Good day, everyone, and welcome to the Movado Group Incorporated Fiscal First 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 conference over to Rachel Schacter 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 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 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 Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group.

Thank you, Rachel, and welcome to Movado Group’s first quarter conference call. I will begin by reviewing our first quarter results and discuss the progress made on the strategic growth initiatives we expect to drive our future performance. Sallie will then cover our financial results in greater detail as well as our outlook. We would then be glad to answer any questions. We’re pleased with our first quarter results, which confirm that our teams are executing against our strategic vision that we have developed for our business. This performance was delivered despite operating in a global retail environment undergoing transformation and even as we ramped up our investments to support our future growth. For the quarter, our sales were up 15.3%, or 18.9% on a constant dollar basis. Even excluding the addition of MVMT, our sales were up 5.2%, or 8.9% in constant dollars. Our adjusted operating profit was $7.2 million, a $1.7 million decline from last year due to our planned investments behind our brands, the ongoing integration of MVMT and digital initiatives. We were pleased to deliver an 80 basis point improvement in gross margin, despite facing significant currency headwinds, which also had a $1.4 million negative effect on operating profit during the quarter. Our successful performance over the last number of quarters has been driven by recognizing the challenges in the marketplace and developing strategies that are driven by consumer-focused innovation and marketing initiatives. We continue to evolve our marketing and storytelling across our entire brand portfolio. In Movado, we introduced very strong video initiatives and social media content in support of our innovative BOLD Ceramic product during the Mother’s Day holiday driving excellent results. In addition, we will launch two new TV commercials this week that truly symbolize an outdated view of the iconic Movado brand.…

Thank you, Efraim, and good morning, everyone. 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 fiscal 2020 and fiscal 2019. Our press release also describes these items and includes a table of GAAP and non-GAAP measures. Movado Group acquired MVMT on October 1, 2018. Included in the first quarter results for fiscal 2020 was $1.5 million of pre-tax charges, primarily comprised of the amortization of intangible assets, purchase accounting adjustments and deferred compensation related to the MVMT acquisition. After-tax, the charge equates to $1.1 million, or $0.05 per diluted share. Movado Group acquired Olivia Burton on July 3, 2017. Included in the results of the first quarter of fiscal 2020 was approximately $700,000 of non-cash amortization of the acquired intangible assets. After-tax, the charge related to the acquisition equates to $600,000, or $0.02 per diluted share. Similarly, the first quarter of fiscal 2019 included approximately $800,000 of a related charge, which after-tax equates to $600,000, or $0.02 per diluted share. The balance of my remarks will exclude the special items just discussed. For the first quarter of fiscal 2020, sales were $146.5 million, a $19.4 million, or 15.3% increase from the first quarter of fiscal 2019. The increase in overall sales was driven by growth in both our owned and licensed brands. To this end, sales were up 21.8% in the U.S. and in constant dollars increased 17.1% internationally. Sales in our watch and accessories brand segment were $131.5 million, as compared to sales of $112.1 million for the same period of last year. In constant dollars, watch and accessory brand sales increased 21.5%, driven by…

Thank you. [Operator Instructions] We will now take our first question from Oliver Chen of Cowen & Company. Please go ahead, sir.

Hi. We wanted to ask you about the U.S. wholesale channel and your thoughts on the inventory sell-in versus sell-out and volatility there. It’s been a tougher channel in terms of some of the results from department stores, we’d love an update? Thank you.

Sure. I think and you’ve seen various other companies report recently, the U.S. channel and the department store and also the chain jewelry store channel for us continues to remain a little bit more challenging, department stores is doing better than jewelry stores. But the inventory seem to be in good shape. They have been very careful about their inventory levels. So, we believe that the sell-in and the inventories are pretty much in balance. And that’s what…

Okay. And what are your thoughts on the outlet side of your business in terms of what you’re seeing with traffic there, and also in coming…?

Sure. So we continue to see traffic challenging, conversion rates continue to rise or else to the people who are going to the stores are buying. And – but certainly, down also in some tourist traffic in the outlet malls as well. We’re managing our gross margins and expenses very carefully there. So the performance overall is pretty good.

And Efraim, regarding the digital center of excellence, what are some key strategies you have going forward and rolling out on different practices there?

So one of the things that we’ve worked on very diligently and even, in fact, some of our learnings from our MVMT brand is the level of content and the quality of the content that we’ve been producing from Movado and we’ve seen that drive immediate result. We’ve been very pleased with our movado.com business since really the second-half of last year and has continued really strong momentum. We’re seeing now strong momentum in the U.S. behind our oliviaburton.com business, and believe that we’re able to talk to consumers in a different way there. And so we’ll be amping up also the level of content that we use to reach consumers, but then how we reach them also is changing dramatically. And as we get to a direct relationship and know our customers better, it’s very rewarding, how you can reach in the vehicles that you used to reach them, as well as build, what we call the top of the funnel in – from a digital perspective, which is really continue to build brand awareness and image for our brands, which is vitally important.

Thank you. And our last question, just as you look across internationally, which geopolitical risk or markets have the highest risk factors that we should monitor as well? Thank you.

Well, I think you see continued issues in the UK with Brexit and retail in that marketplace. And for us that’s a significant market. We are seeing excellent results in France and Germany, despite they’re being economic challenges in those markets. We are seeing nice growth in those markets. We’re also seeing nice growth in pockets in Asia with Olivia Burton specifically. And so we believe there are still significant opportunities. Although there is a lot of economic volatility and especially is complicated by trade wars and economic risk out there. So we are being cautious in how we invest and spend our money as well.

Thank you very much.

We will now take our next question…

Thank you, Oliver.

…the next question comes from Frank Camma of Sidoti. Please go ahead.

Good morning, guys. Thanks for taking the questions.

Good morning.

Good morning, Frank.

A couple of questions related to marketing. Efraim, you mentioned that the digital side, you see increasing costs, which is understandable. You also mentioned that there is two new commercials, I think, you said launching this week. Is that…

Right.

…is that launch for the Movado brand, I assume specifically?

Yes.

Okay.

So those are from Movado and – oh, sorry, go ahead.

No. Well, the question relates to what’s part of the reasoning for that just because costs are creeping on the digital side, or is it better to reach that type of customer on TV like, what sort of drove you to the conclusion that, since most of the commentary you hear is that people going into digital, which is driving up costs. So are you taking advantage of may be the lower cost to TV, I’m just wondering what drove you to that conclusion?

Sure. So we believe in a balanced media mix, obviously, we are not using print almost at all today. So we’re using more things that people actually engage with and digital is one of those. But so is television and Movado has traditionally been on television in the fall and has been very successful for us. And we failed to drive momentum behind our Bold Evolution product, which we’ve had very good results with for Graduation and Father’s Day. We would run a Father’s Day campaign, as well as digital content to support those products. So some of those are some of our best sellers on our .com website as well. But we believe in a balanced media mix as the – do most accessible luxury and luxury brands. So I think, you can reach – you have to reach consumers in many different aspects. And even in our MVMT brand, they have used TV. We will amp up the use of television by them in the second-half and help them investment in that and do that, and we think that, that will yield significant rewards for the company down the road.

Good. And I actually had a tie-in to that question was, MVMT obviously more of a second-half story, right, particularly fourth quarter, is that correct?

Yes. MVMT and I think we have talked about this in the past. They make most of their money in the second-half of the year. They’re break-even to slight losses probably in the first-half, and so – but they are significantly profitable in Q4. And that’s when their big – the bulk of their biggest sales is. As we build an omni-channel and wholesale presence, we will balance that out, but that will take sometime.

So can you talk about MVMT’s, because I think you mentioned it, the distribution you’re expanding in the U.S. distribution, can you just talk about relative to your footprint today, and where MVMT is or how much more you have to go with giving that across your distribution?

We virtually in some international markets, we have launched some wholesale distribution. In the U.S., they have virtually very little wholesale distribution. We will launch that for the second-half.

Okay.

Because we’re doing it in a very well planned executed manner, and believe that it represents a significant opportunity for the MVMT brand.

Sure. Okay. And then last question for me is just, I think, Sallie, you mentioned that $10 million of incremental operating costs, I know they are not really integration costs, but they seem to be costs that you are investing for the future. Could you just give us a little bit of color more on that like what portion of that might be towards your retail locations versus your – true direct-to-consumer efforts or directed towards MVMT if there is a way to break that out or quantify it?

Yes. So I’ll do my best and I’m sure, Efraim will pop in. So the amounts that I was talking about were really items that weren’t even really a part of our business a year ago. So MVMT was not, our Spain JV was not, these new outlet stores were not. So that $10 million really was related to items that, it doesn’t really have a comparable base for the prior year.

Right.

…but we’re investing for the future with these initiates thinking that these are great opportunities for us to expand our business in ways such as new geographies and new brands and certainly, new outlet location.

Okay.

And I think today to reach consumers and to communicate and sell to consumers is – has evolved very quickly. And if you see what the company has done over the last years with the acquisition of Olivia Burton, MVMT, the establishment of our digital center of excellence, we’ve made great progress in really becoming an omni-channel company versus a wholesale company. And so that’s going to be a continued focus of the company going forward.

Great. Thanks, guys.

All right, Frank. Thanks.

Hey, thank you.

This concludes today’s question-and-answer session. At this time, I’ll turn the conference back to management for any additional or closing remarks.

Okay. I would like to thank all of you for participating today, and we look forward to communicating with you during our second quarter conference call. Thank you very much.

Have a great summer.

This concludes today’s call. Thank you for your participation. You may now disconnect.