Movado Group Inc (MOV) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the Movado Group's fiscal first-quarter 2017 earnings conference call.

As a reminder, today's call is being recorded and may not be reproduced in whole or in part without permission from the Company.

At this time, I would like to turn the conference over to 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; Ricardo Quintero, President; 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 risk 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'd like to turn the call over to Ricardo Quintero, President of Movado Group.

Thank you.

Good morning and welcome to our FY17 Q1 conference call.

Our first quarter results are in line with our expectations, delivering $114 million in net sales, down 5.3% versus last year, gross margin at 53.8%, up 140 basis points versus last year, and operating income at $7.2 million, down 24.7% to last year.

Relative to a very difficult retail environment, our brands out-paced the competition, gaining market share across our major geographies and markets.

As expressed during our last conference call, where we issued our outlook for FY17, we expected the retail environment to be soft during the first half of the fiscal year.

The first quarter has been especially difficult for the US department store channel in brick and mortar stores and for the fashion watch category in particular.

Given the weak sell-through trends, coupled with retailer's increased focus in controlling inventory and significantly improving productively metrics, we are now seeing a more difficult outlook for the balance of the year and are adjusting our outlook to $565 million to $580 million in net sales and $55 million to $60 million in operating income.

While it is disappointing to have to revise our outlook today, we believe it is necessary to confront reality and focus on the variables we control.

One of Movado Group's core principles is to build and protect all the brands in our portfolio, irrespective of whether we own them or license them.

This becomes critically important during the difficult times as our strategy is to stay on course, guided by the consumer and sell-through trends and not sell major quantities in off-price channels to improve our numbers in the short term, while preserving our brand's equity.

Despite the difficult environment in the US, there are some bright spots.

Jewelry change chain stores are positive, as this channel seems to be less impacted by online sales.

The online channel, composed of are our own movado.com, pure players and retailer.coms are experiencing notable growth, at least 10 points ahead of brick and motor retail.

We are encouraged by this growth and are certainly planning to win in this channel.

However, it is not big enough yet to offset the declines in brick and mortar.

In addition to the tough US retail environment and the ongoing shift to online, the fashion watch category is not immune to the inerrant cycles of the fashion business.

We believe we are now in the midst of a transition, following several years of strong growth.

The fashion watch category in the US has been over-saturated with too many brands, too much sameness, too much distribution, and not enough innovation to motivate consumers to keep buying.

Consumers want something new that is desirable, relevant and competitive.

Fortunately, new fashion trends are emerging and we are well-positioned to capture them in a meaningful way towards the second half of the year.

The trend to simplicity and minimalism in the watch category is gaining momentum and we're introducing ultra slim collections behind this trend across our entire brand portfolio.

Also positive is the growing popularity and interest in the smart watch.

Movado Group is well-positioned to capture share in this segment of the market as we add more SKUs to our Movado brand smart watch assortment throughout the year and introduce connected time pieces in our licensed brand portfolio in the second half of the year.

We are encouraged by the early feedback we have received.

In previewing our collections from our retailer partners, I believe we have captured top consumer preferences in these collections.

Our research indicates that about half of consumers in the US are not interested in smart watches.

Therefore, we remain balanced in approach to this segment of the category.

We believe in the continued long-term opportunities in the non-connected watch category, driven by brand, image design and innovation.

We are quite pleased with the results of our innovation strategy as we see continued market share gains and momentum behind Movado Edge, Movado Bold and Movado Motion.

For the first quarter of 2016, the Movado brand achieved 21.8 market share in the $300 to $3,000 segment, where we compete according to NPD, gaining 120 basis points versus last year.

Our innovation pipeline continues to deliver successful new products and we are excited about our new collection, Movado Heritage, which pays homage to our rich history in watch making.

We know the vintage trend is important to millennial consumers.

And the initial results of the first six men's SKU sold online are encouraging.

We'll continue to build upon this collection throughout the year.

We have also launched a renew sport watches in our series 800 line, offering amazing price value to protect and capture share in this segment through the market.

We continue to see growth in key international markets.

Europe remains strong from a sell-in and sell-through perspective, powered by the UK, up double digits, outpacing the market and gaining market share.

We continue to see strength in Germany, momentum building in Spain, and expect significant acceleration in Italy.

Our shipment performance in Asia continued to be difficult in Q1, resulting from the slowdown of the Chinese economy and the further decline in spending in Hong Kong and Macao.

In Asia, we continued to experienced declines at sell-through and sell-in.

In China, we continue to see positive sell-through in our directly operated concessions.

Our shipments in Q1 for Latin America decreased, as these are US dollar based and many of the major economies in the region have been impacted by currency devaluation.

While our sell-through in Brazil, the largest market in the region, grew by double digits for all our brands in local currency, we are seeing difficulties from a sell-end perspective, given the well-documented issue the country is facing in the political, social and economy arenas.

We expect this trend to continue for the balance of 2017.

As discussed previously, we are encouraged by the invasion pipeline, which will significantly strengthen our presence in key categories for the second half of the year.

We believe that our new product families, such as Movado Edge, Movado Heritage, ultra slim and connected watches will position us to gain market share in the US and in key markets around the globe.

FY17 will be challenging from a growth perspective, in what we believe is a cyclical transition, and where we intend to continue outpacing our competition through meaningful invasion and superior execution.

We are confident in the caliber of our talent, the strength of our brands, the health of our balance sheet and the quality of our retail partners to navigate through this difficult cycle to emerge stronger in the mid- and long-term.

I'll now turn the call over to Sallie.

Thank, Ricardo and good morning, everybody.

For today's call, I will begin with a review of our first-quarter financial results and balance sheet and then discuss our outlook.

Before I begin, I would like to point out the special items included in our first-quarter results for FY17 and FY16.

Our press release also describes these items and includes a table of GAAP and non-GAAP measures.

Our GAAP results for the first quarter of FY17 include a $1.8 million pre-tax charge, which equates to $1.1 million after tax, or $0.05 per diluted share, in connection with the vesting of stock awards and certain other compensations related to the announcement of Rick Cote's retirement.

Our GAAP results from the first quarter of FY16 include a $2.7 million pre-tax charge, which equates to $2.5 million after tax, or $0.10 per diluted share, in connection with our operating efficiency initiatives and other items.

Breaking the 2016 charge down, this impacted gross margin by approximately $700,000, or 60 basis points, and impacted operating expenses by $2 million.

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

Beginning with the review of our income statement, as Ricardo mentioned, sales for the first quarter were in line with our expectations.

For the first quarter, sales were $114.1 million, a decline from the same period of the prior year by approximately $6.4 million, or 5.3%.

This decrease was primarily driven by our wholesale business, partially offset by an increase in our retail business.

Sales were down 7% in the US and in constant dollars, decreased 2.7% internationally.

Sales in our wholesale segment were $102 million, as compared to sales of $109.6 million for the same period of last year.

In constant dollars, wholesale sales decreased 6.7%.

Sales were down in both our luxury and licensed brand categories.

By geography, our US wholesale business decreased 10.7% to $48 million, compared to $53.7 million last year.

Our international wholesale business decreased 3.3% to $54 million compared to $55.9 million in the prior year.

In constant dollars, international sales decreased 2.7%.

Although overall international sales declined, we had positive sales growth in Europe and the Middle East.

Sales from the Company's retail business increased $1.2 million, or 11.4%, compared to last year, primarily due to an increase in the number of stores and an increase in our comp store sales.

At the end of the quarter, the Company operated 40 outlook locations as compared to 38 locations last year.

Gross profit was $61.3 million, or 53.8% of sales, compared to $63.1 million, or 52.4% in the first quarter of last year.

The increase in gross margin percent was primarily driven by a favorable change in foreign currency exchange rates and the favorable impact of channel and product mix, selective price increases and certain sourcing improvements.

Operating expenses were $54.1 million, above the prior-year period by 1%.

We continued to closely manage our expenses, yet at the same, we continued to invest to support our business initiatives and brand awareness.

As a result of our lower sales and slightly increased operating expenses, operating income decreased $2.3 million to $7.2 million, compared to $9.5 million in the year-ago period.

Income tax expense of $2.4 million, or a 35.1% effective tax rate, in the first quarter of FY17 compares to an income tax expense of $3.3 million, or a 34.6% effective tax rate, reported in the first quarter of the prior year.

The effective tax rate for the first quarter of FY17 is higher than the expectation for the full fiscal year due to unfavorable timing of discrete items.

This is similar to the first quarter of FY16.

Net income in the first quarter was $4.4 million, or $0.19 per diluted share, versus net income of $6.2 million, or $0.25 per diluted share, in the year-ago period.

Now turning to our balance sheet, our cash at the end of first quarter of FY17 was $203.9 million versus $185.8 million in the same period of FY16.

Accounts receivable were up $2.3 million as compared to the same period of last year.

As our sales were in line for the first quarter with our expectations, inventory was down approximately $5.5 million as compared to the same period of last year.

At the end of the quarter, we had $35 million outstanding on the revolver, down $5 million from year-end, and we utilized approximately $900,000 of the $50 million share repurchase program.

Capital expenditures for the quarter were approximately $500,000 and depreciation and amortization expense was $2.9 million.

Now, I would like to discuss our updated outlook for the current fiscal year.

Please keep in mind that our results may be materially affected by many factors, such as changes in global economic conditions, customer spending, fluctuations in foreign currency exchange rates and various other causes.

Predicated on the current retail environment, most specifically in the US department store channel, we're updating our outlook for FY17.

Sales are anticipated to be in a range of $565 million to $580 million.

We expect the first-half sales performance to be below last year's levels in the high single digit range.

We now anticipate the second half sales performance will also be impacted by the US retail situation, causing sales to be within a range of low single digits plus or minus to last year.

As previously noted, we'll be closely managing our expenses for the current year, especially in light of our updated outlook.

However, we will continue to invest appropriately in our business to both support and build our brand awareness and initiative.

Operating income is projected to be in the range of $55 million to $60 million.

We would now expect both the first half as well as the second half operating income to be below the prior year, based upon our updated outlook.

The estimated effective tax rate for the year continues to approximate to 32% and net income is planned to be in a range of $36.5 million to $40 million.

We expect diluted earnings per share in FY17 to be in a range of approximately $1.55 to $1.70 and capital expenditures for FY17 are estimated to be approximately $12 million.

The outlook we have provided assumes no other unusual items for FY17 and excludes the $1.8 million pre-tax charge in the first quarter of FY17 related to the announcement of Rick Cote's retirement.

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

Thank you, Sallie.

As everybody knows, we are operating in a challenging retail environment and one that has been particularly difficult for the watch category.

As we said in our year-end call, we believed the first half of the fiscal year would be difficult with an improvement in the second half.

That being said, given the currents retail trends, we felt it was prudent to update our outlook.

We are very enthusiastic about our innovation pipeline.

While we are excited about our a connected watch initiatives that we have launched and will continue to launch during the second half of the fiscal year, we are believers in the continued growth opportunities in the traditional watch and fashion watch categories.

We are very excited about the prospects for our recent product launches in both Movado and our license brand and we are focused on continuing to drive innovation across our brands to benefit our consumers and also are our retail partners.

Great product is needed in any environment in order to grow and gain market share.

We have worked diligently over the years to nurture our brands and build desirable distribution and we are not planning on deviating from that path.

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

Thank you.

(Operator Instructions)

We'll take our first question from Oliver Chen from Cowen and Company.

Hello.

This is to [Sue Lariginus] in for Oliver Chen.

Thanks for taking my question.

I wanted to ask if you could just give a little bit more color on trends you are seeing in the region.

I know you highlighted strength you are seeing in Europe.

Could you just give us just more of a better picture of what is driving that strength there?

And then in Asia, we have seen it across from other retailers about the weakness in Hong Kong.

Have trends sequentially improved or deteriorated, and what is your outlook as we think about the balance of the year?

Thank you.

In Europe, we are seeing real trends in Germany, and as I had mentioned -- we had mentioned in our previous calls, this is an entity that we have now taken 100% control.

So, we are very pleased with the quality of how we have executed our brands, and the consumer is still very interested, particularly in the licensed brand portfolio.

Now, there has been, as everybody knows, a decline in Chinese tourism.

But even within Germany, we still see a lot of our sales in key tourist destinations still being driven by tourism.

If I move on to the UK, the results continue to be very, very strong, up double digits, as I mentioned, and we're seeing strength across all the brands that we carry there.

Again, this is another entity that we're managing directly as a subsidiary, and we are very pleased with these healthy results.

Moving to Asia, as we had mentioned in our previous calls, in China we have shifted our strategy and we're now really focusing on the concessions that we operate directly.

I was just in China a few weeks ago and I was very pleased to see not only the results of our concessions, which are doing very well, but in the cities that I visited I saw still consumers out shopping, and our brands -- our Movado brand is doing well there, as well as Coach.

So I think we all read about what's happening in China, and there's a slowdown in the economy, but nevertheless, there are still many consumers that are in the street, they're in the shops, and they're carrying shopping bags.

So I think we need to be cautious, but still, it's a great market for us.

Hello.

It's also Oliver Chen.

We wanted to ask you about the composition of your inventory now.

Are you feeling like the freshness is there, just regarding sell-ins and sell-outs, and the trends you are seeing?

That would be helpful.

Thank you.

Thanks, Oliver.

And I think our inventory is actually in a very good place, and I think one of the things that we tried to reiterate on this call is that we are all really enthusiastic about our new product launches in both Movado and our licensed brands, as well as the pipeline of innovation that we have coming, both in connected watches, but particularly also in unconnected watches.

And we're introducing an ultra slim initiative across all our brands of thin, simplistic watches which are right on trend and beautiful and excellent values.

And we're also experiencing momentum behind our launch of Edge last holiday and we're seeing growth in that category, as well as our connected Movado watches, the Movado Museum Motion and the Movado Bold Motion, and we'll have launches of connected watches in our licensed brands this fall.

But as you can see, even with a slight sales decline, we also had a decline in our inventory, and so our inventory is in a very, very healthy place.

Okay.

Thank you.

Our final question is on the gross margin side.

Sallie, could you brief us?

What was the biggest driver in terms of the expansion, and the ingredients within the expansion?

And then, the sourcing initiatives -- if you could just elaborate a little bit more about sourcing, in terms of sourcing helping you on that line.

That would be great.

Thank you.

Great.

Yes.

As you know, Oliver, gross margin has been a focus of ours.

We are very tuned into being a non-promotional type of company.

But also keep in mind that we put in price increases throughout the first half of last year, so those price increases now are -- we're seeing the anniversary of that starting to head into the second quarter.

So, we do expect strong gross margins this year.

We also have things -- we are just buying better.

We're working closely with our supply chain team and our suppliers in general to get the best prices we can, which is what you are seeing as the cost savings initiatives that are going through our gross margins.

Okay.

And, Efraim, the five-year story for wearables and smart technology -- how do you see that and are there any trends?

How do you think this will evolve globally in terms of harmonization or specific regional preferences?

And I'm just curious about your take on the consumer perspective on what features of wearables consumers value, whether it be battery power versus standards versus upgrading versus fine versus fashion in terms of the unfolding of this, just because it's so rapidly changing?

We think, obviously, that wearables and connected watches will have a place in the watch business, but it really helps to build a new category and bring new consumers into the arena who were not wearing watches.

So we actually believe that millennials will go down both paths, for example, and buy simple fashion watches, and that's where we're going with things like our ultra slim collections.

But they will also buy connected watches, and we'll have those offerings as well from them.

In our research, and I think in a lot of research that has come out there, always the number one or two capability of smart watches is time-telling, which is gratifying to know that people are using watches to tell time, but then also notifications and health functions as well.

Step counting and areas like that are important to consumers.

I think we're very early in the rollout, one, as a watch industry overall.

Two, the technology will continue to improve, both from battery life, as well as the things that watches can do for you.

Those are two things that are very early on in the progression.

What people seem to forget is that when we all started with cell phones, they were about the size of a brick and weighed a pound or two, and then progressively got smaller and better and higher quality and better design.

So all of that will begin to happen in this category as well.

Thank you.

Best regards.

Thank you.

Thanks, Oliver.

And we'll now take our next question from Ed Yruma from KeyBanc Capital Markets.

Hello.

Thanks very much for taking my questions.

First, on sales mix, in the quarter, and as you think about the next couple of quarters, how should we think about the mix of traditional retailers versus units you're putting through off-price, either through a T.J. Maxx or Ross or through your own outlets?

Second, clearly seeing a lot of challenges on the fashion component of the watch industry.

Are you noticing any specific weakness in price bands?

Has there been a rotation to lower price point watches?

Thank you.

I'll give Ricardo the first one about the distribution, and I'll handle the second one about the fashion watch business.

Thank you, Ed.

We're staying on course in terms of our business mix.

As I mentioned in my prepared remarks, we're not shifting more to off-price channels.

As we had mentioned earlier, we're very excited about our innovation pipeline.

And we believe that we can offer a great offer to not only our consumers, but our retailer partners, in bringing this innovation to drive traffic and conversion in the channels that we operate now, and we have a role to play in turning trends around.

So, we're sticking to that strategy, and we think, not only through innovation of the ultra slim, but also the connected pieces are bringing that new consumer in, whether it's a millennial or an older consumer that's interested in this functionality.

So, the research that we did actually indicates that there's great interest in the kind of offering that we're putting out there.

So, we're confident that it's going to help build the existing channels of distribution [already].

And just to add to that, and probably answer a little bit more -- elaborate on the second part of your question -- over the last few years, certain aspects of the fashion watch category got overly saturated to the point where it became kind of out of fashion.

So, our job now is to create new fashions within the watch segment, and particularly for women.

And I think that's where there's a large opportunity.

The declines actually, in the fashion watch category, have been larger in the women's category than in the men's category.

So that's interesting because men's category is probably more highly affected by, to a little extent, by technology; women's not as much so.

And the men's watch category is doing relatively well.

Great.

And one other follow-up: Just as you think about some of your specialty watch retailers and your department stores, have you seen any shifts in the way that they display watches or maybe more importantly, the space that they're allocating watches?

And if so, how is that being factored into your results?

Thank you.

I think you are seeing now a little bit of space being lost out of the traditional fashion watch categories.

There are brands that are being eliminated.

Fortunately, we have strong brands and strong partnerships, and we have developed and nurtured our brands.

But you are seeing some space eliminated and into better -- into categories maybe that are trending differently.

But right now, you know the overall department store business is challenged.

And you are also going to see some space being allocated to technology as well, in several retailers.

And fortunately, we can play and we will be playing in that space as well.

Great.

Thanks so much.

Thanks, Ed.

We'll now take our next question from Rick Patel from Stephens, Inc.

Thank you and good morning, everybody.

Just wanted to follow up on Oliver's earlier question on perhaps the sell-ins versus sell-throughs.

Any deviations there from what you saw in prior quarters?

And as you think about the softness on the wholesale side, aside from perhaps space allocation changes that might be going on, to what extent do you think there's a de-stocking cycle going on right now, as some of your bigger customers gear up for the launch of several smart watches that's going to be happening this holiday?

I think you are seeing a continued focus on inventory and productivity that you have now seen for a while.

But I think now that's somewhat been accelerated by the fact of the overall retail business.

So, when you now see -- comp-store declines of the overall department store channel are pretty uniform, you see that you are going to naturally see a financial focus on bringing inventories down.

That would be expected.

I don't necessarily think it's necessarily de-stocking to put in technology.

I think it's just overall de-stocking of the department store channel.

I think our sell-in and sell-through are probably pretty balanced right now.

In some cases, you may have a little better sell-through than you have sell-in, just as people focus on their financial metrics.

I hope that answers your question.

That's helpful.

Thank you.

How should we be thinking about your level of smart watch inventories and the ramp-up for this year?

Are you making as big of a bet on Movado Motion and your other smart watch launches as you did perhaps Movado Bold or Movado Edge, or are you going to take a more conservative approach?

In all of our successful initiatives, we have rolled them out very methodically, as we are doing right now with Edge, as we did with Bold.

So it's not something that we do in a careless manner, which actually -- all thought out very methodically and very planned from a door count and distribution and strategic way to also build consumer demand.

And you always build more success if you actually have a little less supply than demand.

We're following the mantra of demand must outpace distribution.

That's great.

Thank you.

And can you provide some details on your connected watches on your licensed side?

Which brand will this touch, how many SKUs do we have, and how should we think about pricing versus Movado Motion?

We're doing this across all of our licensed brands.

This is a partnership we did with HP, and we're very happy with the initial feedback we have received.

There's a total of 25 SKUs, and we are very thoughtful in terms of -- it's design and brands first, plus the functionality.

So when you look at the watches, they represent -- whether it's a Tommy Hilfiger watch, it looks like a Tommy Hilfiger watch.

You go to Ferrari, it looks like a Ferrari watch.

We've been very thoughtful.

It's not a cookie-cutter approach.

They are very different.

And we also were very careful in planning the price points so that they mirror the customer that has appeal for these brands.

So we feel very good on how we plan the price points and the functionalities.

Our research indicates these are the top functionalities; it's notifications for these watches; it's step count.

Those, at those price points, we believe are the right things.

And it's a combination, analog watch with -- there's a screen that lights up on a dial that is invisible.

When you look at the watch without being lit up, you think it's a traditional watch.

So we think we hit a sweet spot in terms of design and technology functionality.

Thank you, everyone, and all the best.

Thank you.

Thank you.

Thank you.

We'll now take a question from Jeremy Hamblin from Dougherty & Company.

Good morning.

Sallie, I just wanted to clarify something on the change in guidance on the operating margins.

It looks like it's about 140-basis-point decline from prior.

Is that primarily going to be deleverage on operating expenses due to the $15 million decline in sales?

(Multiple speakers)

The short answer to that is yes, we expect our gross margins to hold up.

And our operating expenses -- we continue to invest behind our brands from brand awareness and initiatives.

We will obviously take out the variable expenses that are related to the decline in sales, but -- and obviously we're very good at managing our expenses.

We have got a really long track record of that.

But we're going to do what is right for the longer-term health of the brand and the Business, and continue to support and build behind our initiatives.

Okay.

And then just a follow-up on this kind of department store channel: You mentioned that the jewelry stores are still doing quite well.

I think you said that they were actually positive in Q1.

Is there anything that you can glean in terms of why you are seeing this disparity between the US department store channel specifically, and jewelry stores or traditional jewelry stores?

And within the jewelry stores segment, is there a difference between the mall location jewelry stores and off-mall?

Is there something to be gleaned there that this is truly a mall problem?

No, I think, as Ricardo mentioned, we're doing very well in the chain jewelry stores specifically, and they are mostly mall-based.

So I think their traffic is less variable, as they have a large jewelry business and bridal business and things like that.

You also have to recall that that's not the distribution for our fashion watch brands.

The fashion watch brands are primarily, in the US, distributed in the department store arena that is more highly challenged today.

So, I think it's both the category and the channel that is challenged.

And so our growth specifically is in the Movado brand, and Movado is outpacing the fashion watch category everywhere -- department stores and jewelry stores.

And I think that it was also in Ricardo's comment is we continue to gain fairly significant market share.

Great.

Thanks.

And then just one other -- you mentioned that the online business continues to do well.

I wanted to just see if there was anything that you are noting in terms of the purchasing patterns of that shopper and the type of watches that they are looking for, whether they are looking for a higher-end watch online or a lower-end watch.

What can you share in terms of color on online purchases versus brick and mortar, in terms of the type of inventory you are selling there?

Well, let me speak first about movado.com because that, as you know, last year we revamped, we launched a new platform, and we continue to see major increases in our business there and also in traffic.

And we have been adding a lot of digital initiatives, so we're seeing there's a connection between social media and digital initiatives.

People will go to the website as the first point of entry to learn more about new collections and story telling, and we picked up some of the sales there.

Other sales, we don't pick up, but we believe that the brand website is serving as a platform, a showcase, to tell the story of the brand and the collections.

So we're seeing that, and we're seeing a huge rise, as most people, in terms of people are coming through mobile devices, so that's one big trend.

When you look at other categories, whether it's in a retailer.com or pure plays, we are seeing that we have consumers across all price points and brands that are interested in shopping online for other reasons, which may be convenience, ease of use, price comparison, whatever it may be.

But we're seeing that trend across all price points there as well.

Great.

Thanks.

One last follow-up: Sallie, on foreign currency impact that we should be expecting for the remainder of the year -- what's built into the guidance here -- should we be thinking that it's a fairly muted impact from here, or is there going to be additional drag on operating expenses moving forward?

How should I be thinking about foreign currency in the remaining three quarters?

Yes, I would agree, it's going to be somewhat neutral for the remainder.

We don't anticipate anything at this point being significant.

And if you recall, when the big fluxes were now more than 12 months ago.

Great.

Thanks for taking the questions.

Best of luck.

Thank you.

We'll now take a question from Frank Camma from Sidoti.

Good morning, guys.

Hello, Frank.

Good morning.

Just as a follow-up here, if I could.

You mentioned a survey you did internally I guess on the -- that half of your consumers are really not interested in connected watches.

I am just wondering if you could talk about -- did that vary, I'm assuming highly, by age versus millennials?

Because you then later said that you felt millennials would engage on your traditional watches, and I was wondering what gave you that conviction?

I'm giving you feedback on a quantitative survey over 1,000 respondents in the US.

And what's interesting is almost half of the consumers, when we look at the bottom two boxes -- definitely not interested, not interested -- this is the second wave of the survey we're doing.

We're tracking this over time because we thought it was important to understand -- there's been a lot of competitive activity in the last six months, and we wanted to track what is the impact of that?

Now, consumers -- this is a US representative sample.

They've now been exposed to a lot of activity in the smart watch space.

So, what this is revealing is that about half of them, even knowing what they know now, are not interested.

And you still have about another quarter that are undecided.

So there's still a lot of people that are still either on the fence or not interested.

So that's the first thing.

When you double click by age, obviously there's a higher interest in younger consumers in this.

But also for certain functionalities for older consumers, you still see an interest, but the big difference in interest is coming from younger consumers.

Okay.

I think there was a comment made later on about millennials you thought might be responsive to, I think, specifically, you were discussing the ultra slim watches.

That is, we believe, a fashion that is coming in that category.

Okay.

And we've seen in initial products that we have launched and that are in the marketplace, that there's a trend of younger consumers to simplicity and fashion.

A lot of young consumers also spend a great deal of their time on their screen.

Yes.

So they don't necessarily need the connectivity to a watch.

We all see that.

Whether they are watching videos or attending to social media or things like that -- much more challenging to do on a watch.

There are multiple trends.

These two we've talked about are two trends.

The other trend which I had mentioned in my prepared remarks are the appeal to this Heritage collection we've launched.

We know that if you follow social media, there's a big appeal for millennial consumers to this vintage look, so we're seeing -- so it's not one size fits all.

What is interesting about the times we're living in is that people now have multiple choices, and there's different trends that do emerge.

You are also seeing handbag companies, for example, that are in the, that have a heritage, bringing back products from their archives very successfully.

And we have done that with our new Heritage collection in Movado.

Okay.

And just my last question is: You called out some strength in the Middle East, I think, specifically, which I thought was unusual given what's going on.

Did that surprise you at all?

Well, we've been developing some really important partnerships in the region and, yes, definitely the region is undergoing a difficulty period, but we seem to be doing better than most, gaining market share, and the market is not disappearing.

There's a reduction in the market on the consumption, but people are still buying watches.

And through our partnerships and the quality of the execution, we have been able to convert more and to gain market share, so it's really a function of outperforming in a difficult market our competitors.

Okay.

Thank you.

Thank you.

Thank you.

With no additional questions in the queue, I would like to turn the conference over for management for any additional or closing comments.

Okay.

I would like to thank all of you for participating with us today.

Enjoy the holiday weekend, and we look forward to speaking with you again at the end of our second quarter.

Thank you.

And, ladies and gentlemen, this does conclude today's conference, and we do thank you for your participation.

You may now disconnect, and have a wonderful rest of the day.

Thank you.