Movado Group Inc (MOV) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Movado Group's third quarter earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time.

(OPERATOR INSTRUCTIONS) And as a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company.

I would now like to introduce Miss Suzanne Rosenberg of Movado Group.

Please go ahead.

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 Sallie DeMarsilis, Chief Financial Officer.

Before we begin I would like to note that this conference call contains forward-looking statements which are made in pursuant 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 2009 and beyond.

We currently expect to update estimates.

However, the failure to update this information should not be taken as Movado's acceptance of these estimates on a continuing basis.

Movado Group may also choose to discontinue presenting future estimates at any time.

During the course of today's conference call management may present certain non-GAAP figures.

For a reconciliation of these figures, along with information required under SEC Regulation G, please view our earnings press release which has been posted on our website at movadogroup.com.

Let me now outline the order of speakers and topics for today's conference call.

Efraim will begin with the highlights of our third quarter, Sallie 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.

There is no doubt that our world has significantly changed since we reported our second quarter results of September 4th.

We are in turbulent times and we are faced with an economic environment that is proving to be one of the most challenging in recent history.

Global economies have weakened, financial markets have deteriorated, and the U.S.

dollar has significantly appreciated.

Additionally, the degree of volatility and uncertainty that exists in the marketplace has greatly diminished our visibility as we enter the holiday season.

We are not immune to the difficult macroeconomic conditions and consumer spending slowdown is impacting all retailers.

As you have seen in numerous recent articles in the press, retail sales of luxury items have significantly deteriorated in October and November.

Nevertheless, our Company has a proven track record of defending and appropriately positioning our business and brands in the face of challenging consumer and retail trends.

We have a well diversified business with a global presence.

We possess nine strong brand names that are well differentiated and span all price points.

We operate in both wholesale and retail.

We also have a strong balance sheet with $85 million in cash and $60 million of long-term debt.

We recognized early on that this year was going to be challenging and since October we have seen that reality take hold well beyond our own expectations.

While we cannot control the macro events facing consumers today, we can continue to take decisive actions to manage our business while strategically positioning our Company for long-term success.

We began to take action in January with the launch of our unified Movado brand strategy.

We successfully completed the closure of 1400 Movado wholesale doors, creating a tighter and more selective distribution network for our largest and most profitable brand.

In addition to eliminating the tail end of our distribution, we also reduced our exposure to several retailers who have since declared bankruptcy and/or have been faced with financial difficulties.

We also announced a significant Companywide expense reduction plan in August, from which we expect to generate $25 million in ongoing annualized pre-tax cost savings.

We continue to manage our expenses and our business prudently.

In line with this focus and as a result of further deterioration in the global economic environment, we have targeted an additional $25 million to $30 million in annualized cost savings, which Rick will detail later in the call.

Moving forward, we will continue to take an aggressive approach to managing expenses and inventory levels, while making timely and cost effective investments to provide us with the best returns in the long-term.

During the latter part of the third quarter, our results were significantly impacted, as retailers experienced substantial retail sales declines and focused on very tight inventory controls going into the holiday season.

The slow down was experienced broadly across our business, though our licensed brand category delivered a solid performance as we continue to gain market share and expand into new doors.

Growth in this category predominantly came from our international market.

As we enter the holiday season, we are focused on what we can control, which is delivering beautiful new products and a compelling point of sale presence that stimulates shoppers and builds upon our aspirational brand positioning.

We are focused on maximizing business opportunities in the current environment to gain market share and further strengthen our brands.

Our new products, marketing initiatives and brand building programs are concentrated on those things that are important to the consumer.

We understand that consumers will be making fewer purchases than they have in the past and they will be looking for exceptional gifts that provide great value and image for the money.

In challenging times, shoppers also tend to seek a certain comfort level in those brands that have stood the test of time.

That said, our portfolio of globally recognized brands is strongly positioned to provide consumers with a compelling reason to buy, with unique gift offerings across all of our price segments and categories.

For example, in our licensed brand categories, Tommy Hilfiger watches, in addition to its core assortment, will participate in the gifts under 100 program to an everyday value offering in its Heritage and reversible watch collection.

In each of our licensed brands, Coach, HUGO BOSS, Juicy Couture and Lacoste, units will continue to drive our business and we will bring sharp entry price points and tremendous value for the money products along with quality global distribution.

In our accessible luxury category, we've reacted quickly to the changing macroeconomic environment by managing retailer inventories and bringing in a tight collection of relevant products with great values.

For consumers looking for more classical styling, Movado Red Label is a compelling U.S.

boutique and China exclusive collection, featuring the museum dial with exhibition case backs and automatic movements.

In series 800, the Derek Jeter Limited Edition series and Tom Brady Limited Edition bring great excitement to the sport luxury category this holiday season.

Movado's long heritage and modern design sensibility make it extremely relevant, particularly in the current environment.

The iconic museum dial was created in 1947 and was one of the first watch designs to become a part of the Museum of Modern Art's permanent collection in 1960.

We will continue to strongly support the Movado brand with national advertising campaigns and tactical marketing programs.

ESQ Swiss personifies the combination of a bold design at great prices in the entry level Swiss watch category, with products like the Criterion Chrono as well as pinnacle product in rose gold finish with diamonds, part of the new execution of our Fusion family.

We've always said that the luxury market is not immune to difficult economic times and today's environment is no exception.

In fact, the impact of the current slowdown on luxury consumers has been compounded by the significant decline in volatility in financial markets.

We expect business in this segment to continue to be challenging.

Nevertheless, Ebel is well positioned as a brand with timeless elegance and iconic designs, including new extensions of the classic hexagon collection.

At the high end of the luxury watch industry, demand for our C1 collection has remained strong.

Production, however, is challenging due to the complexity of this collection.

In addition to consumers being more selective in their purchases, retailers continue to be extremely conservative in their buying patterns by reducing their opens to buys and pushing out their orders to the last possible moment.

As a Company, we are focused on productivity and inventory management for both our business and our retail partners, while maintaining the integrity and the image of each of our brands.

For next year, our new product introductions will be very focused and relevant for what we expect to be a continued slowdown.

Again, we expect image and value to be a critical component in consumers' purchasing patterns and this will be reflected in our product offerings.

We know that business will be challenging, but that will not alter our long-term strategies.

During this time we'll continue to generate operational efficiencies in our organization, be disciplined in our inventory and expense management, and be extremely mindful of our capital.

Our Company has a well established track regard, a powerful portfolio of brands, a diversified business model, low leverage and a strong balance sheet.

We maintain our focus on the long-term success of our brand and our businesses around the world.

This commitment strongly positions Movado Group for the future.

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

Thank you, Efraim, and good morning, everyone.

Sales for the third quarter were $136 million or 24.6% below prior year.

Sales for last year included $11 million of excess discontinued product sales.

Excluding these sales, third quarter sales were below prior year by 19.6%.

The balance of my remarks, as they relate to sales, will exclude the excess discontinued product sales recorded last year.

Our licensed brands were above prior year by 8.4%.

This solid performance is primarily the result of the international market expansion of our Juicy Couture, HUGO BOSS and Tommy Hilfiger brands.

Sales in the wholesale segment decreased 20.4% to $117 million.

The U.S.

wholesale segment was below last year by $27 million, or 31%, and included a decline in sales in our accessible luxury category of approximately $25 million.

The international wholesale segment was below last year by $3 million or 4.7%.

The retail business posted a 13.4% decline over last year and a 7.9% decline in comparable store sales.

As of October 31, 2008, the Company operated 29 Movado boutiques and 32 outlet stores.

On a GAAP basis gross margin was 63.5% versus 61% last year.

Excluding the previously mentioned sale of discontinued products, adjusted gross margin for last year was 64.7%.

Gross margin was primarily impacted by the sales mix.

Operating expenses were $72 million or 12.1% below last year and included a $3.4 million pre-tax charge associated with our expense reduction program announced in August of this year.

The balance of my comments for the three month period will exclude this charge for comparative purposes.

The decrease in operating expenses of $13 million is attributed to a reduction in our accrual for performance based compensation program, decreased spending for discretionary expenditures, and a reduction in payroll and related costs associated with the cost reduction initiatives announced in August.

We recorded a tax benefit of $1.4 million for the three months ended October 31, 2008, as compared to a tax expense of $1.9 million for the same period last year.

In both years the Company continued to utilize its Swiss net operating loss carryforward.

Adjusting for unusual items, adjusted net income was $13.4 million versus $21.3 million last year and adjusted earnings per diluted share were $0.53 versus $0.78 last year.

Earnings benefited from a decrease in the average number of diluted shares outstanding due to shares repurchased earlier in the year.

Looking now at year-to-date results.

Sales were $367 million or 12.8% below prior year.

Sales for last year include the sale of excess discontinued products of $22 million.

Excluding the sale of discontinued products, sales were 8% below last year.

On a constant dollar basis sales were $355 million or 11% below prior year.

Once again, let me remind you that the balance of my remarks, as they relate to sales, will exclude the sales of excess discontinued product sales recorded last year.

Our licensed brands were above prior year by 22.9%.

The growth was driven by the same factors as mentioned in the third quarter.

Sales in the overall wholesale segment decreased 8% to $310 million.

The U.S.

wholesale segment was below prior year by $39 million or 21.3%, primarily driven by a decrease in the accessible luxury category.

The international wholesale segment was up 7.9% to $164 million.

This increase was primarily driven on the license brand category, as I mentioned previously.

The retail business recorded a 7.2% decrease over last year and a 6.3% comparable store sales decline.

On a comp basis gross margin was 64.1% versus 60.5% last year.

Excluding the previously mentioned sales of discontinued products, gross margin was 63.9% last year.

The increase is due primarily to the sales mix.

Operating expenses were $208 million or relatively flat to last year.

The current year results include a $5.6 million pre-tax charge related to severance associated with our aforementioned expense reduction program.

The balance of my comments for the nine month period will exclude this charge for comparative purposes.

The decrease in operating expenses of $5 million is attributed to the aforementioned reduction in our accrual for performance based compensation programs and decreased spending on discretionary expenditures.

The Company recorded tax expense of $1.8 million compared to a tax expense of $6.7 million last year.

The change in our tax rate for both periods is due to the same reasons that were discussed for the quarter.

Adjusted for unusual items, the adjusted net income of $24.7 million versus $35.8 million last year and adjusted earnings per diluted share was $0.96 versus $1.31 last year.

Earnings benefited from a decrease in the average number of diluted shares outstanding due to shares repurchased earlier in the year.

Now taking a look at our balance sheet.

Our cash as of October 31, 2008 was $85 million compared to $111 million last year.

In the early part of the year the Company utilized approximately $38 million to repurchase shares of common stock.

For the nine months ended October 31, 2008, cash used by operating activities was $33 million, as compared to cash provided by operating activities of $20 million for the nine months last year.

Accounts receivable of $118 million were below prior year by $33 million, primarily reflecting the sales trend.

Inventories of $237 million increased by $26 million from last year due to the unanticipated sales decline and as retailers tightened their inventory controls going into the holiday season.

Total debt, consisting of both short and long-term debt, was $69 million versus $61 million last year.

Capital expenditures were $17 million and depreciation expense was $12.7 million.

We expect our capital expenditures for the year to be approximately $23 million, which includes spending associated with our new ERP system.

Overall, our balance sheet remains strong and we are focused on managing our business through this challenging time.

Now, let me turn the call over to Rick.

Thank you, Sallie.

Good morning, everyone.

In this environment, it's imperative that we do whatever is necessary to aggressively manage expenses, reduce inventories, and preserve cash flow.

Therefore, while our long-term strategies remain the same, we are implementing tactical programs to drive our business both in the near-term and for what we expect to be a continued slowdown next year.

Our operating tactics in this environment center on four key initiatives.

First, seek out and maximize sales opportunities across our brands and businesses; second, aggressive inventory management and planned inventory reductions as we curtail purchase orders and tighten our open to buys; third, the micro management and further reduction of all variable expenses; and fourth, the generation of appropriate levels of profitability and cash flow.

In addition to the expense reduction plan we announced in August, and in light of the further deterioration that has taken place in the global economy, we also expect to initiate another set of actions in the near-term that are designed to achieve an additional $25 million to $30 million in analyzed cost savings, a substantial portion of which are expected to be realized in fiscal 2010.

These cost savings will come from primarily three areas.

First, a further refinement of all variable expenses, including performance based compensation programs, third party vendor fees, travel, employee benefits and other discretionary expenses.

Second, we expect to bring our marketing, as a percent of sales, down to between 15% and 16% of the anticipated lower sales volume next year and third, an overall alignment of our organizational structure with the expected level of business activity in fiscal 2010.

We are also looking forward to the implementation of our ERP system when we go live early next year.

This system will provide our Company with globalized standard processes and a fully integrated end-to-end view of our multiple businesses.

It will also provide significant automation and functionality that will enable our Company to be more agile and efficient.

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

Based on our year-to-date results, the further deterioration that continues to take place in the macroeconomic environment and increasing limited visibility, we now project fiscal 2009 net sales of approximately $470 million to $480 million and diluted earnings per share to range between $0.80 and $1.00 on a GAAP basis.

Excluding the projected pre-tax charge of approximately $9 million, or $0.24 per diluted share, associated with the Company's cost savings plan announced on August 7 and assuming a normalized 24% tax rate, we now expect fiscal 2009 adjusted diluted earnings per share to range between $0.85 and $1.05 per share.

Results for the full year will depend on the holiday season and retail replenishment in January.

These projections do not include any onetime costs, charges as they relate to the new set of savings initiatives that I outlined earlier.

On a comparable basis we reported adjusted earnings per diluted share of $1.71 in fiscal 2008.

Beyond our guidance for fiscal 2009, I would like to provide you with some additional color on our expectations for fiscal 2010.

In our last conference call we stated that we expected to approach an operating margin in the 15% arena in fiscal 2010.

Obviously, given the dramatic deterioration of the world economies and what we expect to be a continued slow down next year, we would now expect to achieve our operating margin goal on a longer term basis beyond fiscal 2010.

However, our two sets of savings initiatives, which combined are expected to generate analyzed cost savings in excess of $50 million, should allow us to maintain an appropriate level of profitability.

We are also focused on cash flow generation by aggressively managing and reducing inventory levels, while limiting our capital expenditures.

We expect to provide you with more specific guidance for fiscal 2010 when we report our fourth quarter and full year results.

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

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jeff Blaeser, Morgan Joseph.

Good morning.

Quick question.

On gross margins you mentioned product mix, I'm guessing sales leverage certainly had an impact there.

Any push back on prices?

And if not, how long do you think within this environment that you can maintain current price points, which I'm guessing were relatively stable.

We are focused on continuing as we develop new products to offer good values, but while maintaining strong margins.

Really the slight reduction in gross margin was totally due to sales mix, that our licensed brands generated slightly lower gross margin than our accessible luxury category, which has the highest margins in the Company.

So we are focused on maintaining strong gross margins, but while providing good values to our consumers, as well, in this environment.

Quick question.

Inventory, as you mentioned, obviously that is a focus reducing those.

How low do you think you can get those by year-end in the current environment?

And do you have any target for cash from operations at this point?

I think from a standpoint of at year-end, obviously, we are not going to be able to take dramatic actions for the next couple of months.

And it is obviously going to be impacted on what our sales replenishment are both for the holiday season as well as in January.

Clearly we expect to have some very appropriate actions to bring down inventory next year, which obviously we are able to do by the amount of open to buy that we limit ourselves to.

From the standpoint of any projections of cash flow at this point in time, it is premature.

Okay.

Thank you very much.

The next question comes from the line of Jody Kane, Sidoti Company.

Hi, thanks.

Can you talk a little bit about the growth that you have seen and how that's going to go forward in international markets with the licensed portfolio, please?

Could you just repeat the end of the question, because I couldn't hear it, Jody?

Sure.

In terms of the license portfolio, to try and get a sense of how many new countries there are, how many new doors there are, if that's kind of slowing down now.

We are seeing international markets, obviously, have deteriorated in the latter half of the quarter last year, in the last quarter and continue to do so in this quarter.

So I think within our forecast for the quarter, we are looking at some further deterioration of those markets.

We believe that we are holding our own and, in fact, increasing market share in our licensed brands within the international marketplace.

But it is a challenging, it is becoming a challenging environment, as well.

And the growth was primarily in existing doors.

All right.

So do you expect, going forward, that this whole, just the overall weakness will offset any new doors or any new regions or are there just no new doors or new regions to penetrate?

We'll continue to penetrate some new regions, especially with our licensed brands in Asia.

But there is weakness in some of the existing markets, like Latin America, for example.

So, built into our projections is what we foresee for the upcoming quarter, within our licensed brand categories, which also includes the stronger, a stronger U.S.

dollar versus the Euro where it has been.

One last question and I'll jump back in.

How long are, typically how long are the contracts that you have with the celebrities and advertising campaigns just in general.

How long are the contracts with what?

The celebrities that you have in your marketing campaign?

They generally run between two and three years.

We believe that that is a very important part of the Movado brand and its identity and that in this environment, image will play a very important role, especially as people gravitate towards brands that they know and they feel comfortable with and that are accessibly priced.

Okay.

Thanks.

I'll jump back in.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Josh Pechter, Cacti Asset Management.

Can you give us any indication how did the outlet stores do versus the retail stores?

Well, we gave a comp which was a slight, which was about a 6% or 7% decline for our overall business.

We had a slight increase, very slight increase in the comps for the outlet stores versus the decline in our boutiques and especially as people gravitate towards value.

I think that's been seen throughout the industry as well.

And I might have missed it, but you usually give an FX impact.

What was the currency impact in the quarter?

I believe there was no currency impact in the quarter.

That's right, this is Sallie, the quarter was relatively flattish and not significant enough to mention for any particular line item.

Just so I understand, though, as the dollar strengthens, there has been no impact.

But when the dollar weakened, there was a positive impact, is that right?

Not necessarily.

When we are done it depends on the mix of our sales, both by product offering and geographically.

But when we are done, because of our global nature there is a pretty good balancing act that we have in place between sales in the U.S.

and sales in Europe and other parts of the world.

When we are done we usually disclose the impact on sales, but between our expense structure and with the revenues that are generated, we are not seeing significant variations in our P&L at all on that.

I think I'm just going to add to that.

The reason that there is, the dollar strengthened and there is no impact is because the dollar strengthened but relative to the same -- but it is fairly constant to the same level as at this time last year, okay?

Okay.

Versus the beginning of the year.

So if the dollar were to strengthen 20%, Efraim, in the next couple of quarters it should have a FX negative impact going forward, right?

Not necessarily, because a substantial part of our sales is still in the United States.

So we would get a benefit in our gross margins in the United States, if that were to be true.

With purchases coming from Switzerland?

Right, so that's why I think when Rick talks to you that the overall effect FX because of the global nature of our business and the different segments of our business was fairly well-balanced.

I find it amazing that you guys have so much available to cut out of the expenses and how fast you are doing them, which is really terrific given the environment.

I just wonder when you get done taking $50 million of costs out of the place in the next year or so, is there that much left?

Those are large numbers against your SG&A budget.

These are -- obviously, the actions we are taking are not easy actions, obviously we are looking at all areas of expenditure and being as prudent as we possibly can.

But I would sit there and say these are very significant and difficult actions that we are taking.

You are not going to not attend Basel, right.

No, no.

We will be in Basel, but we will have fewer people attending Basel.

Maybe we won't fly Derek Jeter in this year?

He wasn't planning on going.

One more thing, Efraim, while I've got you.

You have 20-plus years of experience in watching retail markets and going through Macy's and seeing customers come and go.

Can you give us some perspective here on where you think we are in terms of the cycle of where a consumer is?

Do you think the consumer has really fundamentally changed and therefore a business like yours is going to have a much different trajectory than you might have had in the last decade?

What is your real feeling on the consumer?

I think that we are going to see some fundamental changes in the economy, but then we will return to a level of growth again in the future.

And when that is, I'm not an economist.

But I think earlier this week we were officially declared in a recession as of December last year and the economy has been shrinking since then and it will return to a level of growth as housing prices stabilize and as employment levels stabilize and as people get used to the current environment.

People still like to buy nice products and good products and I believe that that will always continue and we have to listen to the consumer and target our brands to the consumer needs within the DNA of our brands.

So we are focused for the long-term and understand that there is going to be some volatility for the foreseeable future.

One last thing.

As the costs come out that you are cutting, if tomorrow all of a sudden the revenues came back, do any of these costs have to come back instantaneously with revenue increases?

So for example, is it plausible to think that if your sales went back to $700 million that this Company could earn $3.00 or $4.00 a share, instead of earning $2.00 a share?

(multiple speakers)

I think that we are very focused on cost containment.

Also in this environment in terms of many different areas and part of that is marketing as well.

We have always targeted to be between 15% and 16%, so we are not reducing that.

It is just this year, as our sales dropped off, the number of the percentage will be higher.

Obviously, marketing will increase overall if sales increased overall, but still say within the 15% to 16% range.

We will be very focused on continuing to manage very, very tightly our expense infrastructure.

So I think we are a little premature in terms of looking out that far.

Your next question comes from the line of Kristine Koerber, JMP Securities.

This is Jennifer filling in for Kristine.

Could you talk a little bit about trends during the quarter, both domestically and internationally?

And then with regard to the international business, you mentioned that the licensed business was stronger in Asia and there was some weakness in Latin America.

Could you talk about any other bright spots or spots of weakness?

Well I think our licensed brand business was also, was strong in Europe, given the economic environment during the quarter.

The U.S.

was more challenging than the rest of the world, but that has generally been true of recessions, is that the U.S.

will go in first and come out first.

So that, in our experience, that's been true.

So we would expect that the U.S.

will come out before the rest of the world, although it will be probably more severely hit than the rest of the world.

Okay.

And the accessible luxury and luxury similar?

The accessible luxury and luxury categories were the categories that were hit harder, and -- but we expect that in challenging economic times, over time, brands like Movado will do very well.

Okay.

And then with regard to the boutiques over the Thanksgiving holiday weekend, I noticed you had a promotion going on.

Do you expect to be more promotional on a go-forward basis and has your stance on the boutique business changed?

Would you ever consider moving out, away from the business?

Well, I think that especially as distribution in this country becomes, there will be less retailers in the future, I think the boutiques may have a more important place.

The promotional activity in the boutiques is basically centered around jewelry, where we are discontinuing a number of styles as we prepare to launch new styles in jewelry in the second quarter of next year.

Okay.

And then lastly, when I look at the cost savings initiatives, I calc that you'll see about an $0.18 benefit this year and then as much as $1.67 or around there in fiscal '10.

Is it fair to say that the benefit from cost savings is going to be masked by the impact from the retail slow down?

I'm sorry the global slowdown, not retail.

I would expect that sales decline, obviously, will be much greater than the cost savings initiatives.

And one of the reasons for the cost saving initiative is to make sure that we maintain an appropriate level of profitability, because the sales decline, and we said in our comments, we still expect a continued sales decline next year.

So, no, I don't expect that we will maintain our level of profitability as it has been in the past.

Okay.

Thank you.

Your next question comes from the line of Gary Merwitz, Investment Counselor.

Good morning.

I guess first I was wondering if you could just address the covenants on your current debt and where you'll be relative to those covenants at the end of the year based on your projections.

We are comfortable that we will be well in compliance with our covenants through the rest of this year.

I think there is an interest coverage and a debt to EBITDA, just was wondering what the restrictions are and where you will be relative.

Can you give me some numbers around that?

I think from a standpoint of unless it is disclosed out there already, I'm not going to get into what those detail of the covenants are, but we are very comfortable that we have low leverage.

We are very comfortable with our debt covenants as they exist right now.

The cash, where -- is the cash located internationally or is that domestic?

Cash is throughout our operations around the world, which are predominately in our European operations, which are regionally based in Switzerland, our Hong Kong operations which handle our Asian marketplace, as well as the U.S.

So if you needed to bring that back, do you have any idea what kind of penalty it would be?

Well, from a standpoint of we permanently reinvest our earnings overseas, that is a disclosure there.

So, obviously if we were to bring any money back there would be generally a tax cost with it, since the U.S.

is generally at a higher tax rate than the other countries that I just mentioned.

Great.

And then on the ERP system is there any further update you can give us there as far as is that on track?

And kind of thought process there?

It is well on track for implementation early of next year.

We are testing around the world and doing all the right things that we need to be doing.

So we are comfortable with the progress that we have made and to achieve the plans we have outlined.

We think that is, in particularly a time like this, a very good thing to be having up and running early next year because it will give a lot more information and globalization around the world.

It would allow us, as we greatly expanded globally, give us the ability of having a unified systems and standards around the world.

It would be very good from an information flow and transparency of data force.

And then lastly just on the second round of cost cuts, you guys didn't communicate what that might cost you over the period of time that you implement them.

Just wondering if you could give us any kind of range of maybe the onetime charges related to those additional cuts.

At this point no.

Clearly as I outlined there we are trying to have our expenses come from things that we can manage and control, which are just reducing costs, whether it is discretionary competition programs, obviously the marketing dollars themselves would be a reduction in dollars as we maintain our level of operating spend, but on a much lower level.

And then also from a standpoint of as we look at our organization, of which there have been a lot of positions that we have had we kept frozen since our last announcement and clearly we will not fill.

So we are not at a point in time being able to do that and, obviously, once we have that information, we'll clearly disclose that.

Great.

Thank you.

One more quick one.

Just on buybacks, I assume you are suspending any share buybacks.

We pretty much have completed the programs.

We have not purchased any shares since pretty much the first half of this year.

There is no plan to continuing to be spending at this point in that on that.

It is all about preserving cash in this kind of environment.

Great.

Thank you and good luck.

Your next question is a follow-up question from Jody Kane, Sidoti Company.

Thanks.

When you say you expect next year to be worse than this year, can you sort of talk through what data points you are looking at that suggest that would be the case?

I think that we are looking at a continued global economic slowdown and not really any recovery until the beginning, until the second half of next year.

And really that recovery is probably because we will be comping against weak numbers both for our own business but our retailers as well.

So I think that -- and I don't see anyone forecasting that next year is going to be a stronger economic environment than this year.

So we would go along with that.

So it is really just based on the overall economy, not where you see your products -- ?

Right, it is based on the overall global economic environment.

Okay, great.

Thank you.

(OPERATOR INSTRUCTIONS) Thank you.

That concludes our question and answer session today.

I'll now turn the call over to management for any closing comments they might have.

I would like to thank everyone for participating on today's call.

And I would also like to wish everyone a happy and a healthy holiday season and thank you, again, for your participation.

Thank you.

This concludes today's conference call.

Thank you for your participation.