Movado Group Inc.

Good day. Welcome to the Movado Group Inc. Fiscal Second Quarter 2020 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 call over to 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, 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're all familiar with. The statements contained in this conference call, which are not historical fact, 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 filings with the FCC, which includes today's press release. If any non-GAAP financial measure is used on this call, our 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 Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Rachel, and good morning and welcome to Movado Group's second quarter conference call. I'll begin with a review of our second quarter performance and then share with you some of the brand highlights for the quarter and discuss our ongoing strategic initiatives and investments for the year. Sallie will then review our financial results and updated outlook, and then we would be glad to answer any questions that you may have. For the quarter, sales grew by 9.5% to $157.8 million. or 11% on a constant currency basis. Excluding the addition of movement, which we acquired during the third quarter of last year, sales grew by 2.5% on a constant currency basis. Our gross margin for the quarter remained strong at 54.1% despite significant currency headwinds. Adjusted operating income for the quarter was $10.3 million versus $14.6 million in the same period last year. The decline in operating income reflected our previously discussed brand building investments, currency impact, and the ongoing integration of MVMT into Movado Group. As we have previously discussed, MVMT currently makes the majority of its profits during the fourth quarter of the year. During the quarter, we revalued the estimated contingency payment for MVMT to reflect our current growth projections for the brand. The revaluation contributed $0.44 per share in GAAP earnings for the quarter. and is excluded from our adjusted results. We continue to expect movement to contribute ongoing sales and profit growth and we remain excited about its long-term prospects. We also continue to maintain a very strong balance sheet with almost $135 million in cash. We recognize that we are operating in an increasingly challenging environment for our category and our wholesale partners and a global market made even more volatile by ongoing tensions and changes in trade policy. There is a reduced level of visibility in the retail distribution channels that we operate in on a global basis. In addition, we are facing currency headwinds and the expected impact of tariffs affecting watches imported from China beginning September 1st. Given these challenges, we are updating our outlook today for the balance of the year. We are confident that the investments that we have made over the last few years in building our international markets, the acquisitions of Olivia Burton and Movement, Important product innovation and the establishment of our digital center of excellence are the right strategic decisions that position us to deliver results on both the top and bottom line. At a time when consumer shopping habits and preferences are evolving, we feel it is important to continue to use our resources to invest in making our brands and products top of mind with the consumer. Our categories face significant changes and challenges over the last few years, including the impact of smartwatches and the significant shift in how and where retail sales are being conducted. We have proactively responded and are pleased to note that in this environment, Movado.com sales grew by over 100% in the second quarter and is on track to double for the fiscal year. We are accomplishing this by introducing innovative new products like our Movado Bold Ceramics, Gold Evolution, and Modern 47 in our museum collection. The results online were driven by strong new video content and a spring television campaign that resonated with consumers. These efforts also helped drive sell-through in our biggest department and specialty store channels during the second quarter. While we saw strong results in these channels, we were not able to offset declines in mall-based jewelry store channels, an important part of our Movado distribution. Yet the strong momentum that we saw behind our spring marketing program convinced us that we are headed in the right direction with our Movado product and marketing strategy. For the fall season, we're excited about the strong new product introductions that we have on the horizon, including our new Movado Bold Evolution for Her and a new Men's Bold Fusion featuring a ceramic bezel, as well as our new Movado Connect 2, powered by Google's OS Wear, our first smartwatch available in two sizes for men and women. We're producing great new content to support the launch of these terrific new products and are excited about driving our e-commerce business as well as our retailers' performance. In China, we have begun to make progress in driving demand for the Movado brand, both online and at the point of sale, as we increase our marketing investments in this region. In our licensed brand portfolio, we drove double-digit growth with strong market share gains both internationally and domestically, especially in Europe, the Middle East, Asia, and the Americas. We have accomplished this with strong product innovation across our brand portfolio and continued investment in our digital marketing efforts, and we are excited about our initiatives for this fall. The UK is an important market for our fashion watch brands, and the retail environment is now facing significant headwinds with the continued uncertainty surrounding Brexit. As we look at specific brands in our portfolio, Coach continues to perform well for us, driven by product innovations supported by compelling digital marketing. With category-leading products like Perry and Charles, new introductions, and new products for the fall season like Audrey, a slim crystal set watch for women, our retail partners are excited about the upcoming holiday season. We're also beginning to see our investments gain traction in China, both in our retail points of sale and online. We have seen strong growth in Tommy Hilfiger around the world. Over the last few years, we have partnered with the Tommy Hilfiger brand to create compelling brand associations with their marketing ambassadors along with a powerful product assortment that has been able to drive double-digit growth. This fall, we're excited to launch a new Tommy Hilfiger interactive shop-and-shop at Macy's Herald Square, and we will also introduce on a limited basis a Tommy Jeans watch collection. In Hugo Boss, we have seen a strong response to the products that we introduced this past spring, especially our Ocean Edition Chronograph. We saw a strong sell-through in France and Germany while facing headwinds in the Brexit-challenged UK. Yet we remain the number one fashion watch brand in that market. For the past several quarters, We have seen strong momentum in Lacoste, driven by products closely associated with the brand and the iconic crocodile, like our new Parisian collection. We have also driven these results with innovative marketing, including the use of localized influencers and billboard campaigns. We continue to make progress with the integration of movement in the Movado Group's infrastructure. We have migrated the movement business into our SAP platform and successfully integrated The distribution operations as of August 1st. We're excited about the prospects of continuing to develop movement into a true global accessories brand powered by the watch category. This fall, we will launch the U.S. Wholesale Channel, providing movement with brick-and-mortar distribution to support its e-commerce presence. We'll invest in support of a new groundbreaking campaign, which will be launched on national cable TV as well as digitally. This campaign is being developed by the team in Los Angeles to support our wholesale rollout, strong new product introductions, and the e-commerce business. We saw success in the spring when we launched our new field watch collection, which quickly sold out in several styles. We also launched men's jewelry to a strong response. We continue to perform very well with both Movement sunglasses and our iconic Everscroll collection to protect users from light generated by computer screens. During the third quarter, the Movement team will launch the new Movement Elements watch collection that we are all very excited about. Olivia Burton has now been part of our company for two years and has been a strong contributor from the start. This spring, we introduced our Under the Sea collection, which quickly became a bestseller. Our store in Covent Garden continues to perform very well and we see our Olivia Burton jewelry collection becoming an even more important part of the brand. This coming holiday season, we are collaborating with Cadbury in the UK for their iconic Christmas pin and believe this will be great exposure for Olivia Burton. In addition, we will also launch a new video campaign in the US to support our holiday sales. Turning to our outlet stores, the second quarter saw continued soft traffic with sales flat on an overall basis. While our gross margins remained strong, increased expenses driven by new stores and increasing rents in several locations held back profitability. Our teams are working on several initiatives to help drive traffic improvements. The investments we are making in our brands, marketing, and infrastructure are leading to Movado Group gaining market share in a difficult environment. We are fortunate to have strong brands, a talented team that has developed powerful innovation, and a strategy in place to navigate a difficult global environment while continuing to invest for the future. We believe we are taking the right steps to make sure that Movado Group has a solid foundation with which to drive sustainable sales and profit growth for the long term. With the initiatives that we are putting in place for the second half of the year, we're looking forward to delivering exciting and compelling products to our consumers. Now I would like to turn the call over to Sallie.