Movado Group Inc (MOV) 2008 Q2 法說會逐字稿

Good morning.

My name is Sharon and I'll be your conference operator today.

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

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

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

(OPERATOR INSTRUCTIONS).

Thank you.

It is now my pleasure to turn the floor over to your host, Ms.

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, express 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 the 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 second-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 you might have.

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

Thank you, Suzanne, and good morning, everyone.

Our strong results for the first half of the year reflect the continued consumer appeal to our diverse portfolio of brands.

We are especially pleased with the strength of our international business which grew 24% in the quarter excluding discontinued product sales.

This increase reflects the growing prominence of Ebel around the world and the expansion of our licensed brands.

In the U.S.

the shift in the retail calendar continued to result in timing differences and planned purchases by certain of our customers predominantly affecting Movado and ESQ.

This shift should balance out by the end of the year.

Nevertheless, during the second quarter, we achieved 160 basis point improvement in adjusted gross margin, a 16% increase in operating profit, and earnings of $0.45 per share.

As we enter the second half of this year, we have unique strategies and programs in place to support each of our brands, and we remain focused on the execution of our operating strategies.

As we discussed in the beginning of fiscal 2008, and have demonstrated by our performance in the first half of this year, sales growth will be primarily driven by our licensed brand portfolio.

In the second quarter, our licensed brands delivered a very strong performance with a 35% increase in sales over last year.

These results reflect gains in our Coach and Tommy Hilfiger brand, as well as our newest businesses, Hugo Boss, Juicy Couture, and our recently launched Lacoste watch brand.

In addition to the cache of these powerhouse brands, our licensing partners have also enabled our Company to significantly increase our international presence.

Our luxury gap category, Concord and Ebel, posted a mid single-digit decline, excluding discontinued product sales.

This primarily reflects the continued repositioning of the Concord brand.

Ebel posted a high single-digit sales gain in the quarter driven by several new product introductions.

During the second quarter Ebel launched two important new men's collections on a global basis, the 1911 Discovery and the Classic Hexagon.

Together with a new men's advertising program -- new men's advertising creative and numerous special windows in top retail doors, these strategic collections will drive Ebel's success in the second half of the year.

Adding to Ebel's excitement, we have also delivered strong extensions within the Brasilia family including steel and gold execution.

We are finalizing the repositioning of Concord as we get closer to introducing the new Concord with delivery scheduled to begin in the fourth quarter.

With the renewed brand strategy, niche luxury positioning and exclusive distribution, Concord is focused on the launch of its iconic piece, the C1.

Surrounding this breakthrough product launch, we will introduce a new advertising campaign and web site that will break in the middle of October as well as a new merchandising platform at point of sale to highlight the new Concord, resolutely upscaled with a modern edgy point of view.

As planned, our accessible luxury segment was impacted by the shift in the U.S.

retail calendar.

Outside of the U.S., Movado experienced a strong performance in Canada, South America and the Caribbean.

During the second quarter we introduced the new Black Safiro and the new SE two-tone which are experiencing excellent sell through.

Our Ono watch inspired by our jewelry collection continues to be a leading product for Movado.

Celebrating 60 years of modern design leadership, we are very excited to pay tribute to the iconic Movado Museum Dial this fall season.

Dynamic product and marketing initiatives will showcase this milestone achievement as we demonstrate the power of the Movado brand.

We kicked off the celebration with the launch of a beautiful advertising campaign featured on the back cover of the all-important September issue of Vogue magazine.

Throughout the second half of this year, we will take this incredible asset of the Museum Dial and leverage it through special products, high impact media, and 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.

This holiday season you will also see spectacular four-page and eight-page inserts in leading fashion publications to celebrate this great legacy.

We will also, for the first time, embark on Internet advertising for the Movado brand, partnering with thenewyorktimes.com and Google.

We continue to develop the Movado brand in China.

While China is still a small market for Movado, we continue to make progress as sales -- as sell through grows.

This market will also experience our celebration for 60 years of modern design as the Museum Dial has resonated strongly with the Chinese consumer.

Series 800 continues to generate incremental sales and increased productivity across the Movado brand.

During the second quarter, we launched two new Chronograph models.

Now in the third quarter we launched the ultimate sports luxury performance watch for men with a fixed bezel and a women's collection of sport, luxury watches featuring diamond dials and bezels.

Our (inaudible) performance advertising campaign featuring Derek Jeter and Tom Brady continues to bring great awareness and credibility to Series 800.

Our Movado Boutiques recorded a 2.3% comparable store sales decrease in the second quarter.

We are diligently working to improve the productivity of this important brand-building initiative.

During the first half we introduced very few new products.

In the second half, we are focused on improving our product assortment and design to create jewelry that is truly iconic and purely Movado.

Three new jewelry collections, Trio, Infinity and [Miri] should generate excitement and drive traffic to our stores during the holiday season.

Beyond our current initiatives we have also engaged an outside consultant to conduct a strategic assessment of the overall boutique business and identify opportunities for improvement.

ESQ continues to benefit from very positive retailer response to new product collections and a bold product focused marketing campaign.

Sell through at retail has been strong with double-digit increases in the department store channel.

During the second quarter we introduced great leadership products, including new executions of Verona with diamonds, Chronicle for men and a new addition to our Land, Air and Sea collection, the pipeline sports watch.

A new men's collection, Fusion, featuring a combination of advanced materials, is a truly leadership watch, and will be sold in select channels of distribution on a limited basis and supported by dedicated advertising campaign in the second half of the year.

As we enter the second half of the year, we have all of our plans in place to strongly support our brand, and we are cautiously optimistic for the holiday season.

As we are all aware, there is increased volatility in the financial market and a growing sense of uncertainty as to the outlook for the U.S.

economy.

In addition, certain of our retail partners are experiencing challenging operating environments.

We continue to effectively manage our business while remaining cognizant of these factors.

Overall, we are very pleased with the results our Company achieved in the second quarter and the first half of this year.

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 second quarter were $139.5 million or 10.2% above prior year.

Net sales included $8.3 million of liquidation business as we disposed of excess discontinued Ebel and Concord products.

Excluding the liquidation sales, net sales were $131.2 million or above prior year by 3.6%.

Sales in the wholesale segment increased by $10.2 million or 9.6% to $116.3 million.

The increase was driven by growth in our licensed brand category, which was above prior year by $7.9 million or 35.1%.

The growth was primarily as a result of the launches and market expansion of our newer licensed brands and the continued international growth of our Tommy Hilfiger brand.

Excluding the liquidations, our luxury brands were below prior year due to the repositioning of the Concord brand.

Sales in our accessible luxury category were below prior year due to the impact of the shift in the U.S.

retail calendar.

The U.S.

wholesale business was below prior year by 8.7% and excluding the liquidation sales was below prior year by 13.3%.

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

The international wholesale segment was above prior year by 37.1% and excluding the liquidation sales was above prior year by 24.3%.

This was the result of growth of our licensed brands primarily due to the launches and new market expansion of our newer licensed brands, as well as continued strong demand for Tommy Hilfiger.

The retail business posted a 13.1% increase over last year.

Our Movado boutique sales were above prior year by 4.8%.

This was the net result of sales increases from our new door expansion, somewhat offset by a 2.3% or $200,000 comparable store sales decrease.

The company outlet stores were above prior year by 20.2%.

This was the result of an 8.3% comparable store sales increase along with increases from noncomparable store locations.

As of July 31, 2007, the Company operated 31 Movado Boutiques and 31 outlet stores.

Gross profit for the quarter was $83.3 million or above last year by $4.8 million.

The increase in gross profit was primarily due to a higher gross margin from our base businesses.

Gross margin was 59.8% compared to 62% last year.

Excluding the liquidation, gross margin was 63.6%.

The increase in our base business of 160 basis points was driven by higher margins in our retail segment due to a favorable mix in product sales, as well as higher margins from our jewelry products.

In addition, higher margins across most brands, as well as a favorable impact of foreign exchange rates on our growing international business, contributed to the margin growth.

Operating expenses were $67 million or 4% above last year.

The principal reasons for the increase in expenses are added spending in support of the retail expansion, higher equity compensation expenses and increased payroll and related costs.

This was partially offset by reduced accounts receivable related expenses.

Operating margin was 11.7%, compared to 11.1% in the prior year period.

Excluding the liquidation sales, operating margin was 12.5%.

Net interest income was $0.2 million as compared to a net interest expense of $0.3 million last year.

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

Our average debt for the quarter was $75.1 million compared to $99.3 million prior year.

Income taxes were provided at a 24.9% effective tax rate versus a 17.5% rate prior year.

The prior year tax rate was the result of the further utilization of the Swiss net operating loss carry forward acquired with Ebel.

Net income was $12.3 million versus $11.3 million last year.

Earnings per diluted share were $0.45 versus $0.43 last year.

This is with a 2.6% increase in the average number of diluted shares outstanding and the aforementioned higher tax rate.

Looking now at our year-to-date results.

Sales for the six-month period were $240.8 million or 7.4% above prior year.

The net sales included $11 million of liquidation business.

Excluding the liquidation sales, net sales were $229.8 million or above prior year by 2.4%.

Sales in the wholesale segment increased by $12.3 million or 6.6% to $199.5 million.

The increase was driven by the previously mentioned growth in the licensed brands.

The year to date results in the U.S.

and international wholesale segment mirrored those results discussed for the quarter alone.

The retail business posted an 11.1% increase over last year.

Movado Boutique sales were above prior year by 5.8%.

This was the net result of sales increases from our new door expansion, somewhat offset by a 1.9% or $300,000 comparable store sales decrease.

The company outlet stores were above prior year by 16.2%.

This was the result of a 5.6% comparable store sales increase, along with increases from noncomparable store locations.

Gross profit for the six months was $145 million or above last year by $6.9 million.

The increase in gross profit is primarily due to a higher gross margin from our base business.

Gross margin was 60.2% compared to 61.6% last year.

Excluding the liquidation previously mentioned, gross margin was 63.3%.

The increase of 170 basis points was primarily driven by the same factors as discussed for the quarter.

Operating expenses were $125.9 million or 4.4% above last year.

The principal reasons for the increase are added spending to support the retail expansion, higher equity compensation expenses, increased payroll and related costs, and higher trade show spending to promote our growing brands principally at the Basel World Fair.

Those increases were slightly offset by reduced accounts receivable related expenses and lower marketing expense to coincide with the timing of our higher sales expectations in the second half of the year.

For the year we expect that the expensing equity compensation will have an unfavorable impact on EPS of $0.13.

Net interest income is $0.6 million as compared to a net interest expense of $0.4 million last year.

Again, this is due to lower borrowings and higher cash invested year-over-year.

Our average debt for the year-to-date period was $77.8 million as compared to $102.8 million prior year.

Income taxes were provided at a 24.2% effective tax rate versus a 17.6% rate prior year.

Net income was $14.7 million versus $14.2 million last year.

Earnings per diluted share was $0.54 in both years.

This is with a 2.8% increase in the average number of diluted shares outstanding and the aforementioned higher tax rate.

Now taking a quick look at our balance sheet.

Our cash as of July 31, 2007 was $112.5 million compared to $78.1 million last year.

Accounts receivable of $100.6 million is below prior year by $27.8 million.

The decrease in our accounts receivable is principally due to the mix of our sales.

Inventories of $215.6 million is relatively flat to last year.

The inventory level reflects the net impact of reductions associated with the liquidations and additions resulting from an unfavorable exchange rate in translating the Swiss inventories as well as a planned build in core products for the upcoming holiday selling season.

Total debt, consisting of both short and long-term debt, was $67.5 million versus $97 million last year as we continue to pay down our debt with our excess cash.

Capital expenditures for the year were $12.6 million and depreciation expense was $7.4 million.

We expect our capital expenditures for the full year to be approximately $31 million as we begin our migration to the SAP operating system.

Finally, we recorded positive cash flow from operations of $7 million versus a use of cash last year of $24.4 million.

In summary, we are very pleased with our overall financial performance, delivering a very solid P&L and maintaining a [solid] balance sheet.

Now let me turn the call over to Rick.

Thank you, Gene.

Good morning, everyone.

We are encouraged by the continued momentum we experienced in the second quarter with solid expansion achieved in both our gross margin and operating margin results, excluding discontinued product sales.

These metrics continue to underscore the compelling growth in profitability of our business model and strategy as we deliver improved returns to our shareholders.

As we enter the second half of fiscal 2008, we remain focused on the three key operating initiatives I outlined in the beginning of the year.

First, maximizing growth opportunities within our current brand portfolio.

The primary driver of top-line growth this year will continue to 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 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, improved 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 enhancing our customers' experiences.

In the past few months, we have taken important steps, some with near-term effects and others with long-term benefits, toward transforming our operations to a more efficient and customer focused.

Finally we are committed to improving our financial returns.

We anticipate operating margin to expand to the mid-teens over the next few years.

This year our operating margin goal is to reach 11.5%.

This projection excludes sales of excess discontinued product.

Another component of improving our financial returns, and an ongoing focus for our Company, is a disciplined approach to inventory management.

During the second half of last year and the first half of this year, we maximized opportunities to convert excess discontinued product into cash, primarily in our Ebel and Concord brands.

Looking ahead, we will continue to improve our inventory position and we expect further reductions of excess discontinued product for the balance of this year.

As a reminder,we exclude these excess discontinued product sales from our financial guidance as we view them to be outside our normal course of business.

Now I'd like to turn to our financial outlook.

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

economy.

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 exclude the impact of the tax benefit resulting from the further utilization of the NOL acquired with Ebel in fiscal 2005 and previously disclosed one-time items related to accounts receivable, foreign currency and sale of a nonoperating asset.

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

Fiscal 2008 net sales are projected to be approximately $560 million.

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

(OPERATOR INSTRUCTIONS).

Your first question is coming from Jeff Blaeser of Morgan Joseph.

Good morning and nice quarter.

I guess -- my one question I guess would have to be on the margin and new product side.

Strategy has been to introduce new product at higher price points.

Have you still been able to effectively do that even in this somewhat challenging market?

Not only to introduce products that are higher price point.

It has been to introduce products with a higher gross margin.

So we are able to get some efficiencies in manufacturing, as well as engineering our products to cost more effectively.

Okay.

And just a follow-up.

Do you expect the liquidated sales to end by the end this fiscal year?

Yes, we do.

Thank you very much.

Thank you.

The next question is coming from Kristine Koerber of JMP Securities.

Yeah, hi.

Just a follow-up on the discontinued product sales.

I guess you are running at about $11 million now.

How much more should we expect by the end of the year?

Well, that's one where we will still have some more that will take place this year.

We are not going to disclose the amount primarily from a competitive standpoint.

But we would expect another level to take place for the remainder of this year.

And it is predominantly now the bell that we acquire with the acquisition.

So older merchandise we acquire with Ebel.

As far as the retail calendar shift, did you say we should expect -- are you through that?

We believe pretty much so.

We believe it will completely balance itself by -- by the fourth quarter.

But obviously the second half is bigger.

Some of the sales from the second quarter will shift into the third quarter and that will have a benefit.

Can you quantify what we should expect?

We are not -- you know as we stated earlier and I think in previous conference calls, we are no longer giving quarterly guidance, but we still have comfortable with our guidance of $560 million in sales for the year, as well as -- as earnings per share guidance.

Okay.

And then any read or kind of early read on Lacoste?

How Lacoste is doing so far?

Yes our initial- and really early on but our initial take is that the sell through has been excellent and the reception to the product has been very good and sales -- the wholesale level are on plan for the second quarter.

Okay and just lastly, you know -- I don't know if you can -- the comment on maybe future license partnerships.

Are you out there looking?

Are you going to just focus on the licensing arrangements you have currently.

Thanks.

We have a very focused strategy that we have outlined earlier on license brands.

And that's really to partner with world-class global brands.

We are pleased with our portfolio and we have brands that are still very early on in the development process.

So we're really focused on the brands we currently have today.

And believe they still represent great growth opportunity for the company.

Thank you.

Your next question is coming from Jody Kane of Sidoti & Company.

Hi, thanks.

The Concord brand you said was being reintroduced in the fourth quarter, is that correct?

We expect to begin deliveries of this new product in the fourth quarter.

We have got great reception to the product when it was introduced in Basel and continued great interest from consumers, as well as retailers.

So there is already a lot of buzz about the new Concord, but we expect to be able to deliver it in the fourth quarter.

Obviously the products are in manufacturing as we speak.

Okay.

Great.

And how many new Movado products are being launched in the third quarter?

We don't really quantify that publicly, but we have a very exciting array of new products coming within the Movado brand.

A number of them to celebrate the 60th anniversary of the Museum Watch.

Some of them already featured in the advertising that I spoke about, which are a new line of multi-colored Museum Dial watches that we have gotten a very good reception to as well.

We are very excited about our new product offering in the Movado brand.

So there should be -- even though you don't quantify should be more this year because of the 60th anniversary?

I would say so.

Okay.

Terrific.

Last question.

The women's sports watch, you said that was coming the third quarter?

Excuse me?

The women's sports watch.

We are introducing Series 800 for the first time with diamonds.

And that's diamonds on the bezel as well as diamonds on the dial.

And we are very excited about that -- that introduction.

We have gotten a very good reception to that product from our retail partners.

Okay.

Great, thank you.

Thank you.

Thank you.

Your next question is coming from Elizabeth Montgomery of Cowen.

Hi, guys, can you hear me okay?

Sure.

Congratulations on a good quarter.

Thank you.

Couple of questions and I apologize if some of them are a bit remedial.

But Gene, I missed the CapEx number related to the ERP and wondered when that would be completed.

When you hope that -- when that is completed I guess.

Our expected CapEx for the year is going to be approximately $30 million.

And we would look to have it completed some time next year.

Okay.

And that means including rolled out to all the divisions?

That's correct.

Okay.

Then, Rick, I guess two questions for you.

Where are we now in the process of kind of right-sizing the Movado distribution and increasing the turns within the doors it stays in?

And on the long-term EBIT margin goal in the mid-teens, how should we look at that broken out between, you know, improvement to growth margin or leverage on SG&A particularly now that we are adding more license brands on to that platform.

I will take the second part first which is the gross margin, our goal from going to that 10% level to the mid-teens.

As I said previously the focus on the early part of the year will be on the gross margin.

As we are watching new products and bringing the right price points, and the same with some of our new products introductions.

We have been seeing that.

Obviously we are very pleased with the 63.6% gross margin we have which excludes the excess discontinued product sales, in the latter part of our program we will see efficiencies as well from the expense side of the business.

So we haven't broken out of saying, you know, 2.5 will be from here or from there.

It is really going to be the combination of gross margin improvement and operating expense leverage and clearly the whole ERP initiative, one of the benefits of that, once we are up and running and stabilized because there is also a stabilization period could start getting efficiencies of scale in our infrastructure as well.

So basically two prong that will take place over that five-year horizon, first by gross margin and the second by expenses.

Okay.

The second question.

I will take the second question.

And really we are working with each of our -- working closely with each of our major retail partners on eliminating unproductive doors.

And not doors that are not selling Movado, but doors not as productive as we would like them to be.

We are in the process every day with each of our major retail partners in terms of eliminating the least productive doors and increasing productivity within the most productive doors.

So that's just something that you see going on longer term?

Yes, absolutely.

Okay.

Then if I can ask one more question.

I wondered if I could get an update on the boutique store model in terms of, you know, what the sales per square foot and what the opening costs are, et cetera.

We are not currently opening -- we are not in the process of opening any stores, so -- but historically, they have cost us about $1 million in Cap Ex.

And about $750,000 to $1 million in -- in inventory investment.

The economics are the same as we talked about in the past.

And obviously we are focusing from a standpoint of -- of product offering in there to increase sales per footage and sales per retail store, as well as also looking at the operating expenses and fine-tuning that.

What is the sales perspective running at, you know like last year?

Not much of a change.

From the standpoint we have been looking at that in that $750 per square foot range.

Okay.

We want to get to the 1,000 or so.

Great, thank you, guys

Thank you, once again as a reminder.

(OPERATOR INSTRUCTIONS).

Your next question is from Jason Asaeda of Standard & Poor's.

Good morning, thank you.

My questions have been answered.

Okay, thank you, Jason.

Thank you.

Next question is from Arnold Brief of Goldsmith & Harris.

Could you review with us the number of doors that you expect each of your license products to be in at year end this year and year end next year?

And then secondly, could you review with us what assumptions you have made for your retail boutiques in terms of profitability when you project the 15% operating margin goal?

I guess -- let me take a couple of things.

Number one from a door standpoint, you know, we really don't disclose that from the standpoint of precise number of doors.

I mean, these are obviously global businesses.

We are launching those worldwide.

You know, they do have strong brand recognition, so obviously we are launching those markets and sit there and say that each year we are increasing the number of countries that we are in from a Hugo Boss stand point which we've had now for a little over a year and that is well positioned in Europe with most of the major doors we need to be in, in Asia very focused on their boutiques and expansion of the doors, and the U.S.

focusing on the boutiques.

Lacoste, again they've already had some distribution and we are expanding that, very strong presence in Europe but still early.

The number of door will constantly grow and I don't have a number to for you to say --

I will -- I would like to add something to what Rick has said.

In the case of Tommy Hilfiger, Lacoste and Hugo Boss, the greatest preponderance of doors are in Europe.

In the case of Coach where we have a very limited distribution in terms of wholesale doors we are focused on the United States and Japan.

And we just begun launching Juicy Couture internationally and got a good reception to it in an international marketplace.

That just shows you a little bit how the regional bias as it pertains to each of the different -- the different brands.

I think Rick, you will take the second question

The second question had to do with the boutique and if we get that to profitability in a 15% operating margin.

One of the things the 15% operating margin target we have is for the total company.

Clearly that is fully absorbed and we do not have that same measurement for each of our businesses, if the dont have all the profit there.

So obviously we look at the total company standpoint.

From the boutiques not so much -- and we said that they would probably not get to the same level as the Company primarily because it is, yes, a business venture, but also a very strong marketing investment that supports a $200 million-plus wholesale business.

Our objective is to turn our boutiques profitable and as Efraim said in his comments, we have been reassessing, looking at that business, looking at opportunities for improvement.

We are comfortable that we are at the right store level, number of doors at these point in time.

So we are not looking at opening new doors.

It is really focusing on product offering which is extension of the sales level as well as the expenses and as Efraim did say in him comments we have hired a general consultant to help us fine tune some of that information for us.

So we will have more as we continue to progress down the path of converting it to profitability.

Each one of our conference calls we will give an update to the boutique status and when we expect to get it to the level we are hoping for.

Thank you.

Thank you.

We have a follow-up question coming from Jody Kane of Sidoti & Company.

Yeah, thanks.

The 63.6% gross margin, the highest quarterly gross margin ever.

Is this something we should look at going forward or were there sort of seasonal factors that affected this specific quarter

It is a level we do expect improvement on.

That is a very strong level.

I wouldn't sit there and say that is a floor at this point in time.

Clearly there are seasonal factors that come into play with mix of product in any one particular quarter.

I believe when we look at it from a year standpoint we are looking at that 63% overall level.

Perfect, thanks.

Thank you, that concludes our question-and-answer section today.

I will now turn the call over to management for any closing comments they may have.

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

We are looking forward to the second half of the year.

We remain very focused on ensuring that our brands remain strong in the marketplace and continue to invest and support our brands.

We would like to thank you all for participating and have a great day

This concludes today's conference call.

Thank you for your participation.