Rachel Schacter - Senior Vice President of Retail, Apparel, Consumer Goods Richard J. Coté - President, Chief Operating Officer and Director Sallie A. DeMarsilis - Chief Financial Officer and Principal Accounting Officer Efraim Grinberg - Chairman and Chief Executive Officer.

Oliver Chen - Citigroup Inc, Research Division Michael Richardson - Sidoti & Company, LLC.

Good morning, ladies and gentlemen, and welcome to the Movado Group First Quarter Fiscal Year 2014 Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Ms. 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; Rick Coté, President and Chief Operating 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, 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 Rick Coté, President and Chief Operating Officer of Movado Group..

first, the continued globalization of our Movado brand with increases in the number of global doors and retail linear footage.

As an example, we announced in February 2013 that in the U.K., we converted our 51% licensed brand joint venture to a 90% owned subsidiary, affording us the opportunity to consolidate all of our brands under one platform, providing more direct exposure in the U.K. market. Second, market share gains.

Continued new door openings and business expansion in our licensed brand division, supported by the Ferrari global launch and the Coach Watch repositioning. Third, increases in our wholesale market sales and increased retail productivity. Fourth, continued leverage of our strong global infrastructure.

And fifth, consistent generation of cash flow from operations slightly greater than profitability. Executing these initiatives will allow us to deliver our financial plans, which call for consistent 10% sales growth per year and approximately 20% operating profit growth per year.

We believe our combination of powerful brands, superior infrastructure and our talented global management team position us to continue the path of above-average sales and profit growth. Now I'd like to turn the call over to Sallie to discuss our financial results and fiscal year '14 guidance..

Thank you, Rick, and good morning, everyone. I'm very pleased to be with you today presenting our financial results for the first quarter. I will first cover the operating results, followed by the balance sheet, and I will close with the guidance.

To begin, sales for the first quarter were $110 million, up from the same period of the prior year by $6.4 million or 6.1%. Our U.S. sales grew by 14.9%, driven by accessible luxury, partially offset by a 2.3% decrease internationally.

For the first quarter, sales in our wholesale segment were $100 million or 6.9% above sales of $93.5 million for the same period of last year. The increase in sales was driven by growth in the accessible luxury category, partially offset by a planned decrease in our licensed brand category. By geography, our U.S.

wholesale business increased 18.8% to $48.4 million compared to $40.8 million last year. Our international wholesale business decreased 2.3% to $51.5 million compared to $52.7 million in the prior year. Sales from the company's retail business were relatively flat to last year. At the end of the quarter, the company operated 33 outlet stores.

Gross profit was $59.9 million or 54.5% of sales compared to $59 million or 56.9% in the first quarter of last year. The decrease in gross margin was driven by unfavorable channel and product mix, partially offset by the favorable impact of changes in foreign currency exchange rates. Operating expenses were $49.9 million, below the prior year by 1.2%.

The decrease was primarily the result of a $1.3 million decrease in compensation, benefits and the accrual for performance-based compensation, partially offset by a $400,000 increase in the transactional impact of foreign currency exchange rate.

Operating income increased 17.9% to $10 million or 9.1% of sales compared to $8.5 million or 8.2% of sales in the year ago period. During the first quarter of fiscal 2014, a building in Switzerland, which was no longer being utilized, was sold for a pretax gain of $1.5 million or $0.04 per diluted share.

Income tax expense of $3.3 million or 28.8% effective tax rate in the first quarter of fiscal 2014 compares to income tax expense of $1.6 million or 19.1% effective tax rate recorded in the first quarter of the prior year.

The effective tax rate for last year includes the effects of the applications of guidelines related to accounting for income taxes in interim periods, as well as accounting for valuation allowances.

Net income in the first quarter was $8.2 million or $0.32 per diluted share versus net income of $6.6 million or $0.26 per diluted share in the year ago period despite the year-over-year increase in the effective tax rate. EBITDA for the first quarter increased to $12.8 million compared to EBITDA of $11.5 million in the first quarter of fiscal 2013.

Now turning to our balance sheet. Our cash at the end of the first quarter of fiscal 2014 was $141.5 million versus $158.8 million in the same period of fiscal 2013. Accounts receivable was up $7.3 million due to the increase in net sales. Inventory was relatively flat to last year, while our sales increased more than 6% year-over-year.

Capital expenditures for the quarter was $6.5 million, and depreciation and amortization expense was $2.8 million combined. I would like to remind you that our capital expenditures were planned higher than normal for our first quarter due to the Basel Fair booths and our Swiss corporate offices.

We continue to project capital expenditures of approximately $19 million for fiscal 2014. Now I would like to discuss our reiterated guidance for the current fiscal year. We are still taking a cautious view of the global economy. We're assuming no significant fluctuations in foreign currency exchange rate.

For fiscal 2014, we anticipate our sales will increase approximately 12% to a range of between $570 million and $575 million. Gross margin is expected to be approximately 54%, a decrease from fiscal 2013 due to the mix of business, the repositioning of the Coach brand and the launch of the Ferrari branded watches.

Operating income is projected to increase close to 20% to $68 million. EBITDA is expected to increase to $80 million. Due to the mix of global pretax results, the estimated effective tax rate for the first fiscal year is expected to be 28%, and net income is planned to increase to approximately $48 million.

We expect diluted earnings per share in fiscal 2014 will increase to approximately $1.80. Previously, we announced a $50 million share repurchase program. The purpose of this program is to offset normal dilutions caused by share awards.

Because this share repurchase program will only be in place for a partial period this year, we do not expect this share repurchase program to have a significant impact on the weighted average number of shares outstanding for fiscal 2014. For the first quarter, less than 15,000 shares were repurchased under this program, which began in April.

The guidance we have provided assumes no unusual items for fiscal 2014 and excludes the sale of the building in Switzerland in the first quarter. Now I would like to turn the call over to Efraim..

Thanks, Sallie. We are pleased with our first quarter results and our strong start to the year. During the quarter, we continued our positive momentum from the past 13 quarters. Operating income grew faster than the pace of sales, rising nearly 18%, validating our ability to leverage our infrastructure as we grow.

Earnings per share increased an impressive 23% in the first quarter despite a higher tax rate, which we believe reflects the health of the business and the sustainability of our brand strategies. We are excited for what lies ahead for Movado Group in 2014.

In late April, we unveiled our upcoming innovation, including our new Ferrari Watch collection and repositioned Coach product line at Baselworld in Switzerland. We are encouraged by the enthusiastic response across our brands, which further demonstrates the strength of our design innovation and brand strategies.

We expect this positive response to lead to acceleration in our sales growth as we begin the second quarter and throughout the year. As Rick mentioned, sell-through of our Movado and licensed products remained strong during the quarter.

We are focused on delivering our fiscal 2014 objectives, and we remain well positioned to achieve our outlook of 12% sales growth and 20% operating income growth. We would now like to open the call up to questions..

[Operator Instructions] And we'll take our first question from Oliver Chen with Citibank..

Regarding the outlook for the revenue growth and the different initiatives you have going on, including Coach and Ferrari, which quarter will have the most benefit? In terms of getting to your full year guidance, we would expect an acceleration in revenue growth?.

Yes, I would expect that, and we'll start seeing that in the second quarter. But the second, third and fourth quarter, we'll start seeing that. Obviously, Ferrari's off to a great start, but we only have 1 month of sales in place.

Coach repositioning will pretty much take place in late June and in early July, so we'll see a benefit of that in the second quarter. And as we continue to launch our new products, as I said, many of those were launched in the first quarter of last year, they're being launched in the second and third quarter of this year.

So we'll see a good pickup in the second, third and fourth quarter for the rest of the year..

Okay. And also there's been an industry interest in the emergence of a potential smart watch in that marketplace.

Could you comment on your overarching thoughts on that opportunity?.

Well, we really consider ourselves being in the fashion accessory category, and for us it's about design more than it is about technology. And I think there's a lot of talk going on. I don't know exactly how it will manifest itself today.

We were actually hearing about wearable computing versus just watches, so we'll find out what wearable computing is..

And on the gross margin, it was better than our expectations, but it was obviously down year-over-year.

Do you still expect channel and product mix to continue to weigh on the margins going forward? And any comments on how we should think about the guidance in the next few quarters there?.

Okay, I'll address that, Oliver. So just to point out for this quarter, you know that last year was a tough quarter for us to compare. Last year's first quarter was unusually high, so we did have a lot of unfavorability, if you will, in mix. And yes, that will somewhat continue to resonate through the year.

We're saying that we will be down year-over-year in total gross margin due to the initiatives with Coach and Ferrari..

My last one, Efraim, if you can give us an update on your feelings on consumer, the health of the consumer and what you're seeing with marketplace trends..

We continue to see that category very strong and there's resiliency to the consumer. And if you give them innovation and excellent value, we believe they continue to purchase. And you saw that actually very strong sales from us domestically.

And I think internationally is more of a timing difference in terms of deliveries and newness into the international marketplace, which is really much more around Basel, which last year was early in the quarter and this year was very, very late in the quarter. So we see the consumer in the U.S. being improving and continuing to be resilient.

In Europe, I think a little bit more challenging but, again, if you continue to give them a reason to buy, they will buy..

[Operator Instructions] We'll go next to Mike Richardson with Sidoti..

I was actually hoping if you could just expand a little bit, give us maybe a little bit more color -- and maybe you've seen something after the quarter ended or whatnot -- as to why you think what's going on in Europe is just a timing issue and really not a change in trend..

For a couple of reasons. Number one is we looked at the timing of Basel. The timing of Basel was literally the last 2 weeks of our quarter. You've got all of your major retailers planning for the fair, being out in the fair.

We purposely looked at the level of newness that was very strong in the first quarter of last year because the timing of Basel was very early in the quarter versus this year. A lot have been pushed out to the second quarter and beyond. And we still see very strong retail sell-through, so consumers continuing to buy.

So obviously, people are going to replenish their stock levels, and we just think it was a timing issue and very confident it was a timing issue at the end of the first quarter, particularly in Europe, yes..

Okay. And for Sallie. I guess, should we still assume -- you guys have guided to about 54% gross margin for the year.

Is that something we should still be having in the back of our mind just for modeling purposes?.

Absolutely, yes..

Okay. And then thinking about expenses for the rest of the year, I wouldn't think with the stock performance, that we would expect that compensation would continue to be down year-over-year.

Any guidance you can give us there?.

I'll do something high-level, then you guys can add in if I miss something. But we would continue to expect leverage on our operating expenses, growing at a lower pace than our sales growth.

As for compensation, last year, out of the gate, we were pretty strong, so we were accruing a higher performance compensation last year than would have been a normal course of action. So this year, we would expect at this point, we're on track for our normal..

And we also restructured some operations in Switzerland and Japan that also led to continued savings..

But we will see a spike up in expenses through the rest of year, and primarily as we continue to expand globally Ferrari and add resources for that internationally as well with Coach and the repositioning of Coach globally..

Okay. And can you remind us what you expect the door count to be in Ferrari, I think you mentioned that before..

We said that we would expect to be at 2,500 doors at the end of the year, and we are well on our way to achieving that..

Okay.

Is that going to be in China as well?.

Yes. But on a limited basis. More for some of their own stores, but in the first year, on a more limited basis in China..

[Operator Instructions] And there are no further questions at this time. I'd like to turn the conference back over to our speakers..

Okay. I'd like to thank everybody very much for participating in today's first quarter conference call, and I wish everybody an excellent summer. And we look forward to reporting to you our second quarter when that is completed. Thank you very much..

Thank you. That does conclude today's conference. By appreciate your participation..