Good day, everyone, and welcome to the Movado Group, Inc. Fiscal Third 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 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. Good morning, and welcome to Movado Group's third quarter conference call. I will provide some highlights on the quarter and our strategic initiatives, and Sallie will walk through our financial results in greater detail. We would then be glad to answer any questions you might have. As we stated in our second quarter earnings call, we are operating in a challenging retail environment for our channels of distribution and our category, particularly in the United States and the United Kingdom. This continued to be the case in the third quarter. While our increased investments to elevate our brands drove market share gains, we fell short of our sales plan due to market growth below our expectations. This combined with our increased marketing efforts drove reduced profitability. For the third quarter, our sales were $205.6 million or 1.6% lower than last year, although sales increased 0.5% on a constant currency basis. Our adjusted operating profit was $24.2 million versus $35.7 million during the same period last year. For the quarter, we invested $7.3 million more in marketing and supporting our brands versus the same period last year. Based on our results for the third quarter and existing marketing commitments, we are updating our outlook for the year. While the watch category has had a challenging year, which in turn has impacted our performance, we have faced similar challenges in the past and know what we need to do. We know there are opportunities for us to drive improved performance and profitability. As we plan for next year, we will be focused on ensuring appropriate cost structure and level of investments for our revenue expectations. Although our results for the quarter are below our expectations, we believe that with our strong brand portfolio, our product innovation and the increased…

Thank you, Efraim, and good morning, everyone. For today's call, I will begin with a review of our third 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 results for fiscal 2020 and fiscal 2019. Our press release also describes these items and includes the table of GAAP and non-GAAP measures. Movado Group acquired MVMT on October 1, 2018. Included in the year-to-date results of fiscal 2020 was $3.5 million of pretax 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 $2.7 million or $0.11 per diluted share. $900,000 pretax dollars or $700,000 after tax of this charge was in the third quarter of fiscal 2020. Our consolidated GAAP results for fiscal 2019 year-to-date, includes $11.9 million of pretax transaction costs and amortization expenses related to the MVMT acquisition, $10.9 million of which was recorded in the third quarter. After tax, the third quarter charges equated to $8.1 million or $0.34 per diluted share. Additionally, non-operating income for the nine months of fiscal 2020 included a non-cash gain associated with the remeasurement of a contingent consideration liability related to the MVMT acquisition of $13.6 million. This gain was recorded in the second quarter of fiscal 2020. After tax, this benefit equates to $10.4 million or $0.44 per diluted share. Movado Group acquired Olivia Burton on July 3, 2017. Included in the results for the first nine months of fiscal 2020 was approximately $2.1 million of non-cash amortization of the acquired intangible assets. After tax, the charge related to the acquisitions, equates to $1.7 million or $0.07 per diluted share. Similarly the first nine months of fiscal…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Oliver Chen with Cowen. Please proceed with your question.

Hi, thank you. Good morning, Efraim and Sallie. Regarding your statements and the challenges intensifying, could you speak to categories channels and your thoughts on duration? I would also love your views on these challenges now. You mentioned that they are similar to the past, but would love your characterization of how and why that maybe true just given the dynamicism of what retail looks like today? Thank you.

Sure. I don't think they are similar to the past. I said we faced challenges in the past, and we know what we need to do to react to them. So I think every challenge is different, and so you’re obviously getting a much bigger challenge from technology both in the space and then in the e-commerce platform affecting retail overall. And we have plans in place to be able to address the e-commerce side and as well as we believe in Movado which is our biggest brand in the United States. We believe that there's an opportunity in scaling up actually our price points to price points that we have been in the past. We're doing extremely well in the $500 to a $1,000 category and have given up some space we believe just through our own product development and innovation in the $1,000 to $2,000 price range and think that that's going to present a significant opportunity for the company going forward.

So Efraim, what are your thoughts on why the challenges have intensified now? And are you geographically speaking, are there more concerns in the U.S. wholesale market or within certain countries?

I think the U.S. wholesale market has certainly been the most challenged overall. And I think it has to do with really the changes that have been occurring in the large-scale, mall-based retailers as well as current interest in traditional watches, which I think we believe will ultimately be cyclical as well. And that's where I think that the opportunity presents itself. Internationally, we see less pressure on the traditional watch space. You're obviously seeing some pressure in the UK overall and really economically and Brexit-related. But as you can see, our licensed brand business internationally has been driving growth for the company and continues to do so.

Okay. And it sounds like it's the lower price point items, the more fashion watch category that's having more pressure, is that the right interpretation? And what are the innovation steps that you think…

I think domestically that is correct. And I think that the chance – and we have been gaining market share in that space as well. But I believe that there's opportunity in innovating product and challenging ourselves and raising up the innovation that we bring to the category, which we've done in the past and has resulted in very strong results.

Okay. And Sallie, the inventories were trending up relative to sales. What about the freshness of the inventory now and going forward? And since the results were different from what you expected, do you have more inventory than you'd like to now?

So yes, Oliver, so we do have inventory that is – part of it is relating from our slight miss in sales. But the inventory is very healthy, it’s all current inventory are forecasted to be utilizing all of that inventory in this fourth quarter, not all of the inventory, but back to a normal level or even slightly below a normal levels in the fourth quarter with our direct-to-consumer retail and wholesale shipments, so we feel very good about it. There was some timing, some of our receipts were earlier this year than traditionally based upon some opportunities we had in the sourcing area.

Yes. Okay, thank you.

So we're not concerned at all with the health of that inventory.

And then again regarding the watch category, Efraim, what do you see happening longer term? And it sounds like you're also prudently managing and proactively managing your expense base, given your views. But how should we interpret the watch category and for people who are more cautious on the – yes?

Sure. So I think that the technology and wearables has had an effect on it, but it's really focused on one company and that being Apple. And I believe that people will continue to wear traditional watches and that that actually brings people into the watch space who are not wearing watches in the past. I think we will be more cautious from an expense point of view and that's kind of the message that I’m trying to get out there. Our investments are committed for this year. We did not feel it would make sense to not do our fourth quarter marketing programs, which is the most important time of the year for us, so continued to go forward on those investments. But believe as we plan for next year, we can really cautiously manage our expense base which is what we have done in similar periods in the past and what the company is traditionally done is returned to very healthy and efficient growth patterns after cycles like this one.

Okay. And lastly, on your own retail, are you seeing similar trends in terms of the customer demand and the challenges as in wholesale and within wholesale do you foresee space and square footage allocations to the weaker category declining in terms of the square footage in wholesale channel?

Interestingly enough, and I’ll answer, I guess, the first question first. In our own retail, which is our company stores, I did mention that we have had to be more promotional, but we’ve seen that that has really had a really positive effect on sales. In our existing retailer footprint, we are gaining space because our brands are performing better than competition, but the space probably allocated to the category is being reduced slightly and varies by retailer. So I think that there's actually an opportunity for us to gain space as we add new brands like MVMT and Olivia Burton into some of the wholesale partners that we work with.

Okay. Thank you. Best regards.

Okay. Thank you very much Oliver.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Okay. I would like to thank all of you for participating today. I hope you begin to see our marketing initiatives in online or on television over the next few weeks. And I would like to wish everyone a great Thanksgiving holiday. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.