong product assortment.

Thank you.

I hope I answered the question.

I'm not sure why the focus wasn't there to begin with if that's what you're trying to do, is build the Movado brand.

I think at certain times, you (MULTIPLE SPEAKERS).

And you had strong comps for many years, so I'm not sure where it shifted or how it shifted.

Just from a small base, we had strong comps and we believe -- and we hit challenges along the way and it is a challenge that we are addressing and up to addressing.

It's not the first time we have a challenge in any of our businesses.

Okay.

At this point, there appear to be no further questions.

I would now like to turn the floor back to management for any closing remarks.

Thank you.

I would like to thank all of you for participating today and asking some very good questions.

We look forward to the balance of the year.

Our brands continue to perform very well at retail and we remain focused on ensuring that they remain strong in the marketplace.

Again, I would like to thank all of you for participating and have a good day.

Thank you.

Thank you.

This does conclude the Movado Group's first-quarter conference call.

You may disconnect your lines at this time and have a wonderful day.