Movado Group Inc (MOV) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Movado Group, Inc.

fourth-quarter fiscal year 2014 earnings call.

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

Later, we will conduct a question-and-answer session (Operator Instructions).

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 Ms. Rachel Schacter of ICR.

Please go ahead, ma'am.

Thank you.

Good morning, everyone.

With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; Rick Cote, President and Chief Operating Officer; and Sallie DeMarsilis, Chief Financial Officer.

Efraim is joining us from Basel, Switzerland today, as he's preparing for the Basel Watch Fair, which begins tomorrow.

Before we get started, I would like to remind you of the Company's Safe Harbor language, which I'm sure you're all familiar with.

The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995.

Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the Company's filings with the SEC, which includes today's press release.

If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release.

Now I would like to turn the call over to Rick Cote, President and Chief Operating Officer of Movado Group.

Thanks, Rachel.

Good morning, everyone, and welcome to our conference call.

We are quite pleased with the pace of our business, and our very strong fourth-quarter and full-year financial results.

This is our 16th consecutive quarter of strong financial performance.

Importantly, we continue to see broad-based strength across our business, with strong consumer demand and customer sellthrough.

Our GAAP results for the full year were $570 million in sales, operating income of $67.7 million, and diluted earnings per share of $1.97.

These results included a number of new special items occurring in the fourth quarter -- a duty refund benefit of $0.06 per share; a $2 million or $0.05 per share donation to the Movado Foundation; and a charge relating to our ESQ brand of $0.20 per share.

Excluding special items, our adjusted financial results for the full year resulted in some major financial milestones.

Sales grew 13.3% to $578 million, delivering an operating income of $75.5 million and diluted earnings per share of $2.07.

The strategies we embarked upon four years ago of capitalizing on the unique aesthetic of our brands with compelling product offerings, while maximizing our world-class operating platform to deliver sustained profitable growth, have allowed us to deliver exceptional sales and profit growth, and position us to deliver the strategic plans we announced last March.

Some of the important performance milestones we have achieved during the past four-year period include -- first, delivering compounded annual sales growth of 14.6% over the past four years, with our largest businesses, Movado and licensed brands, each delivering compounded annual growth slightly greater than 21%.

Second, growing operating profit to over $75 million, and very importantly, achieving a 13% operating profit as a percent of sales milestone.

We are well-positioned to achieve our fiscal-year 2017 strategic plan target of 15% operating profit as a percent of sales.

Third, leveraging our world-class operating infrastructure, allowing us to decrease operating expenses as a percent of sales to 40% from our historical 50%-plus levels, while increasing our marketing spend at an 8% compounded annual growth level.

We believe operating expenses at or below a 40% to sales level is an appropriate go-forward metric.

Fourth, investing in sales growth by developing and delivering innovative product, providing desired value benefits to our consumers.

This investment came in the form of lower gross margin percent.

And fifth, delivering strong diluted earnings per share growth each of these three past years, even with an increased level of diluted shares outstanding.

These business milestones have positioned our Company to deliver our strategic plan initiatives of 10% annualized sales growth and 20% annualized profit growth, with a targeted $3.00-plus diluted earnings per share in fiscal year 2017.

The first year of this strategic plan generated 13% sales growth and 32% adjusted operating profit growth.

But more importantly, we continue to position our brands for increasing market share by providing correctly-priced and positioned products with the value proposition that resonates with consumers.

Let me remind you of a few of our sales growth initiatives and the rationale for our new Movado growth initiative.

First, was the repositioning of Coach Watches as a fashionable modern classics, offering the quality and authenticity inherent in Coach, with an improved price value proposition.

We have launched over 150 new styles, executed new fixtures, packaging, and a strong print and digital campaign.

With this repositioning, we have expanded into over 500 incremental doors globally, and seen watches at retail trend at 30%-plus in sales.

Second was launching of the Scuderia Ferrari brand globally in April 2013, with core product offerings priced from $125 to $695.

We have opened approximately 2300 doors in 2013, and plan on an incremental 1000 doors this year.

We continue to be very pleased with the sellthrough results to date.

Third, is expanding the Movado brand by delivering exceptional new product, improved merchandising of our product positions, and door expansion of Movado Bold.

These have resulted in consistent market share growth, and positions us for planned continued above-market sales growth.

And fourth, investing in geographical infrastructure, allowing us to continue driving international growth.

These types of investment initiatives will continue this year and over the next few years.

With the strength and momentum of the Movado brand, particularly in the United States, we believe we have a unique opportunity to greatly expand Movado's market presence and market share.

This initiative will be at the expense of ESQ, yet provide a better future business growth opportunity for the Company.

Our initiative will allow us to transfer Movado product into existing ESQ retail linear space at select major retail partners.

This will provide Movado product families greater merchandising opportunities as well as expansion of Movado Bold in certain existing and new doors.

The charge we are taking to facilitate this Movado growth initiative is similar to the charge we took in fiscal year 2013 for the Coach repositioning, which is proving to provide an excellent return on investment.

Our balance sheet remains strong, with a net cash and short-term investment position of $190 million, supported by $54 million of cash flow from operations and shareholders equity in excess of $460 million.

With this strong financial performance and position, we are pleased to announce that our Board of Directors has approved a 25% increase in our dividend, increasing our quarterly dividend to $0.10 from $0.08, as per this morning's press release.

Now let me briefly discuss some global trends and provide some additional brand highlights for the quarter.

From a global perspective, despite a slowing of growth this past holiday season, the Watch category continues to perform well, and we continue to experience strong sellthrough performance across our retail partners.

From an economic perspective, we anticipate moderate growth in North America, modest growth in Northern Europe, further stabilization in Southern Europe, more stabilization in South America, and conservative growth in Asia.

We continue to be concerned with the devaluation of key currencies in Argentina, Brazil, Turkey and India.

From a brand perspective, the execution of our Movado brand strategy continues to produce particularly strong results.

Globally, Movado sales grew 7% in the fourth quarter, partially impacted by shipment timing from the very high 27% growth in the third quarter.

For the full year, Movado grew sales 17% as compared to fiscal 2013.

Our Movado brand in the United States continues to hold the leading market share position in our key price points of $500 to $1500, and a strong market position in the $1500 to $3000 price segment.

Additionally, Movado continues to outpace the market, and increase its market share in total in the $300 to $3000 price segment, and in virtually every category within this segment.

Product segmentation and our strategy to offer compelling product at key price points continues to help drive our growth.

Great performers during the holiday season included Ceramic and Steel Cerena with Diamonds for women; and in the men's category, our SE Pilot and Thin Classic collections.

Movado Bold, part of our Swiss Trend pillar, is still exceeding expectations.

With our current limited distribution of approximately 700 doors worldwide, Bold continues to add a fresh, younger perspective to Movado.

Bold is also well-positioned to continue bringing the consumer desired newness to the market, with new products such as the Bold Bangle starting at $395, a new Bold ceramic starting at $795, and Bold with Diamonds priced at $1395 and $1495.

Great product, along with a focused omnichannel marketing program, continues to help drive our strong Movado brand sales performance.

Ebel and Concord, which represent a little less than 6% of our total sales, were down slightly from the prior-year period, as we were anniversarying the major launch of our new Owned and X1 models last year.

In Ebel, we continue to focus on our key markets, with our new and distinctive Owned and X1 collections, along with Ebel's core collection comprising the Wave, Beluga, and Brasilia models.

In Concord, we continue to focus on the Middle East market with the reintroduction of Saratoga and Mariner.

Our objectives for Ebel and Concord remain consistent, key market focus, realized value, and improved profitability.

Our License Brand division continues to perform extremely well.

In the fourth quarter, the license brand global team grew sales an impressive 25.7% and 19.6% for the full year, as compared to the same periods last year, led by the repositioning of Coach watches and the launch of Scuderia Ferrari watches.

Growth in our License Brand division is being driven by innovative product designs at key price points that are resonating well with consumers.

Some of the leading product performers for License Brands here in the fourth quarter were the Coach Tristan and Boyfriend product offerings, the Tommy Hilfiger Harrison and Ladies Trimetal models, the HUGO BOSS Airliner and Ultra Slim watches, the Juicy Pedigree and Stella lines, the Lacoste Borneo and Valencia collections, and the Scuderia Ferrari silicon strap color-infused product offerings.

Our Outlet Retail division remains an important contributor to our business from both a sales and profitability perspective.

Sales for the full year grew 5.6% above the same period last year.

With the opening of two new stores this year, we now operate 35 retail outlet stores.

The greater emphasis we have placed on branding and customer service at our existing stores has helped fuel sales conversion and profitability.

We remain excited that the initiatives we have been diligently working on have succeeded in creating momentum in our business.

We believe our combination of powerful brands, world-class infrastructure, and our talented global management team, position us to continue the path of above-average sales and profit growth.

Now I'd like to turn the call over to Sallie to discuss our financial results in more detail and provide our fiscal year 2015 guidance.

Thank you, Rick, and good morning, everyone.

For today's call, I will first review our income statement and balance sheet, and then discuss our outlook.

Before I review the quarter and the year in total, I would like to point out the special items included in our fourth-quarter and full-year results for fiscal 2014, as well as fiscal 2013.

Please refer to our press release for a description of these items, as well as a table of GAAP and non-GAAP measures.

As Rick mentioned, our results for the fourth-quarter and fiscal 2014 include an $8.3 million pretax charge in connection with our strategy of reducing the presence of the ESQ, while expanding the Movado brand offering in certain retail doors.

On a GAAP basis, net sales include $7.8 million charge for anticipated sales returns associated with this strategy.

This charge, along with the related write-down of excess inventory, impacts gross margin on a GAAP basis by $7.5 million or 240 basis points for the fourth quarter and 60 basis points for the full year.

Operating expenses on a GAAP basis include an $800,000 charge for excess ESQ displays and point-of-sale materials.

The ESQ strategy impacted earnings per share by $0.20 for the quarter and fiscal year.

In the fourth quarter of fiscal 2014, we reported a $2.5 million or $0.06 per diluted share pretax duty refund from U.S. Customs and Border Protection to recover payments made in prior years for watches subsequently exported out of the United States.

On a GAAP basis, the duty refunds impacted gross margin by 190 basis points for the fourth quarter and 40 basis points for the full year.

In the fourth quarter of fiscal 2014 and the third quarter of fiscal 2013, we reported contributions to the Movado Group Foundation.

The pretax donations were $2 million or $0.05 per diluted share in fiscal 2014, and $3 million or $0.07 per diluted share in fiscal 2013.

These donations are also reflected in the full-year results of both years.

During the first quarter in fiscal 2014, we reported a $1.5 million or $0.04 per diluted share pretax gain from the sale of a building in Switzerland.

During the second quarter and fiscal 2014, we recorded a $1 million tax benefit or $0.04 per diluted share, primarily related to favorable changes in connection with domestic and foreign tax audits.

As a reminder, the results for the fourth quarter and fiscal 2013 include a $4.9 million or $0.13 per diluted share charge to sales and gross margin related to the repositioning of the Coach brand.

Additionally, the fourth-quarter and fiscal 2013 results were impacted by a $500,000 or $0.02 per diluted share net tax benefit for certain unusual foreign items.

And finally, on a GAAP basis, the tax provision for fiscal 2013 includes a $19.8 million or $0.70 -- $0.77 per diluted share non-cash tax benefit related to the reversal of the valuation allowance on certain domestic net deferred tax assets.

The balance of my remarks will exclude the special items just discussed.

For the fourth quarter, our sales increased 9% to $140.1 million.

In constant dollars, sales rose 8.4%.

Sales growth was primarily driven by our Licensed Brand category, and included an 8.6% increase in the US, and in constant dollars, a 10.2% increase internationally.

Sales in our Wholesale segment were $120.1 million or 10.3% above sales of $108.9 million for the same period of last year.

By geography, our US Wholesale business increased 8.7% to $53.3 million compared to $49.1 million last year.

Our International Wholesale business increased 11.5% to $66.8 million compared to $59.9 million in the prior year.

Sales growth was led by increases in Germany, the UK, the Middle East, and South America.

Sales from the Company's Retail business for the fourth quarter were up 2% from last year, with an enhanced level of profitability.

At the end of the period, we operated 35 outlet stores.

Gross profit was $74.3 million or 53% of sales compared to $67.6 million or 52.6% in the fourth quarter of last year.

The 40 basis point increase in gross margin was driven by favorable channel and product mix and leverage gained on fixed cost, partially offset by the unfavorable impact of changes in foreign currency exchange rates.

Operating expenses were $59.9 million, an increase of 4% year-over-year.

Operating income increased 43.5% to $14.4 million, or 10.3% of sales, compared to $10 million or 7.8% of sales in the year-ago period.

Income tax expense was $2.2 million compared to income tax benefit of $800,000 last year, and our effective tax rate was 15.1% in the fourth quarter of fiscal 2014 compared to an effective tax rate benefit of 7.7% last year.

Net income in the fourth quarter was $12 million, or $0.46 per diluted share, versus net income of $10.5 million or $0.41 per diluted share in the year-ago period.

Looking at the results for the full year ended January 31, 2014, sales were $578.1 million, an increase of 13.3% from fiscal 2013.

The higher sales were driven by both the US and international businesses.

On a constant dollar basis, sales increased 12.7%.

Gross profit was $310.3 million or 53.7% of sales compared to $282.8 million or 55.4% of sales last year.

Operating income increased 31.9% to $75.5 million or 13.1% of sales compared to $57.2 million or 11.2% of sales in fiscal 2013.

Income tax expense was $20.9 million compared to an income tax expense of $14 million for last year.

And our effective tax rate was 27.8% for fiscal 2014 compared to a 24.6% effective tax rate last year.

Net income increased 27.2% to $53.6 million or $2.07 per share, compared to net income of $42.1 million or $1.64 per diluted share in the year-ago period.

EBITDA increased 29.3% for fiscal 2014 to $87.7 million from EBITDA of $67.9 million last year.

Now turning to our balance sheet, cash and short-term investments combined at year-end was $190.8 million compared to $167.9 million last year.

We continue to have no debt outstanding.

Accounts receivable increased $7.3 million to $68.7 million.

This increase was primarily due to the overall increase in sales.

Inventory increased $14 million to $181.3 million as compared to last year.

Capital expenditures for the year were $16.7 million, and depreciation and amortization expense was $12.2 million.

Now I would like to discuss our guidance for the current fiscal year.

From an economic perspective, as Rick mentioned, we continue to be cautious in our view of the global economy and the continued pressure on foreign currency exchange rates.

For fiscal 2015, we anticipate our sales will increase close to 11% to $640 million.

As a reminder, beginning in the second quarter of 2015, certain of the ESQ retail space will be reallocated to drive incremental sales of the more productive Movado brand watch family.

So, although ESQ will continue to be offered in select retail locations, we expect a sizable decline in our sales of ESQ in each quarter of fiscal 2015, which will be offset by an increase in Movado starting in the second quarter.

Gross margin rate is expected to be approximately flat to this fiscal year, due to the mix of business, which will now include a full-year of Ferrari branded watches and the repositioned Coach brand.

Although we expect to continue to see leverage on operating expenses, we expect this leverage to be lower than in recent years, as we continue to invest in our geographical infrastructure, allowing us to continue driving growth.

These types of investment initiatives will continue over the next few years.

Operating income is projected to increase over 19% to $90 million.

EBITDA is expected to increase to $103 million.

Due to the mix of global pretax results, the estimated effective tax rate is expected to be 28%, and net income is planned to increase to approximately $63.5 million.

We expect diluted earnings per share in fiscal 2015 will increase to approximately $2.44.

We also plan to continue to repurchase shares in accordance with our $50 million multiyear share repurchase program, which was approved at this time last year.

This program is designed to offset dilution caused by share awards, and will not have a significant impact on the weighted average number of shares outstanding for fiscal 2015.

The guidance we have provided assumes no unusual items for fiscal 2015.

Lastly, I'd like to point out that capital expenditures for fiscal 2015 are estimated to be approximately $17 million, and includes projects in the ordinary course of business, such as facilities improvements, shop-in-shops, and computer hardware and software.

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

Thanks, Sallie.

We are very pleased with our strong fourth-quarter and full-year results.

For the full-year, adjusted net sales grew by 13.3%, and we increased adjusted operating income by 31.9%, reflecting our consistent ability to present powerful innovation and leverage our developed infrastructure across our Movado and Licensed Brands, to drive sales and operating margin growth.

We have demonstrated our ability to introduce new brands and optimize our existing portfolio to bring greater value to consumers, and expand our long-term growth potential.

In advancement of this objective, fiscal 2014 saw the successful introduction of our Scuderia Ferrari Watch brand, and included a highly-positive response to our repositioned Coach Watch brand into the Fashion Watch category.

We are focused on investing our resources and talent and opportunities that have high returns.

As Rick and Sallie touched on, and in keeping with this objective, we made the strategic decision to reallocate and reduce the presence of the ESQ watch brand in certain retail doors.

This move will allow us to expand our more productive Movado brand in these doors, beginning in the second quarter of fiscal 2015.

This ESQ reallocation strategy, combined with the growth initiatives already in place, position us well to continue to execute towards reaching our strategic planned objectives.

Our guidance for this year translates to a compounded annual growth rate of 12% net sales and over 25% in operating income for the first two years of our multiyear strategic plan.

We are equally focused on maintaining a strong balance sheet, which, at year-end, included a net cash position, including short-term investments of over $190 million.

Given our positive outlook and balance sheet strength, today, we announced a 25% increase in our quarterly dividend to $0.10 from $0.08 previously.

We are excited about the innovative new products that we are launching in Basel across our brand portfolio starting tomorrow.

We are very proud of our teams around the world and our many achievements in fiscal 2014, and remain excited about our opportunities in the year ahead.

We remain confident in our strategies, and are looking forward to driving increased value for our stakeholders.

We would now like to open the call up to questions.

(Operator Instructions).

Oliver Chen, Citi.

Congratulations on your results.

Regarding your strategic choice to change ESQ, what was the background around that?

I know you were repositioning that brand.

And also, is the Movado product portfolio going to change with respect to the range of prices you will offer?

Well, I think what we've seen with -- and I'll take that first and then see if Rick would like to add anything -- that what we've seen with the really explosive growth of Bold, and the continued expansion and growth of our core assortment, and as we add more product innovation into the Movado brand, that that really gives us some more opportunities, and that the space that, today, is allocated in a lot of our national accounts, whether chain stores or department stores, could be reallocated to Movado, where it would be more productive overall for the retailer and, therefore, for the Company as well.

And just to add to Efraim's piece, I think it's all about the future growth opportunities.

And when we're done, ESQ is going to be an ongoing position for us.

But rather than trying to focus on significant growth there, we have a better opportunity of having greater growth with Movado brand.

So that's behind the strategy there.

From a standpoint of the Movado price point range, we do not see a change in that.

We compete in that $300 to $3000 range.

Our focus is continuing to increase our share of market in the US as well as globally, but within that price range.

Okay, thanks.

And on your new revenue guidance, what -- could you just give us the framework for thinking of how much Coach and Ferrari are going to contribute to the growth this next year?

And I just wanted some more color around the gross margin and why it's prudent to think about flattish rather than upside, as you engage in all these further brand expansions.

Okay, thank you.

Again, we don't give sales growth by each of our individual brands.

But again, now that we repositioned Coach in the second half of last year, and seen very strong growth as well as door expansion there, we would expect to see those types of trends not the same level of door expansion -- we had 500 last year; we'd have much less this year -- but we'd expect to have a full-year impact of that, which I think is positive.

Scuderia Ferrari, again, the same thing -- we had three quarters of a year, opened 2300 doors.

We'll have an increased 1000 doors or so this year.

So those two will obviously be above the average growth for the overall Company and help contribute to that close to 11% growth that we are projecting this year.

Gross margin, I'll pass to Sallie.

Yes.

So gross margin, the rate is going to be relatively flat year-over-year to what we experienced for fiscal 2014.

And that's the result of the overall mix of our business.

Coach and Ferrari, if you remember, were partial for last year, so, those will impact a full 12 months of this year.

And that will keep it kind of at same level pace with what we've experienced this year.

The other drivers that we have will kind of in total get us to that number.

Some will be a little stronger, some will have -- and then we'll have the 12 first -- the full 12 months of those two offsetting it.

Great.

Congratulations on a great holiday.

Thank you, Oliver.

Edward Yruma, KeyBanc.

Congratulations on great results.

I just wanted to ask a question about use of cash.

I know that you are taking the dividend up pretty meaningfully, but given, obviously, what is a fairly robust cash balance, I guess how do you think about the cash that you need on the balance sheet and potential other uses other than the dividend increase?

Again, I think our cash position is one where, coming out of the Great Recession, we felt it was important to provide ourselves with great flexibility.

So not having debt, increasing our cash balances, we've been able to do that.

When we look at our cash position, a good part of it is outside of the US; about 25% of it is in the US.

So, we look at it as providing us flexibility.

We don't have any specific plans for it other than it gives us great flexibility to be able to seize opportunities, whatever they may be, down the road, if anything kind of materializes.

But we like having that flexibility.

And we will continue to probably grow our cash over the next couple of years.

And in addition to increasing the dividend, and as Sallie mentioned in her comments, we do have a stock repurchase program in place to offset dilution from compensation plans.

So we expect that to continue as well.

Got it.

I know the ESQ One was in tests -- or is it in roughly small rollout.

Does the pullback in ESQ signal that that didn't work?

And kind of how do we think about the remaining ESQ portfolio?

Well, I think our opportunity, and as we've tried to highlight today, is really to focus on the significant opportunities for the Company.

And we believe that our investments and our focus from a space utilization as well as design point of view is really best spent continuing to grow Movado at a healthy growth level, and really using the Company's resources, and putting it behind that effort, both domestically and internationally.

And that that's where resources are best utilized.

You know, we did a very minor test in ESQ One.

I don't think that it will be conclusive one way or the other, but we really believe that our Company's focus is best utilized behind Movado.

Great, thanks so much.

Rick Patel, Stephens.

Congrats on a terrific year.

Can you talk about the ESQ transition and the impact to sales?

I'm curious if you had any kind of negative impact in the fourth quarter, as your customers sort of saw this transition coming?

And if there is any way to quantify the negative impact that we should expect in the first half before Movado watches are rolled out?

And then secondly, can you touch upon the economics of the transaction?

I'm curious, by replacing this assortment with the Movado family of watches, what the price per unit change will be like as well as the margins per unit?

Well, that's pretty -- a lot in that question there.

I guess from the first piece when we look at the sales impacts for the year, we don't give quarterly guidance, so we're not going to break out by quarterly sales impact.

But certainly, ESQ growth, we made a point of not having that in the fourth quarter and really not having heavy replenishment that we otherwise could have normally had.

So, if I take out the ESQ both years, our growth would've been probably closer to 11% for the fourth quarter, without -- if I took the ESQ out for the two years.

So, yes, we certainly had an impact on that -- number one.

Number two, in the first quarter, we will, each quarter, be impacted by ESQ, particularly as we have less planned growth than we were looking at and keeping it at a good stable level, but that will be impacting us for each of the first four quarters.

And Movado will only really start picking up in the second quarter.

So, we see a full-year impact basically a wash between the two, but certainly an impact -- a negative impact in the first quarter.

From a standpoint of when we look at the price per unit, certainly Movado is at a higher price point per unit.

Again, we look at the sales dollars probably being equal over the full-year, but when we're done, Movado does have a little bit better margin than certainly ESQ does.

And I think it's more important about the future growth prospects.

When we look at our strat plan and we look at the substantial growth that we had for ESQ, and the amount of effort and resources we would need to be able to do that, we felt that we could achieve that level of growth in probably a much more leveraged and a much more sustainable profitable long-term approach by focusing on Movado.

So, it's really about that long-term future growth of how we could get a better return on that.

When you look at it from a return on investment standpoint, again, I think it's comparable to what we did with Coach, which is, taking a charge, but when we're done, we're going to be able to deliver a better return moving forward.

And obviously, our strat plan has pretty substantial growth levels, both at the sales level as well as the profit level.

And we believe that this strategic change will allow us to better deliver that type of performance.

But when we're done, it will be a positive return on investment for us as a company.

All right, great.

And then a question on gross margins.

I know you are guiding to flat, but I think you mentioned earlier in 2013 that Coach and Ferrari watches had a lower margin, so I would think that there would be some type of pressure from sales mix.

So, does your guidance imply that Movado watches will outperform the licensed portfolio for the year?

Just help us think about that.

Well, I don't know -- the word outperformance is a strong one, but Movado, as we said publicly, does have a higher gross margin overall than the remaining -- than the other pieces in our portfolio.

But it's the overall mix.

They are all kind of tugging at each other.

And in the end, the gross margin stayed flat with the growth that we are planning.

And let's not forget, in gross margins for us, it's a scale that we are aiming towards as we look out into the future.

We will drop more dollars on the gross margin line, but the growth that we are going to get on the operating income is not based on a gross margin percent increase.

Yes.

So, I think this is a year where, again, I think that's flattish with a mix of what's taking place.

And I think from there, we then try to position ourselves as saying, okay, how do we start inching it forward?

Great.

And then just a last question on Smart Watches.

Can you just talk about any potential there is to partner up with electronic component companies to participate in this potential market?

And whether this is a near or long-term focus?

Well, I think it's something that if you're in the watch business, you have to keep your eye on, and obviously, we are.

And -- but we certainly believe that we are in the design and fashion arena, and branded arena.

And, as such, really, that's predominately why people buy our products.

It's also my experience, being in this business a long time, that being first to market is not necessarily best to market in this category.

And we've seen that numerous times in different areas, both in the watch business and outside of the watch business.

So, we are exploring our options in the area and keeping our -- and keeping open to the possibilities, but understand that I don't believe it's a short-term phenomenon.

This is a longer-term -- that it will be a longer-term market.

Thanks very much.

Jeremy Hamblin, Dougherty & Company.

Congratulations and thanks for taking my questions.

I wanted to just add or ask a quick follow-up on that in terms of Smart Watches.

And, one, do you think that it's -- it kind of grows the overall category as a whole?

I think one of the concerns certainly from investors has been that it's going to hurt traditional watch sales.

But do you see fashion watches that you offer as really the area of the watch business that would get hurt?

Or would you see it more along the lines of impacting traditional, let's say, running watches or sports watches?

I mean, there have always been alternative watches that do different things for different people.

And what our belief is, is that it generally has grown the overall market, the overall watch market.

And you can see that from -- there are watches that tell you the altitude; there are watches that give you your pulse rate; there are watches that tell you how fast you're running and how far you're running.

And those have been now around for a number of years.

And the overall market and the fashion watch market, and the accessible luxury market and the luxury market, have all grown during that time as well.

So, I think it's an incremental opportunity and it's not a replacement opportunity.

That's our perspective on the business.

And that we are in a different category and -- than just being in the technology segment.

So, I think it's a very different marketplace.

Okay, great.

And then I wanted to just ask or come back to the question about cash.

And, obviously, you guys have a really strong balance sheet.

A lot of that debt is overseas, which may limit some of the options that you have.

But would you consider, or have you considered, are there opportunities for potential brands to acquire international brands that might be a good use of that cash?

I'll take that.

I mean, obviously, one of the things that our strong balance sheet provides us is the opportunities -- is opportunities in flexibility.

Certainly, part of our job is to understand what's happening in the marketplace and decide if there is anything that makes some sense to us.

So, again, our strategic plan does not require us to acquire anything.

That would certainly be above and beyond.

Our balance sheet certainly gives us the potential and the flexibility to participate in that arena if we so desire and if there is something that would make sense to us as a company.

So, not something that we need to do to deliver our strategic plan.

Our balance sheet gives us the flexibility of being able to look at those things.

And if something ever made some sense, we certainly would have the wherewithal to be able to look at that.

But our plans do not require it and there's nothing that we have built in that is needed to happen in that arena.

Okay.

And then just in your -- coming back to Coach for a second.

In your prepared remarks, it sounds like, from the commentary that you had on the third-quarter call, that the Coach business actually accelerated into the fourth quarter potentially significantly.

Is that really being driven by sellthrough?

Or is that just some additional doors that were added in Q4 versus Q3?

Any additional color you can provide on that?

I would sit there and say that both of those happened.

Obviously, as you open new doors, you obviously have sell-in, but we focus very much on making sure whatever we have in sell-in is going out from a sellthrough standpoint.

Sellthrough has been very strong.

I think one of the comments I made is that retail sellthrough is up 30% for Coach across all of those doors -- some of those obviously being new doors, so there is -- that's not a comp; that's just an overall number.

We are very pleased with the performance of Coach repositioning, and very pleased that that is happening from a sellthrough standpoint.

And then last question.

Just -- you called out in the Movado collection, the Cerena brand continuing to -- or collection continuing to do well.

Can you speak at all to the kind of the bangle bracelet watches -- Amorosa, Bella, Moda, et cetera -- about how those are performing?

I have been seeing some competitors also looking to file these -- follow these style lines.

Any color you can add on that?

Well, bangles within our Movado segment -- and I think because of the iconic Museum dial, lends itself -- it's really a very strong area for us in Movado and continues to be a strong performer.

And I think Rick in his comments also pointed out that we introduced a Bold bangle last -- for the holiday season, and that's also been a very strong performance.

So it's an area that we continue to focus and one that where Movado really has a very strong presence.

Thanks so much for taking my questions.

Thanks, Jeremy.

Thank you.

Eric Beder, Brean Capital.

Good morning and let me add my congratulations on a solid quarter.

Could you talk a little bit about Coach?

I know that Coach is going to kind of do a metamorphosis in their full price stores, go to higher pricing, a little bit more fashion-forward -- how are you going to respond to that in the back half of this year when they start bringing in the new designer collections?

We are very excited about where Coach is going with their brand.

And obviously, we've seen the previews, and are working with them to continue to evolve the collection and positioned across various price points.

But we continue -- we'll continue to operate within the fashion watch arena, which really allows us to have a broad assortment, a very stylish assortment, an on-trend assortment, collaborating with the Coach design team.

And think that certainly as the brand continues to grow in prominence, really represents a continued tremendous opportunity for the Company.

Okay.

And in terms of Movado Bold lines, you've kept the doors pretty much flat.

It's gone up (technical difficulty) I think maybe what you're saying about the ESQ, you want to add more doors back.

What do you think is the door potential?

And what should we expect for that for this year?

I think -- it's not only adding new doors.

I think we will add some selectively, and I think that's what Rick said in his comments.

But we'll also be able to expand the space, so we will be able to display Bold in a larger environment and it is more -- really more of a fashion segment for the Movado brand.

But in addition to that, we are also expanding some of our core assortments that are highly productive, where we believe there is a growth opportunity within that distribution as well.

So it's really about adding -- more about adding additional space within retail doors than adding new doors.

Great.

Thank you and congratulations again.

Thank you.

Kristine Koerber, DISCERN Securities.

A few questions.

First, just to follow-up on expanding space for Movado brand.

And how should we think about that in terms of possible new launches of new products and SKUs?

Is that number going to increase meaningfully?

We don't think it's really going to increase the number of SKUs within the overall Movado brand, although Bold has expanded over the last few years.

So that segment in itself has grown, and that's added some SKUs to the Movado brand.

But we don't see an intensification or an adding of SKUs; rather, what we call a distorting of the current assortment than an intensification of the current assortment.

Okay, that's helpful.

And then as far as Ferrari, you said an additional 1000 doors this year, any plans to expand Ferrari into the US at this point?

Well, Ferrari already is in the US with a lot of our key retailers.

We see a greater level of expansion happening in the US.

So, of the 1000 doors, I would think the US is certainly an important part.

But what we've done is we've launched globally in a lot of our key partners, and we have the opportunity of expanding as we see success expanding the doors in those existing retailers that they have, as well as adding new doors.

So the US does have an existence today, and yes, that will continue to grow.

It's a small existence, though, in the US, correct?

I mean, relative to (multiple speakers) --?

It's smaller than it is globally, but also you have to remember that Formula One, which is really what Ferrari is known for, is much bigger also outside of the United States than it is in the United States.

But certainly, the Ferrari brand is an iconic brand in any market around the world.

And everywhere that we've had it, we've had very strong results.

Okay.

And then as far as the number of outlets this year, do you plan to grow the retail store outlet?

You know, from a standpoint our philosophy there is to focus in on some key markets and key prime real estate in the outlet business.

You know, we have grown a couple doors each over the last few years.

I would expect that we probably may have another one or two doors.

Our philosophy is we'll open up new doors in TA markets; we may be closing some other less productive doors that may take place as that real estate leases come up.

So we may have an increase of one or so door this year.

Okay, great.

And then, lastly, you mentioned the infrastructure investments.

Can you just give me -- give us a little more color on the investment spending plan for this year?

Yes.

One of the things is, as you know, we've got strong presence around the world.

We do look at taking the opportunity of adding more talent, particularly international markets to help us focus in and grow those markets in that particular arena.

So, this past year, we made some investments in people, particularly in our Latin America, as well as our Asia marketplace.

Probably not as much as we thought would've happened this past year, so some of that is going to fall more into this year.

But we see a continued investment of bringing in additional competencies, additional expertise, particularly in our key markets around the world -- whether it's Asia-Pacific; whether it's our European market, and our Middle East markets, where we have made some investments last year, as well is in our Latin American marketplace.

So (multiple speakers) --.

So, is it mostly headcount and not technology or --?

It's predominantly our -- we have a worldwide platform.

So, our SAP platform is fully globalized, standardized and integrated everywhere around the world.

It's really more people and competencies, and adding to the strong management team that we have, and enhancing the skill sets in the local markets.

Great.

Thank you.

Yes.

Mike Richardson, Sidoti.

The doors where you're replacing ESQ with Movado, are those doors that didn't already have Movado in it?

Or is it just going to be a larger assortment?

And then how many doors are we talking about?

No.

They are all doors that have Movado in them.

So it's really the growth of the real estate for the Movado brand.

And so that makes it not only more productive for us, but also, we believe -- and so do our retailers -- will be much more productive for them as well.

And I think it's an initiative that represents a very good opportunity for us down the road.

So I don't -- Rick, do you have a number on the number of doors?

I'll just give you an order of magnitude, and you can sit there and think of it from the standpoint of around 1000 doors.

Okay, thanks.

Can you give us an update on China and sort of where things stand over there?

Maybe sales or number of doors you're in?

Any plans for expansion?

China remains an important strategy for us.

As you know, there's been a lot of noise in China from a standpoint of the market scaling back a little bit from the crazy growth that's taken place.

Our approach has always been there of saying, we've got an iconic brand; how do we get in there?

And rather than rushing to get a high sales level, we focus about how do we make sure that we expand?

Expand in the right doors that have the right staying power?

So, the number of doors have not dramatically grown over the last couple of years.

What we have done is we've focused a little bit more on some of the concessions where we play more active role in the retail sales, and perhaps getting a little bit more of the full retail dollar.

So, it remains an important market for us.

That's an area that we'll continue to invest in infrastructure.

But we look at it that positioning ourselves for good continued growth taking place over the next number of years.

So we are pleased with where we are.

The growth has been fine, but it's not at an outrageous level.

It's more in line with what the market's been doing in China.

Okay, thank you.

And good luck.

Good.

Thank you very much.

Thanks, Mike.

I would now like to turn the conference back over to Efraim Grinberg for any additional or closing remarks.

Okay.

I'd like to thank all of you for joining us today and for some very good questions.

We look forward to speaking to you when we report our first-quarter results in May.

So, again, thank you very much for being with us today.

And this does conclude today's conference call.

Thank you all for your participation.