Movado Group Inc (MOV) 2015 Q2 法說會逐字稿

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

second-quarter fiscal year 2015 earnings call.

(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 Schachter of ICR.

Please go ahead.

Thank you, good morning, everyone.

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

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

The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within 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 filing 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'd like to turn the call over to Rick Cote, Vice Chairman and Chief Operating Officer of Movado Group.

Thanks, Rachel.

Good morning and welcome to our conference call.

We are pleased with our second-quarter and first-half results which demonstrates the strength of our offerings, brands and growth strategy as we performed well despite a cautious global retail environment and unsteady country specific environments.

Our retail sell-through continues to outpace the market and our sales results.

We continue to gain market share in our key global markets in our largest brand, Movado, and our largest business, our licensed brands division.

Our outlet retail stores continue to deliver positive comp door increases, selectively expanding their doors and driving profitability.

These positive results and trends allow us to reiterate our previously issued full-year guidance of delivering 10% sales growth and 19% operating profit growth.

In support of our strategic plan, which calls for annualized 10% sales growth and 20% operating profit growth, we continue to make investments in expanding our global competencies and capabilities.

As previously announced, we are extremely pleased to have Ricardo Quintero join us as President of Movado Group.

He adds a level of global brand building and international marketing expertise that will greatly enhance our worldwide business expansion capabilities.

We continue to invest in and expand our personnel around the world, focusing on global growth opportunities.

In the wearable device arena we are investing in developing strategic alliances that will position us to potentially launch product consistent with our luxury product branding philosophy.

Our consistent ability to design and deliver innovative consumer desired product allows our core brands to continue to outperform the market and increase their share of market.

Our investment initiatives position us for expanded growth on a global scale.

And our world-class infrastructure provides us with the ideal platform for that growth.

These are the attributes that are the basis for us realizing our strategic plan.

Let me now address the results of our second quarter and first half.

In the second quarter sales increased 3.8%, fueled by continued strong growth in our Movado brand, licensed brand division and retail outlet stores.

The sales growth of these three businesses, which represent 93% of our sales, increased 8.3% and was negatively impacted by retailers pursuing leaner retail inventory levels.

We continue to see broad-based strength across our core businesses with strong consumer demand and customer sell-through above the overall watch category performance.

Operating income was $17.2 million, a slight increase from the $17 million reported in the prior period.

This improved level of operating income was driven by our sales growth partially offset by an increase in operating expenses including organizational investments to support our continued growth initiatives.

Earnings per share came in at $0.47 as compared to adjusted earnings per share of $0.44 in the prior period.

For the first half of fiscal year 2015 our sales grew 6.5% led by 12.6% growth in our licensed brand division, 7.4% growth in our Movado brand and 9.8% growth in our outlet retail division.

The sales growth of these three businesses was 10.5% despite the impact of retailers managing leaner retail inventory levels.

Operating income in the first half was $28.1 million, a 3.9% increase from the $27 million reported in the first half of the prior period.

Our balance sheet remains strong with a net cash position of approximately $170 million and an equity position at over $470 million.

We are pleased to announce that our Board of Directors has approved our quarterly dividend of $0.10 per share as per this morning's press release.

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

From a global perspective, growth in the watch category remains healthy yet, as expected, has slowed from its rapid pace of growth.

We continue to experience above average sell-through performance across our retail partners.

Our multiple brand initiatives, including the Movado ESQ space conversion, Coach brand repositioning, Scuderia Ferrari door expansion and across the board new product initiatives are driving our sell-through performance which exceeded our first half sell-in performance.

These initiatives, along with retailers positioning their retail inventory levels for the holiday selling season, will allow us to continue growing our market share and, as projected, deliver second-half sales growth of approximately 13%.

This sales growth will also fuel the planned second-half 27% operating profit growth, which is consistent with our actual operating profit and sales growth in the same period last year.

From an economic perspective the first half has certainly shown some unusual trends and inconsistencies.

We expect the China, Hong Kong, Turkey, Thailand and Argentina markets will continue with economic challenges.

However, on an overall basis we continue to anticipate moderate economic growth in North America, modest economic growth in Northern Europe, continued stabilization in Southern Europe and South America and conservative economic growth in Asia.

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

The initiative we announced in the fourth quarter last year to convert a substantial portion of the ESQ linear space at certain retail locations to Movado product has been virtually completed.

This provides Movado product families greater merchandising opportunities as well as expansion of Movado BOLD in certain existing and new doors.

Early results with BOLD product, which was delivered early in the second quarter, are meeting and exceeding our sell-through expectations.

We should start to experience increased sell-through results of Movado core product from the linear space expansion starting in the third quarter as product was just delivered at the end of the second quarter.

Our Movado brand in the United States continues to hold the leading market share position in the $500 to $3,000 price point segment and continues to outpace the category and increase its market share.

In North America all distribution channels continue to perform well with above average gains in US department and chain stores and our broad specialty channel distribution.

Our relatively minor Movado Asia business remains challenging with the recent shift in consumer spending habits.

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

New introductions this spring focusing on the women's category included Rondiro, a new bangle collection and the diamond expansion of our Concerto family.

In the men's category we have introduced a redesigned Sapphire collection, which is one of our most productive collections, as well as variations of our Sport Museum and Thin Classic families.

In our fashion trend pillar, Movado BOLD continues to deliver a wide array of product offerings resulting in BOLD being our fastest growing family, greatly outperforming its competitive set.

These new consumer desired products are examples of what we showcased in the April Basel watch fair which will help fuel our second-half growth.

Products like: the Limited edition Movado Parlee, utilizing a new high-tech, lightweight, ultra strong, unidirectional carbon fiber in connection with Parlee Cycles, the high-performance bicycle manufacturer; an elegant wrap watch inspired by a Movado design from the 1960s worn by Elizabeth Taylor; and our Derek Jeter Special Edition Captain Series watches to celebrate baseball legend, leader and Movado brand ambassador, Derek Jeter, as he closes out his remarkable baseball career as a Yankee captain, will also fuel our second half sales growth.

Great product along with a focused omni-channel marketing program continues to help drive our strong Movado brand sales performance.

For EBEL and Concord our objectives remain consistent -- focus on key markets, realize value and improve profitability.

In EBEL we are positioning ourselves for the new Wave product introduction which will start to ship in late third quarter, thus the majority of EBEL sales will be in the fall season.

In Concord we continue to focus on the Middle East market with our strong performing Saratoga family and the planned second half launch of the Mariner family.

Our licensed brands division continues to perform extremely well.

In the first half of fiscal 2015 the licensed brands global team grew sales approximately 13% with retail sell-through exceeding our sales into retail.

This sales growth was driven by strong performance in Coach watches, the continued expansion of Scuderia Ferrari watches and strong growth in HUGO BOSS and Tommy Hilfiger.

Growth in our licensed brand division is being led by innovative product designs at key price points that are resonating well with consumers.

Some of the leading product performers for license brands during the spring season were: the Coach Tristen and legacy sport families; the Tommy Hilfiger Callie and Liv women's bracelets; and the men's new Owen family.

The HUGO BOSS Aerolina family and BOSS Orange collections; the Juicy Pedigree and Stella lines; the Lacoste Borneo and Victoria collections; and the Scuderia Ferrari race day chronographs, pit crew collection and oversized product offerings.

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

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

Our sales for the quarter were up a solid 8.3% driven by excellent product offerings and select new store openings.

At the end of the quarter we operated 37 stores, opening a second store in Las Vegas in late June and a store in North Carolina on July 31.

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, superior infrastructure and our talented global management team position us to continue along the path of above average sales and profit growth.

Now I would like to turn the call over to Sallie to discuss our financial results and reiterate our full-year fiscal 2015 guidance.

Thank you, Rick, and good morning, everyone.

I'm pleased to speak to you today and present our financial results for the second quarter and first six months of fiscal 2015.

I will begin my remarks with a review of our operating results followed by the balance sheet and close with guidance.

Let me start with a reminder that as of the first quarter of fiscal 2015 we are dividing our watch business into two principal categories: luxury and licensed brands.

The luxury category consists of EBEL, Concord, Movado and ESQ.

The licensed brand category consists of watches distributed under license agreement and includes Coach, HUGO BOSS, Juicy Couture, Lacoste, Tommy Hilfiger and Scuderia Ferrari.

Before I review the quarter and the year in total I would like to point out the special items included in our results for fiscal 2014.

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

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

In the second quarter of fiscal 2014 we reported a $1 million tax benefit or a $0.04 per diluted share one-time item.

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

For the second quarter our reported sales increased 3.8% to $143.6 million.

In constant dollars sales rose 2.7%.

Our US sales grew by 7.8% driven by all brand categories and our international sales were relatively flat to last year with growth in our licensed brands offset by a decrease in luxury brand sales.

Sales in our wholesale segment were $127.8 million or 3.3% above sales of $123.8 million for the same period of last year.

In constant currency wholesale segment sales rose 2%.

By geography, our US wholesale business increased 7.6% to $62.4 million compared to $58 million last year.

Our international wholesale business decreased 0.5% to $65.5 million compared to $65.8 million in the prior year.

Sales from the Company's retail business were up 8.3% and at the end of the period we operated 37 outlet stores.

Gross profit was $77.6 million or 54% of sales compared to $74.8 million or 54.1% in the second quarter of last year.

The unfavorable impact of changes in foreign currency exchange rates was partially offset by leverage gained on fixed costs.

Operating expenses were $60.4 million, an increase of 4.6% year over year.

The increase was primarily the result of the following: a $900,000 increase in compensation and benefits offset by a decrease in the accrual for performance-based compensation; an $800,000 increase in expenses related to the Baselworld Watch Fair; an $800,000 increase in other selling expenses; and the $600,000 increase of unfavorable foreign currency exchange rates partially offset by a $1 million decrease in marketing expenditures.

Operating income was $17.2 million or 12% of sales compared to $17 million or 12.3% of sales in the year ago period.

Income tax expense was $4.9 million and our effective tax rate was 28.7% in the second quarter of fiscal 2015 compared to income tax expense of 53 -- of $5.3 million or a 31.2% effective tax rate last year.

Net income in the second quarter was $12.2 million or $0.47 per diluted share versus net income of $11.5 million or $0.44 per diluted share in the year ago period.

Looking at the six-month period ended July 2014, sales were $264.5 million, an increase of 6.5% from fiscal 2014.

On a constant dollar basis sales increased 5.2%.

Gross profit was $142.8 million or 54% of sales as compared to $134.7 million or 54.3% of sales last year.

Operating income was $28.1 million compared to $27 million in fiscal 2014.

As a reminder, during the first quarter of last year a building was sold for a pretax gain of $1.5 million or $0.04 per diluted share and, as mentioned earlier, the tax provision for the second quarter of last fiscal year was favorably impacted by a $1 million or $0.04 per diluted share one-time item.

Net income was $19.5 million or $0.76 per diluted share as compared to an adjusted net income of $18.6 million or $0.72 per diluted share in the year ago period.

Now turning to our balance sheet.

Cash at quarter end was $169.6 million as compared to $151.5 million last year.

We continue to have no debt outstanding.

Accounts receivable increased $16.6 million or 22.3% to $91.2 million.

This increase was primarily due to the overall increase and timing of sales.

Inventory increased $12.6 million or 6.9% to $195.3 million at quarter end.

On a constant dollar basis inventory increased by 5.8%.

Capital expenditures for the six-month period were $4.3 million and depreciation and amortization expense was $6.1 million combined.

We now project capital expenditures of approximately $15 million for fiscal 2015 which 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 discuss our reiterated guidance for the current fiscal year.

And let me note that we continue to assume moderate global economic growth and we are assuming no significant fluctuations in foreign currency exchange rates.

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

Gross margin rate is expected to remain flat to last year.

Also as mentioned at year end, we expect to see leverage in operating expenses for the full year, even as we continue to invest in our geographical infrastructure, allowing us to continue driving growth.

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

Our estimated effective tax rate for the current fiscal year 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.

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

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

Thanks, Sallie.

We are pleased with our second-quarter results highlighted by increase sales, a strong gross margin and operating profit growth even as we invested in support of our future expansion.

We have laid a solid base for accelerated growth during the second half of the year.

With the second quarter we have achieved 18 consecutive quarters of increased operating performance attributed to the disciplined execution of our growth strategies and supported by powerful innovation and compelling design in our owned and licensed brands.

We have positioned our brands extremely well for future growth.

In July we took steps to further build our team in support of our long-term growth with the addition of Ricardo Quintero as President of Movado Group.

Ricardo is a seasoned executive with strong leadership, global brand building and marketing skills.

Ricardo comes to us after a long career at Estee Lauder where he rose through the ranks into a senior leadership role within the Clinique brand.

He has a great understanding of both the domestic and international marketplace and he will be a great addition to our senior management team.

As we look towards the second half of the year we are focused on driving continued market share gains while continuing to invest in our long-term growth initiatives.

We are excited about the new products that we will be introducing across the brand portfolio.

As Rick mentioned, we are exploring various alternatives in the technology and smart watch space.

The smart watch arena is still in the very early stages of development.

As a Company we have always embraced technology that allows us to introduce consumer centric and brand appropriate products while continuing our strong emphasis on product design.

Our balance sheet remains extremely strong with approximately $170 million in net cash, allowing us the flexibility to continue to invest in the Company growth while delivering improving operating performance.

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

(Operator Instructions).

Ed Yruma, KeyBanc Capital Markets.

Given the weaker sales trends at wholesale, do you believe that the large, either department stores or jewelry stores, have normalized their inventory buys or are they still in the process of destocking?

I'd take a couple of things.

When we look at our sell-through performance and what is happening out there, again, we're focusing on our brands as opposed to some of the other brands that may be impacting their inventory -- the department stores' inventory decisions.

From a standpoint if we look at it, July is a period of time where they can manage their inventory.

I think the retailers have been far more cautious with managing their inventory because of the first-quarter impact on sales that have impacted them.

So we are quite confident that when we look at our sell-through results, and having the appropriate level of inventory at retail, we will be able to achieve our sales targets as we have outlined in the second half of the year.

So I don't view it as a destocking per se as opposed to timing of how they are managing their balance sheets and in the July timeframe they are able to do that much more successfully than they can prior to the holiday season.

Got it.

And Efraim, thank you for your comments on smart watches.

As you talk to some of your retail partners, are you noticing that become a more topical conversation?

And are they beginning to change their either framework around the watch category or the thought process around orders for the back half on the premise that smart watches could be a bigger item this holiday season?

Thank you.

Well, I think you are -- as I said, I think it is still very early in the stages of development.

There have been products out there that you have seen that really so far probably are not really ready for prime time.

And so, I think there's been a lot of talk about it, but I don't think there has really been anything that has been a critical success out there yet.

And as I said in my comments, we have always embraced the use of technology to allow us to make more beautiful and functional products.

And you have seen that in us making thinner watches, smaller watches and we will continue to explore the space as the space develops.

And I think it is very -- and what everybody has to kind of remember, it is very early in the stages of the development of the space right now.

Great, thanks so much, guys.

Oliver Chen, Citigroup.

Regarding the leaner retail inventory levels at your partners, was that domestic versus international?

And also, the trend in wholesale growth with US outpacing international, do you expect that trend to continue?

A couple things.

First is I think it is much more of a global phenomenon with retailers, particularly in the major markets.

So the European markets, some Latin American markets and obviously the US market.

So I think that leaner inventory trend was the big department stores and chain stores being able to influence their inventory levels and have done that.

Again, when we look at our retail sell-through we are very confident and very pleased with our retail sell-through and that is very much in line with where we expect to achieve for the full year.

The second piece as to the US outperforming wholesale, again, just from a standpoint of our sales number, when I look at the sell-through results, we are very pleased that international remains strong.

Yes, there are pockets of concerns such as China, Hong Kong, Turkey, Thailand, Argentina.

But in general Northern Europe and even Southern Europe are stabilizing, Northern Europe continues to improve.

So our sell-through performance outpaces all of those results and when we are done we would not see that this is a US strength phenomenon versus an international weak phenomenon.

We're seeing in our brands very strong sell-through across all those markets around the world.

Thanks a lot.

And as we look to the back half the comparison does get easier in Q4.

Are there any things we should know about when we are modeling our quarterly revenue growth?

Will fourth quarter be slightly better than third?

And on the inventory side, your inventory growth did outpace sales, but it sounds like you are comfortable with the level of freshness, is that true?

Let me first deal with the inventory one.

We are very pleased with our inventory levels both in-house and what we have as well as at retail.

We believe that our brands are extremely healthy from an inventory standpoint and obviously from a brand strength standpoint.

When we look at our performance -- again, we don't give quarterly guidance but we certainly would expect a strong third quarter and growth probably a tad above growth in the fourth quarter.

Okay, and our last question is just about your comments on the watch industry at large slowing from a rapid pace.

Do you have parameters on how you think the industry is growing?

Is it around mid- to high-single-digits?

Just some thoughts on what is happening in the environment at large.

Well, I think that obviously varies around the world.

And the space is obviously a lot larger, especially within the fashion watch category, than it was several years ago.

So we are pleased about that and we always expected that the growth in that category would moderate somewhat.

So we are not really looking at exactly the growth rate that it's growing because that is a backward looking thing.

But we do expect it to continue to grow and our models are built on that.

Rick?

Yes, and I think it's important -- and I try to highlight the types of initiatives we have.

So again, the Coach rebranding positioning is a very strong growth initiator for us, certainly this year, second half of last year, certainly this year and we think for the next number of years.

Scuderia Ferrari, and the launch in that in the expansion of doors, again, this year we're planning about 1,000 doors and the same for the next couple of years.

When we look at Movado BOLD and the excitement that we have in there from a fashion trend standpoint and the levels of activity taking place there.

So again, I think not only do we have growth as part of the normal market, I also believe we're helping to lead market growth on an overall standpoint and that is why our confidence level with out-performing the market out there because of those very powerful initiatives that we have in place and that we are executing on.

Thanks for all the details.

Best regards for the holiday season.

Rick Patel, Stephens Inc.

Can you give some more color around the deceleration of sales growth in the second quarter?

First, I am curious whether your -- your business tends to be a bit on the lumpy side.

So I am curious whether the slowdown was factored into guidance a few months ago or if the environment has changed.

And then second, you seem very optimistic about the second half sales being able to accelerate.

Are you seeing these orders already come in at that double-digit rate that you need to see in order to meet your annual target or do expect that will happen in the coming months?

You had a boatload of things in there.

Hopefully I catch them all.

But the first one is on guidance; we do not give quarterly guidance.

So again, we don't have anything out there from a quarterly standpoint.

As I tried to highlight in our comments, when we look at our sales growth we would sit there and say that they have been impacted disproportionately from a standpoint of retailer inventory levels and what they can place there.

So again, trying to use the strong sell-through that we have, which is again quite strong and quite powerful, well above the sales results that we are showing in our numbers.

So we believe that bodes well from a standpoint of continuing that trend and therefore getting back our fair share of inventory, particularly in the need for the holiday season.

So retailers can have the opportunity of managing inventory and obviously the strong performers are the ones they can manage more than the slower performers and our brands have been pretty much on the upper echelon of strong performers.

So we believe we will get more than our fair share when it comes to the holiday season because we are the ones we believe helping drive market growth.

So I think that covers a little bit of the guidance.

And from a standpoint of we were really, again, don't talk on what performance is taking place in a particular 30- or 60-day time frame.

However, I tried to reiterate the confidence we have in our second half sales which is really continuing the momentum of the sell-through that we have been seeing in the first half of the year.

So we are confident that continuing with the sell-through results will allow us to deliver the plans that we have in there.

And then on top of that, as I have outlined in my comments, we have quite a few initiatives that we are very, very excited about in each of our brands, particularly around new product launches and timing of that.

So I think it is a continuation of what we've been seeing on retail sell-through.

And then just a question on the international wholesale business.

As you look to the back half do you expect growth will primarily come from an organic rebound of some of those markets that are sort of weak right now?

Or do you expect that distribution growth will be a bigger part of the story as you scale somewhat newer brands into those markets like Movado and Ferrari?

I think some of it international front is certainly going to be the continued expansion, door expansion as it applies a little bit to Movado but very importantly to Coach and to Scuderia Ferrari.

So I think that is an important aspect.

But again, I look at it as saying that when we look at our sell-through results in many of the markets out there, in the markets that we have that data, we are very pleased with our sell-through performance which is not quite indicative of the sell-in results that we have shown in the first half of the year.

So we are pleased with that and we are not looking for the economies taking a very dramatically different economic growth level.

So again, we are reiterating pretty much the same guidance we have given in the past from an economic standpoint.

Again highlighting that the China Hong Kong market is a little bit tougher as well as some markets that are important to us such as Turkey, Thailand and Argentina.

Yes, they will have an impact, but we believe that we are able to overcome those with strong performance in other markets.

Thank you for the color and good luck this fall.

Mike Richardson, Sidoti.

I just wanted to follow up, like everybody else I guess, on the lean inventory levels with the retail partners.

Are you suggesting that you think that retail, they're going to have to chase later in the year?

And then my second question would be just did you see any change in sales pattern throughout the quarter or was everything sort of pretty consistent?

I think -- and I think Rick touched base on this.

It's really that we are in the height of summer right now.

July is not a time when retailers have to have even an adequate level of inventory.

And so, they can use that opportunity to bring it down.

And obviously the holiday season always comes once a year and retailers will begin to plan into and peak into their trending products.

And we feel very comfortable that our brands are trending well at retail and retailers will need and are stocking into the holiday season.

So that is really for us a timing difference throughout the year and that is why we feel comfortable with our guidance for the balance of the year.

Okay.

And then just any change in sales patterns sort of throughout the quarter or was it pretty consistent?

I think retail sales seem to be fairly consistent.

And as you can see even from an economic perspective, the economy had a reduction in the first quarter.

You saw choppy economic numbers, so you actually saw an economy in the US that declined in the first quarter and then was more than offset by the growth in the second quarter.

So I think you did see weather wise and economic wise and kind of a choppy first half.

But Christmas always comes on December 25.

Okay, and just last question.

I think with the BOLD you were trying to elevate some of the price points a little bit there.

I am just wondering if you can give us an update maybe on how that is working.

Well, we have not intentionally elevated price points, just we are offering products with more -- with really more elaboration to the product.

So you have seen BOLD diamond watches starting at $995 going up to about $1,400, $1,500 doing extremely well.

And so we have come out with more leadership product.

At the same time we introduced a BOLD bangle at $395 last spring and that has trended also extremely well.

So BOLD allows us really from a fashion and trend pillar perspective to play in multiple price points but also to keep a certain fashionability and excitement that we are very, very pleased with.

Great, thank you.

And best of luck for the rest of the year.

Kristine Koerber, Barrington Research Associates.

Good morning, I have a couple questions.

First on the licensed brands, you've talked a lot about how well Coach, the reposition of Coach is doing, Ferrari, BOSS and Tommy.

What about Juicy and Lacoste, anything going on there?

I know there has been a lot of changes with Juicy.

And then just looking at the overall license brand portfolio in total, I mean any thoughts -- what are your thoughts on potentially adding additional brands to that?

Well, just a little bit on Juicy because as you know that has been a brand in transition somewhat.

And we are launching an initiative with Kohl's as is the brand, so it is our first time in that distribution.

It will be launched at retail in early September.

And we are excited about that opportunity.

From a product perspective we think we have very, very strong product in that category.

And then on the Lacoste front, that also has been a Company somewhat in transition, but a fantastic brand and a great brand.

And we are introducing some very, very strong product in the second half of the year.

One of them that we announced in Basel is the L12.12 watch that actually is very closely aligned with the iconic Lacoste polo shirt.

It is the SKU number of their polo shirt.

And they introduced a fragrance that has been one of the best selling fragrances that is the L12.12 fragrance about two years ago.

And we will introduce a watch to align with that strategy in the second half of the year that we are very excited about.

Okay, and then just thinking of the portfolio in total.

Thoughts on future additions to the license brand?

I think again from the standpoint -- we always look at opportunities like that.

Our plans do not require us to add any other businesses, but that is certainly always an opportunity.

We believe we bring tremendous value to potential licensors out there and we think that we are certainly one of the parties that anyone looking at making changes and/or entering the space would certainly look at us.

We certainly bring a strong performance track record to the party.

So, we always look at those types of opportunities, but our business plans do not require any increases in the brands that we have to be able to deliver our numbers.

Okay.

And then just lastly on marketing plans, can you just remind me of the marketing plans for the second half of the year versus a year ago and what your plans are for digital advertising?

I believe you said marketing expense was down in the second quarter, is that correct?

Yes, I think that is really just the timing of items.

When we look at our full-year marketing, we are looking at being up probably more in that 6%, 7%, 8% arena.

So we continue to increase our marketing spend dollars globally each and every year.

That is an important investment vehicle for us.

And obviously, depending on the marketplace and the various brands, we believe that we have a full array of traditional marketing: the digital, social media, and focus a lot of time and attention there.

And obviously, our biggest spend is certainly for the holiday season coming up in the fall season.

Right.

Thank you.

Jeremy Hamblin, Dougherty & Company.

I wanted to see if I could confirm an earlier comment.

In talking about the sales growth rates in the back half of the year, can you just confirm; I think you had said that you expect a little bit higher rates of growth in Q3 versus Q4?

Did I catch that correctly?

Yes, I would expect that that would be the case, because obviously our quarter end is October 31.

For the holiday season, really September, October and November are the big shipment periods of time, and then January is a replenishment month.

So we would expect that if you look at the mix of growth, there would be a little stronger growth in the third quarter than the fourth.

Unless, again, something happens that is unusual, which is people want to be very aggressive in their shipments in the month of November.

But we would certainly know that stuff at our next call.

But I am assuming a normal trending would take place.

To this point, though, given what we have heard from you and seen at retail, does it sound like there is maybe a little bit of shift in terms of the timing of when they are likely to place orders?

Because you are seeing this trend of managing inventories a little bit more tightly, would you expect it to come a little closer to the timing of sale and holiday season?

I think, again, the first quarter was a very choppy quarter in many of the markets around the world.

I think people see the performance of brands, and again we are very pleased with our level of performance, and retailers need to stock up for products that are performing well.

So I can't sit there and say we are expecting a shift.

I would expect that retailers will be quite aggressive in their purchases.

And also they have got to purchase it, they've got to get it in their distribution and then get it out to their stores.

So pushing it in November becomes a little bit dangerous because you want to have that product in the stores, particularly the new product and the great seller.

So we are not anticipating anything unusual from an October/November timeframe versus kind of what took place in a July timeframe.

So I think people have to gear up and will be doing so.

And the strong performers will be getting their appropriate share of open to buy.

The tightness, though, on controlling of inventory at department stores, did that catch you a bit by surprise in terms of your performance in the quarter versus plan?

Or had you anticipated that this was likely to happen in terms of your internal plans?

I think there is a higher level of inventory management by retailers than we would have expected or we have seen in the past in the July timeframe.

Okay.

And then in terms of your operating expenses, I think in this quarter it is really the first time in maybe like four or five years that you saw operating expenses delever.

I am assuming that at least part of that was attributable to lower than planned sales.

But in terms of thinking about being able to manage the expense items moving forward, and you have made some hires and you talked about higher levels of payroll and benefits.

Is that a lever that is getting harder to pull to generate substantial earnings growth?

And you think about your sales model of 10% growth translating to about 20% earnings growth.

Does it get harder from here or was Q2 a little bit of an anomaly where you saw this deleverage in operating expenses?

Anything you can add in terms of color on that?

Yes, I think it is important not just getting hung up on an individual quarter.

Over the last number of years the Company has done I think a pretty phenomenal job of really leveraging operating expenses.

And again, I'm not going to get the years right, but if you go back six, seven years or five plus years you would have seen that the Company was always in that 50%, and perhaps a little bit north of that, operating expenses as a percent of sales.

I think last year we brought it down to around that 40% level, maybe a little bit over that.

And what we said I believe at the end of the year in our guidance is that we would expect to maintain that kind of level of operating expense as a percent of sales, there may be some opportunity of taking it down a little bit.

But that big deleveraging or that big leveraging that has taken place over the last number of years, we can't obviously continue with that trend.

And this is a year that we sat there and said we would have higher single-digit investments in operating expenses.

And we announced a couple of things such as the change with a senior executive over in Asia for us to help focus in on that strategy, bringing in another major senior management level in Ricardo and continuing to invest for global expansion and future growth initiatives.

So I wouldn't sit there and say you may see a funny thing with the deleveraging in the second quarter, I think that is just the timing.

I think for the full year you will see sales growth will be greater than operating expense growth.

We probably will continue that trend as we kind of go forward, but we are not going to have -- we are going to be investing in operating expenses.

So it is really the sales growth dropping to the bottom line with margins stabilizing and slightly improving that will be the future profit growth drivers as we look forward.

Great.

Thanks so much for taking my questions.

And this concludes today's question-and-answer session.

I would like to turn the call back over to today's speakers for any closing remarks.

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

And everybody have a great week as we close out the summer and we are very excited, as you can see, about our plans for the second half of the year.

And again, wish you a good rest of the summer.

Thank you.

And that concludes today's conference.

We appreciate your participation.