Good day, everybody and welcome to the Movado Group, Inc. Second Quarter 2024 Earnings Conference Call. As a reminder, today’s call is being recorded and may not be reproduced in full 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, Executive Vice President, Chief Operating Officer and Chief Financial Officer. Before we get started, I would like to remind you the company’s Safe Harbor language, which I am sure you are all familiar with. The statements contained in this conference call which are not historical facts, maybe 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. Welcome to Movado Group’s second quarter conference call. With me today is Sallie DeMarsilis, our COO and CFO. After I review the highlights of the quarter and our strategies and initiatives for the second half, Sallie will review our financial results and outlook in greater detail. Our second quarter performance reflects our strong execution in a difficult operating environment with net sales within our expectation. The retail environment in our category remained challenging during the second quarter, particularly in the United States and Europe, our largest markets. While economic numbers have remained stable, discretionary purchases have been challenged by inflation and a greater allocation of consumers’ resources to travel and dining. Overall, we remain excited about our second half initiatives, especially our brand refresh at Movado, which I will discuss in greater detail in a moment. However, we are lowering our outlook for the balance of the year given the cautiousness of our retail partners, which is expected to moderate shipments and continued economic uncertainty. Turning to a review of the quarter. Second quarter net sales declined by 12.3% from last year to $160.4 million and our adjusted operating profit was $10.3 million versus $31.4 million last year. From a geographic perspective, sales declined by 12.4% in the U.S. driven by the wholesale channel and by 12.1% internationally. Our balance sheet remains extremely strong with almost $219 million in cash and no debt, allowing us to continue to invest in our brands and regions despite the economic challenges that remain in the U.S. and Europe. For the 6 months, the company generated positive cash flow from operations and a reduction of $33.6 million in inventory from the same period last year. Importantly, we will continue to be extremely disciplined in our expense management. As we had mentioned…

Thank you, Efraim, and good morning, everyone. For today’s call, I will review our financial results for the second quarter and year-to-date period of fiscal 2024, and then I will provide an update on our outlook for the year. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the second quarter and year-to-date period of fiscal 2024 and fiscal 2023 and our press release issued earlier today, which also includes the reconciliation table of GAAP and non-GAAP measures. Overall, our performance for the second quarter of fiscal 2024 was within the lower end of the range provided on our previous earnings call as our business was negatively impacted by a challenging retail environment and lapping a strong performance last year. While down year-over-year, we maintained an extremely strong balance sheet. Turning to a review of the quarter. Sales were $160.4 million as compared to $182.8 million last year, a decrease of 12.3%. In constant dollars, the decrease in net sales was 13.8%. Net sales decreased across owned brands, licensed brands and company stores. By geography, U.S. net sales decreased 12.4% as compared to the second quarter of last year. International net sales decreased 12.1%. On a constant currency basis, international net sales decreased 14.9% with continued softening in our largest international market, Europe, partially offset by strong performances in certain markets, such as the Middle East, India and travel retail. Gross profit as a percent of sales was 55.7% compared to 58.5% in the second quarter of last year. The decrease in gross margin as compared to the exceptionally high gross margin results of the same period last year was anticipated and was primarily driven by the deleverage of higher costs, higher fixed costs over lower sales,…

Thank you. [Operator Instructions] Our first questions come from the line of Oliver Chen with TD Cowen. Please proceed with your questions.

Hi, Efraim and Sallie. Good morning.

Good morning, Oliver.

You called out the U.S. consumer as well as just thinking about the consumer and weakness, yet the results were in-line with your expectations. Would love your thoughts on what’s changed since the past quarter and what you’re seeing in the environment. Also Efraim, on the product innovation, it sounds like you’re really focused on opening price points. Would love your thoughts on that and what you need to do. Those are some first questions, and I have some follow-ups. Thanks.

Yes. I think – look, I think our feeling throughout the year is that the consumer has been challenged. And I think with higher interest rates, inflation, you’re seeing an increase of challenges to the consumer on discretionary purchases. And so we are being cautious in terms of our expectations on the consumer returning on discretionary purchases. We also – our experience is that as economic growth slows, consumers become more value-oriented, and our experience in the past has been that we have been successful with entry-level price points, but really strong innovation along those platforms. So – and it’s something that we are focused on both in the United States and globally as well.

Okay. And specific to channels, Efraim, what are you seeing in U.S. wholesale? And how might you contrast also relative to outlet? And then on the international, are there trends that you want to call out between north and south or regions that are stronger versus weaker?

So, I will start with the international first. I think Europe for us is running more consistent to the U.S. market. And so it’s been a little more challenging than the rest of our international footprint. So, we are seeing very strong growth in India, which was a subsidiary that we launched a year ago. We are seeing continued strong results in the Middle East and continued strong sell-through in Latin America and Mexico. So, those markets are going very well for us. China is a small market for us, but it’s returned to growth. We continue to invest in China in our most important licensed brands in the market as well as behind the Movado brand. And then on the U.S. side, I think wholesale has been a little more challenging. And then that’s true in Europe as well, where retailers are – and as they should be, are being cautious and focused on managing their inventories very prudently. I think that we have really strong marketing initiatives both in – across our licensed brand portfolio. And I am really excited about what we are doing to reenergize and support the Movado brand, and we will launch that campaign in September as well as a complete brand refresh of the Movado website at that time.

And Efraim, on refreshing Movado brand, what are you thinking it needs most? What’s your hypothesis there? And longer term, how – what will be the path to return to revenue growth? What will be the keys there, in your mind, any thoughts around timing? We will see likely easier compares?

Sure. I think returning to really reenergize on the marketing front of brand with investments in media will prove to be very successful for the Movado brand. And we have moderated those investments over the last few years. And as I said, we are upping that quotient for this holiday season and really for the foreseeable future. But I am really excited by the product assortment. It’s been as good as we have had on the product front in the Movado brand. And we are really excited about the total brand refresh that we are doing. And again, it’s an evolution. It’s not a revolution of the brand. But having a robust marketing mix and media plan will really help support the brand for the holiday season and into the future.

Okay. And Sallie, as we model 3Q versus 4Q, could you help us understand if there is any comparisons that we should be aware of? And also, will we just expect a less negative 4Q? Would love your thoughts on the revenue line as well as some of the key gross margin headwinds as well as tailwinds. And also inventory relative to sales growth, how do you see that evolve for the back half?

Okay. So, I am going to start backwards just so I don’t miss any of your questions. On inventory, we were – the timing between last year’s purchases and this year’s purchases were very different. So, we were able to moderate our incoming purchases this year, and you can see we are much better aligned with inventory at this point. We will – as we head into the holiday season, it is – we are still very much a wholesale business. So, we will be back in the inventory business in the third quarter to support our channels, but we will have them be more – all of our purchases will be more in line with these forecasts straight through to the year-end. So, we will keep an eye on it. There are lead times that we have to live with, but definitely more in line with where our sales plans are. As far as the two quarters, they are both very important to us, third quarter and fourth quarter. There generally is a little bit of a balance between those two, third quarter and fourth quarter. Third is obviously very important to us as we fulfill our wholesale commitments and fourth quarter, obviously, more of a direct-to-consumer. So, it should be more balanced with our normal cadence through the quarters. We should see an improving comparison against last year, though, in both third quarter and fourth quarter as we get towards the end of the year. And as far as margin, we are going to see really the same comparison challenges to last year. Last year was an exceptionally high gross margin year. So, this year, when we talk about things like our mix or our deleveraging of cost against a lower net sales number is going to continue in the next two quarters. So, we should see something very similar to what we have experienced in the first half of this year.

Okay. That’s really helpful. And on holiday, Efraim and Sallie, what do you see happening in terms of holiday planning and key thoughts around the consumer as well as like is inventory tightening going to be ongoing at your wholesale partners?

I think for holiday, as I have said for a long time, Christmas always comes on December 25th, Hanukkah comes sometime before that as well as other holidays. So, people do buy for those holidays. And our retailers were in the business to support their consumers. And I think they will buy appropriately given the environment for holiday. I do expect that holiday, we are comparing against some weaker numbers last year during the holiday period. So, I think things will start to fall into the balance. And – but there remains a level of uncertainty out there with interest rates, with inflation, with the political environment as well. So – but I think you always have a stronger holiday in terms of sell-through in Q4 than in Q3. So, I would expect that – I definitely expect that to occur again.

Okay. And on – this was an earlier question, a follow-up to a follow-up. The average unit retail, as you think about your portfolio, should we assume that the overall AUR may go down or will hold and be offset by transactions? How does it sum up for the bottom line on some of these changes you are making? That would helpful as well.

So, I think what we are doing is we are backfilling some entry-level price points that we have vacated. But I think overall, we will see a flattish AUR over the next year. So, I am not – I think that it’s not – a lot of different – it’s not a big bulk of our offering, but it enables consumers who are more challenged to enter the brand at accessible price points.

Thanks. And last question, you have a really strong balance sheet. It’s always been a hallmark of your financial perspective, just thoughts on cash and how you are thinking about free cash flow generation and return to shareholders. Thanks.

So obviously, our dividend continues to remain very important to us. And so that is part of our balance sheet as well as share repurchases. And – but I think it is that balance sheet that allows us to feel comfortable to focus on medium and long-term initiatives when times become more challenging that yield overall long-term value to shareholders.

Okay. Very excited to see both back, best regards. Thanks.

Okay. Thank you very much.

Thank you. There are no further questions at this time. I would like to hand the call back over to management for any closing remarks.

Okay. I would like to thank all of you for participating with us today. And those in the United States, I wish you a very good upcoming holiday weekend and the end of the summer. Thank you very much and we look forward to talking to you in our third quarter conference call.

Thank you. That does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.