Q3 2023 Movado Group Inc Earnings Call

November 22, 2022

Yeah.

I will first review the highlights of the quarter and the current operating environment. Sallie will then review our financial results in greater detail as well as our outlook for the balance of the year. We will then be glad to answer any questions you might have.

Since we last spoke to you in August we have seen a substantial change in the operating environment globally, we have experienced high inflation and the unfavorable currency rates.

Unfavorable currency rates, both of which further intensified during the third quarter. In addition, we have seen European and American consumers begin to reduce their purchases of discretionary items as inflation has taken its toll on their buying power within there within this environment. Our teams have done an excellent job of exar.

<unk> against our strategy and managing our expenses to deliver strong results, particularly on a currency adjusted basis. Despite the prevailing headwinds for the third quarter. Our sales were $211 4 million versus $217 $7 million last year on a currency adjusted.

Basis, our sales actually grew by three 4% we delivered strong gross margins of 57, 3% despite the currency headwinds adjusted.

Adjusted operating profit declined by seven 8% to $38 9 million. However would have increased on a currency adjusted basis.

Our adjusted earnings per share for the quarter were $1 31. Additionally, our balance sheet remains strong with $187 million in cash and no debt at quarter end, while returning $51 $8 million to our shareholders through share repurchases and dividends since the beginning of the year.

In the United States in Europe , we have seen inflation of everyday goods and higher energy prices begin to take a greater toll on consumers' purchasing power and we expect that trend to continue for the balance of this year and into next year.

While our U S sales declined by five 9% as consumers and retailers pulled back on their purchases. Our international sales grew by 10, 2% on a constant currency basis. Our international sales are now almost two times larger than our U S wholesale business.

In our outlet business, which includes both our brick and mortar businesses and our digital format. We saw a mid single digit increase in sales.

Given prevailing currency rates economic challenges in Europe uncertain, and the uncertain retail environment and continued challenges faced by consumers. We are approaching the fourth quarter with caution. In addition last year was a particularly strong holiday season with less competition from travel and dining.

The consumer was in fantastic shape, and they were being urged by early or take the risk that retailers would run out of best selling products today, the environment is completely different.

As we enter the important holiday season, we will continue to support our brands with strong marketing campaigns to make sure that we maximize sell through for our watches and jewelry during the most important selling period of the year.

In <unk>, we are excited to introduce our new Alpha collection, which represents the pinnacle product in Novato is assortment alpha is inspired by the rich heritage of the Nevada brand and incorporates luxury features including ceramic bezels and novato and in Novato automatic chronograph movement as part of our elevation strategy.

We will continue to expand our most aspirational product offerings, particularly in Swiss made mechanical movements to support our bold assortment. We've also introduced our first bald automatic versions and bold fusion automatic we're excited about our holiday TV campaign that we launched just last week.

Featuring our bold versa watches for him and her.

This campaign will be complemented with our first major Influencer campaign that was launched last month and will run through the holiday season.

On the digital front, our Nevada Dot Com website continues to play a significant role in the ongoing development of the <unk> brand, even as consumers return to brick and mortar locations for the first nine months of this year, our novato dotcom sales were down 14%, but up 56%.

Ahead of two years ago.

And our license brands, we delivered 11, 6% sales growth on a constant currency basis against the background of slowing economies in our largest markets in Europe .

We continue to offer compelling innovation across our brand portfolio and we are driving demand both online and in store. We continue to see strong results in Mexico, Brazil, and the Middle East and India as well in China, we are still seeing the impacts of the ongoing pandemic closures.

In Tommy Hilfiger, we continue to drive results with regional Influencers and associations in key markets. We received a strong reception on our advertised family miles and vintage inspired multi I blue dial on a mesh bracelets and Luca a 50 millimeters sport inspired family and.

In Hugo Boss, we have continued to see the momentum of the parent brand's repositioning and it continues to resonate with our consumers as exhibited by the successful introduction of two new families sphere and purity.

We continue to collaborate with the Boston Influencers, the connect with the consumer and our visual associations as well as venues like picked up where boss watches are being worn by kabi, who is one of the most followed individuals on the platform.

In coach we introduced the <unk> family, which is modeled after coaches iconic badged logo and is worn by coach Ambassador Jennifer Lopez, we're continuing to drive our coach online business in China with associations with key online digital Influencers.

We were excited to introduce the third generation of our iconic 12 12 family and Lacoste during the third quarter 12, 12 is inspired by the iconic Lacoste polo shirt. This new collection is already off to a fast start. In addition, we just introduced lacoste jewelry and we're already seeing strong sell through.

We continue to rollout the launch of our Calvin Klein brand in watches and jewelry and we are seeing a strong response from consumers, especially on the watch front women's represents about 50% of the watch sales men's watches about 33% and our for everyone's segment about 17% we will support our key.

The European market with Billboard advertising as well as digital digital efforts for the holiday season.

We continue to make progress in developing our strategic plans for movement in Olivia Burton and in building out our teams in an evolving retail market. We are encouraged by the progress that we're making on the innovation in product component of both brands at higher price points and movement, we have seen success with our raptor automatic which had $500.

Our most expensive movement ever and we will sell out our traveler our collaboration with the Hello, Kitty brand, which includes watches and sunglasses.

Olivia Burton, we're also elevating price points and while the U K continues to be economically challenged we have gotten a strong response from retailers to our newness that is arriving for the holiday and additional newness that will be arriving next spring.

As we think about the balance of the year, we believe that the intended consequences of central banks to tamp down inflation are beginning to affect too.

To take effect and economies around the world are beginning to slow there continues to be a heightened risk of a recession and retailers and consumers are becoming increasing increasingly cautious.

The level of uncertainty makes it more challenging to forecast results for the upcoming holiday season, and we have revised our outlook to reflect our cautious posture. Within this context, we are navigating a retail environment with reduced visibility and we will focus on controlling the things that we can control we will tightly manage.

Spencers, while continuing to support the long term growth opportunities for our business, we will protect gross margins and focus on continuing to drive profitability and positive cash flow. We have managed our balance sheet very effectively and it puts us in a strong position to navigate an increasingly volatile retail climate R. T.

<unk> has done an excellent job of executing against our strategic objectives and are focused on managing our inventory expenses and gross margins, while maximizing our sales.

I'd now like to turn the call over to Sally.

And good morning, everyone for today's call I will review, our financial results for the third quarter and year to date periods of fiscal 2023, and then I will provide an update to 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 third quarter and year to date period of fiscal 2023 in fiscal 2022 in our press release issued earlier today, which also included a reconciliation table of GAAP and non-GAAP measures.

Additionally, given the significant currency impact on our results where appropriate sales will also be provided on a constant currency basis.

We are pleased with our overall performance for the third quarter of fiscal 2023, despite being negatively impacted by the continued strength of the U S dollar and by intensifying economic pressures in certain key markets as the quarter progressed.

Our financial performance was highlighted by an increase in global net sales on a constant currency basis.

<unk> gross margin and operational discipline.

Once again ended our quarter with a strong balance sheet.

For the third quarter of fiscal 2023 sales were $211 4 million.

As compared to $217 $7 million last year, a decrease of two 9% in constant dollars net sales increased three 4% to $225 1 million.

This increase in constant dollars reflects growth in our licensed brands, which included Calvin Klein and in our company stores.

Offset by a decline in our owned brands.

Net sales decreased five 9% with decreases in both the company's wholesale customers and the owned brand category and in online.

Actually offset by an increase in company store sales.

As <unk> mentioned, we are seeing the effects of inflation is having on the consumer in the U S as well as in key international markets International net sales decreased 7% as compared to the third quarter of last year on.

On a constant currency basis International net sales grew by 10, 2% with strong performances across all international regions. Although we started to see softening in key markets as the quarter progressed.

Gross profit as a percent of sales was 57, 3% compared to 57, 7% in the third quarter of last year.

The 40 basis point decrease in gross margin was primarily driven by the unfavorable impact of foreign currency exchange rates and increased shipping costs offset by favorable channel and product mix.

Operating expenses were $82 1 million as compared to $83 4 million for the same period of last year.

The decline was driven by a decrease in performance based compensation and lower marketing expenses, partially offset by an increase in payroll related expenses.

For the three months ended October 31, 2020 to fluctuations in foreign currency exchange rates related to our foreign subsidiaries positively impacted operating expenses by $1 7 million $1 $7 million linked compared to the prior year period.

As a result of the decrease in sales and gross margin, partially offset by the decrease in operating expenses in the third quarter operating income was $38 9 million as compared to $42 2 million in the third quarter of fiscal 2022.

We reported income tax expense of $8 6 million in the third quarter of fiscal 2023, as compared to $9 $7 million in the third quarter of fiscal 2022.

Net income in the third quarter was $29 8 million.

A $1 31 per diluted share as compared to a net income of $32 1 million or $1 36 per diluted share in the year ago period.

Now turning to our year to date results.

Sales for the nine months period ended October 31, 2022 were $557 6 million as compared to $526 $4 million last year in constant dollars. The increase in net sales was 10, 9%.

International sales increased 13, 1% or 22, 3% on a constant currency basis.

U S net sales declined by two 3%.

Gross profit was $324 6 million or 58, 2% of sales as compared to $298 2 million or <unk> 56, 7% of sales last year the.

The increase in gross margin rate for the first nine months was due to favorable channel and product mix, partially offset by unfavorable changes in foreign currency exchange rates and increased shipping costs.

For the nine months ended October 31, 2020 to operating income of $96 4 million.

Compared to $81 8 million in fiscal 2022.

As a percent of sales operating income was 17, 3% in the first nine months of <unk>.

Fiscal 2023 as compared to 15, 5% in the first nine months of fiscal 2022.

Net income was $73 5 million or $3 19 per diluted share as compared to $62 2 million or $2 63 per diluted share in the year ago period.

Now turning to our balance sheet.

Cash at the end of the third quarter was $186 7 million as compared to $201 8 million at the same period of last year.

Accounts receivable or $135 $6 million down.

Down approximately $800000 from the same period of last year.

Inventory at the end of the quarter was up $44 3 million or 25, 9% above the same period of last year, primarily due to the timing of receipts and the addition of approximately $8 million of Calvin Klein inventory.

We are comfortable with the level and composition of inventory at the end of the third quarter and based upon anticipated receipt and net sales in the fourth quarter, we expect inventory levels at year end to be more in line with historical levels.

And the first nine months of fiscal 2023, we repurchased approximately $28 2 million or 900 or 795000 shares under our share repurchase program.

Capital expenditures for the nine months period were $4 7 million and depreciation and amortization expense was $8 2 million, which included $2 $1 million related to the amortization of acquired intangible assets of Olivia Burton and movement.

Now I would like to discuss our outlook in.

In addition to currency headwinds, we are also experiencing a weaker spending environment in key markets.

Although we are strongly positioned heading into our fourth quarter.

We are revising our outlook as a result of the uncertain retail environment.

Our net sales are currently expected to be in the range of $740 to $750 million.

We continue to expect gross profit of approximately 58% of sales for the year.

Given the strong first nine months and our focus on profitability. We currently expect operating income in a range of $120 million to $125 million, we now anticipate a 23% effective tax rate.

This updated outlook does not contemplate significant further impact of increasing inflation or geopolitical unrest and assumes no further significant fluctuations from prevailing foreign currency exchange rates.

I would now like to open the call up for questions.

Yes.

Thank you if you would like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove the question from the queue.

For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. Our first question is from Oliver Chen with Cowen and company. Please proceed.

Hi, it's Tom <unk> on for Oliver.

Hey, Tom Good question.

On the gross profit guidance reconfirmed at 58% could you guys elaborate on that given the lowered revenue guide what efficiencies do you expect in targeting this and additionally, with regard to FX, how do you expect that to impact revenue and gross margin over the following quarter.

So I'll start with the gross margin question.

And we will pick up so we've had a very strong gross margin all year.

We will continue that into the fourth quarter, which is a heavy direct to consumer.

Period for us, but we.

<unk> had a very strong mix.

And expect that our.

Cannot be heavily promotional in the fourth quarter. So we expect a very strong gross margin to continue we are anniversarying tougher numbers from last year. So we are guiding to 58%.

For the entire year.

And your question on <unk>.

On a transaction with regard to how.

That should impact revenue and also gross margin.

Right, So I'll take that and I'm sure after more pump and a little bit with us. So we're using the current FX rate for our guide for the fourth quarter. We've had a very significant shift in currency most significantly in the third quarter.

And heading into the fourth quarter.

We are using what we are aware of today FX does impact our gross margin significantly and that also is in our outlook.

Outlook Guide if you will.

Most certainly because of the complexity of our international business multi <unk>.

Multi currency and having our supply chain also being in Switzerland and in Hong Kong.

In currency as we as I stated earlier in the call has.

Had an effect the material effect on our sales this year.

Because all of our European sales.

Translated back into U S dollars at a stronger dollar rate.

That shift throughout the year and especially in the third quarter has been material.

Great and then could you guys talk a little bit about gas prices and retail traffic trends youre seeing across channels and geographies. We've seen some slight moderation in gas prices in the U S. But just curious as to how you expect that to play out.

So I think I think you have a combination of variables and factors playing into the consumer.

This coming holiday season, one is last year. They were told to buy earlier, they would be or they would run out people would run out of product. So.

I think youre going to see a later Christmas this year.

Then we saw last year, which was not the regular pattern of the past I think gas prices have moderated but theyre also consumers are also now seeing.

Inflation continue on the food side.

<unk> I believe all of these factors will moderate.

But it's just going to take some some time.

And.

Particularly I think at the middle income and upper Middle income consumer.

Inflation has taken a toll as.

<unk>.

As.

A greater part of their of their income is focused on.

Required.

It's like gas and food and rent.

Versus discretionary items.

And one last question on a sequential basis inventory growth appeared relatively flat can you speak to the freshness of your inventory and then provide some details on pricing trends ahead of the holiday season.

Sure so so.

Our inventory is in very good shape.

And.

The so we did get receipts in early.

Throughout the year end.

We expect it to drop in the fourth quarter, but it is a very clean inventory in terms of newness and and quality of inventory. So we have no concerns about that.

What was the second part of pricing trends.

So we did pass on price increases early in the year and that did help offset some of the key.

Currency.

Headwinds that we were facing especially in Europe .

And.

I believe that now it will stay stable for a while.

And I don't anticipate any more of that I think you will see a more promotional holiday season from retailers.

But our own intention is not not to be more promotional on our site.

Great. Thank you very much.

There are no further questions at this time I would like to turn the conference back over to <unk> for closing comments.

Well, thank you very much everybody and I wish everybody a great Thanksgiving holiday.

And we look forward to.

Talking with you again.

After our year end.

Thank you again.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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Good day, everybody and welcome to the Nevada Group incorporated third quarter 2023 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 ethylene Grinberg, Chairman and Chief Executive Officer, and Sallie Marcellus Executive Vice President Chief Operating Officer, and Chief Officer before we get started I would like to remind you the companys 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 995.

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 companys 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.

<unk> financial measure to this non-GAAP financial measure will be provided a supplemental financial information in our press release.

Now I would like to turn the call over to Exxon Greenberg, Chairman and Chief Executive Officer of Novato Group.

Thank you Rachel I would like to welcome you to Novato group's third quarter conference call with me today to Sally Marsalis, Our Chief operating officer, and Chief Financial Officer.

I will first review the highlights of the quarter and the current operating environment. Sallie will then review our financial results in greater detail as well as our outlook for the balance of the year. We would then be glad to answer any questions you might have.

Since we last spoke to you in August we have seen a substantial change in the operating environment globally, we have experienced high inflation and the unfavorable currency rates.

Executing against our strategy and managing our expenses to deliver strong results, particularly on a currency adjusted basis. Despite the prevailing headwinds for the third quarter. Our sales were $211 4 million versus $217 $7 million last year on a currency adjust.

<unk> basis, our sales actually grew by three 4% we delivered strong gross margins of 57, 3% despite the currency headwinds.

Adjusted operating profit declined by seven 8% to $38 9 million. However would have increased on a currency adjusted basis.

While our U S sales declined by five 9% as consumers and retailers pulled back on their purchases. Our international sales grew by 10, 2% on a constant currency basis.

Our international sales are now almost two times larger than our U S wholesale business.

In our outlet business, which includes both our brick and mortar businesses and our digital format. We saw a mid single digit increase in sales.

The consumer was in fantastic shape, and they were being urged by early or take the risk that retailers would run out of best selling products today, the environment is completely different.

In Nevada, we are excited to introduce our new Alpha collection, which represents the pinnacle product in Nevada as assortment Alpha is inspired by the rich heritage of the Nevada brand and incorporates luxury features including ceramic bezels and novato and in Novato automatic chronograph movement as part of our elevation strategy.

We will continue to expand our most aspirational product offerings, particularly in Swiss made mechanical movements to support our bold assortment. We have also introduced our first bald automatic versions and bold fusion automatic we're excited about our holiday TV campaign that we launched just last week.

Featuring our bold versa watches for him and her.

This campaign will be complemented with our first major Influencer campaign that was launched last month and will run through the holiday season on.

On the digital front, our novato Dot Com website continues to play a significant role in the ongoing development of the <unk> brand, even as consumers return to brick and mortar locations for the first nine months of this year, our novato dotcom sales were down 14%, but up 56%.

Head of two years ago.

And our license brands, we delivered 11, 6% sales growth on a constant currency basis against the background of slowing economies in.

In our largest markets in Europe , we continue to offer compelling innovation across our brand portfolio and we are driving demand both online and in store. We continued to see strong results in Mexico, Brazil, and the middle East and India as well in China, we are still seeing the impacts of the ongoing <unk>.

<unk> closures.

In Tommy Hilfiger, we continue to drive results with regional Influencers and associations in key markets received a strong reception on our advertised family miles and we the vintage inspired multi I blue dial on a mesh bracelets and Luca a 50 millimeters sport inspired family and.

Hugo Boss, we have continued to see the momentum of the parent brand's repositioning and it continues to resonate with our consumers as exhibited by the successful introduction of two new families sphere and purity, we continue to collaborate with the Boston Influencers the connect with the consumer and our visual Association.

As well as venues like picked up where boss watches are being worn by kabi, who is one of the most followed individuals on the platform.

In coach we introduced the <unk> family, which is modeled after coaches iconic badge logo and is worn by coach Ambassador Jennifer Lopez, we're continuing to drive our coach online business in China with associations with key online digital Influencers.

We're excited to introduce the third generation of our iconic 12 12 family and Lacoste during the third quarter 12, 12 is inspired by the iconic Lacoste polo shirt. This new collection is already off to a fast start. In addition, we just introduced lacoste jewelry and we're already seeing strong sell through.

European market with Billboard advertising as well as digital digital efforts for the holiday season.

<unk> is our most expensive movement ever and we will sell out our traveler our collaboration with the Hello, Kitty brand, which includes watches sunglasses.

And Olivia Burton, we're also elevating price points and while the UK continues to be economically challenged we have gotten a strong response from retailers to our newness that is arriving for the holiday and additional newness that will be arriving next spring.

As we think about the balance of the year, we believe that the intended consequences of central banks to tamp down inflation are beginning to affect too to.

To take effect in economies around the world are beginning to slow there continues to be a heightened risk of a recession and retailers and consumers are becoming increasing increasingly cautious.

The level of uncertainty makes it more challenging to forecast results for the upcoming holiday season, and we have revised our outlook to reflect our cautious posture.

Within this context, we are navigating a retail environment with reduced visibility and we will focus on controlling the things that we can control we will tightly manage expenses, while continuing to support the long long term growth opportunities for our business, we will protect gross margin and focus on continuing to drive profitability.

And positive cash flow, we have managed our balance sheet very effectively and it puts us in a strong position to navigate an increasingly volatile retail climate. Our teams have done an excellent job of executing against our strategic objectives and are focused on managing our inventory expenses and gross margins while <unk>.

Maximizing our sales I would now like to turn the call over to Sallie. Thank.

Thank you Ed and good morning, everyone for today's call I will review, our financial results for the third quarter and year to date period of fiscal 2023, and then I will provide an update to 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 third quarter and year to date period of fiscal 2023 in fiscal 2022 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures.

Additionally, given the significant currency impact on our results where appropriate sales will also be provided on a constant currency basis.

Our financial performance was highlighted by an increase in global net sales on a constant currency basis strong gross margin and operational discipline. We once again ended our quarter with a strong balance sheet.

For the third quarter of fiscal 2023 sales were $211 4 million as compared to $217 $7 million last year, a decrease of two 9% in constant dollars net sales increased three 4% to $225 1 million.

This increase in constant dollars reflects growth in our licensed brands, which included Calvin Klein and in our company stores. This was partially offset by a decline in our owned brands.

U S. Net sales decreased five 9% with decreases in both the company's wholesale customers and the owned brand category and in online.

Really offset by an increase in company store sales.

As Ed mentioned, we are seeing the effects of inflation is having on the consumer in the U S as well as in key international markets International net sales decreased 7% as compared to the third quarter of last year.

Gross profit as a percent of sales was 57, 3% compared to 57, 7% in the third quarter of last year. The 40 basis point decrease in gross margin was primarily driven by the unfavorable impact of foreign currency exchange rates and increased shipping costs offset by favorable channel and product mix.

Operating expenses were $82 1 million as compared to $83 4 million for the same period of last year.

The decline was driven by a decrease in performance based compensation and lower marketing expenses, partially offset by an increase in payroll related expenses.

We recorded income tax expense of $8 6 million in the third quarter of fiscal 2023 as compared to $9 7 million in the third quarter of fiscal 2022.

Net income in the third quarter was $29 8 million or.

A $1 31 per diluted share as compared to a net income of $32 $1 million or $1 36 per diluted share in the year ago period.

Now turning to our year to date results.

Sales for the nine months period ended October 31, 2022 were $557 6 million.

As compared to $526 $4 million last year in constant dollars. The increase in net sales was 10, 9% international.

International sales increased 13, 1% or 22, 3% on a constant currency basis U S. Net sales declined by two 3%.

Gross profit was $324 6 million or 58, 2% of sales as compared to $298 2 million or 56, 7% of sales last year.

For the nine months ended October 31, 2022, operating income was $96 4 million compared.

Compared to $81 $8 million in fiscal 2022.

As a percent of sales operating income was 17, 3% in the first nine months of <unk>.

Fiscal 2023 as compared to 15, 5% in the first nine months of fiscal 2022.

Net income was $73 5 million or $3 19 per diluted share as compared to $62 2 million or $2 63 per diluted share in the year ago period.

Now turning to our balance sheet.

Cash at the end of the third quarter was $186 7 million as compared to $201 8 million at the same period of last year accounts.

Accounts receivable were $135 6 million down.

Down approximately $800000 from the same period of last year.

Inventory at the end of the quarter was up $44 $3 million or 25, 9% above the same period of last year, primarily due to the timing of receipt and the addition of approximately $8 million of Calvin Klein inventory.

We are comfortable with the level and composition of inventory at the end of the third quarter and based upon anticipated receipt of net sales in the fourth quarter, we expect inventory levels at year end to be more in line with historical levels.

And the first nine months of fiscal 2023, we repurchased approximately $28 2 million or 900 or 795000 shares under our share repurchase program.

Now I would like to discuss our outlook in.

In addition to currency headwinds, we are also experiencing a weaker spending environment in key markets.

Although we are strongly positioned heading into our fourth quarter.

We are revising our outlook as a result of the uncertain retail environment.

Our net sales are currently expected to be in a range of $740 million to $750 million.

We continue to expect gross profit of approximately 58% of sales for the year.

Given the strong first nine months and our focus on profitability. We currently expect operating income in a range of $120 million to $125 million, we now anticipate a 23% effective tax rate.

I would now like to open the call up for questions.

Yes.

Thank you if you would like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove the question friendly Q.

For participants using speaker equipment may be necessary to pick up your handset before pressing the star teams. Our first question is from Oliver Chen with Cowen <unk> Company. Please proceed.

Hi, it's Tom <unk> on for Oliver.

Hey, Tom Good question.

So I'll start with the gross margin question.

And we will pick up so we've had a very strong gross margin all year.

We will continue that into the fourth quarter, which is a heavy direct to consumer.

Period for us, but we.

<unk> had a very strong mix.

And expect that our.

It cannot be heavily promotional in the fourth quarter. So we expect a very strong gross margin to continue we are anniversarying tough numbers from last year. So we are guiding to 58% for the entire year.

And your question on <unk>.

On the transaction with regard to how that should impact revenue and also gross margin.

Right, So I'll take that and I'm sure after more pop and a little bit with us. So we're using the current FX rate for our guide for the fourth quarter. We've had a very significant shift in currency most significantly in the third quarter.

And heading into the fourth quarter.

We are using what we are aware of today FX does impact our gross margin significantly and that also within our <unk>.

Outlook Guide if you will.

Certainly because of the complexity of our international business multi <unk>.

Multi currency and having our supply chain also being in Switzerland and in Hong Kong.

In currency as we as I stated earlier in the call has.

Had an effect the material effect on our sales this year because all of our European sales get translated back into U S dollars at a stronger dollar rate and Thats.

That shift throughout the year and especially in the third quarter has been material.

So I think I think you have a combination of variables and factors playing into the consumer does.

Coming holiday season, one is last year. They were told to buy earlier, they would be or they would run out people would run out of product. So.

Youre going to see a later Christmas this year.

Then we saw last year, which was not the regular pattern of the past.

Gas prices have moderated but they are also consumers are also now seeing inflation continue on the food side.

Eventually I believe all of these factors will moderate.

But it's just going to take some some time.

And <unk>.

Particularly I think at the middle income and upper Middle income consumer.

Inflation has taken a toll as.

As.

A greater part of their of their income is focused on.

Required goods like gas and food.

And rent.

Versus discretionary items.

Sure so so.

Our.

<unk> is in very good shape.

And.

The so we did get receipts in early.

Throughout the year end.

We expect it to drop in the fourth quarter, but it is a very clean inventory in terms of newness and and quality of inventory. So we have no concerns about that.

What was the second part of <unk>.

Pricing trends.

So we did have some price increases early in the year and that did help offset some of the currency hedge.

Headwinds that we were facing especially in Europe .

And.

I believe that now it will stay stable for a while.

And I don't anticipate any more of that I think you will see a more promotional holiday season from retailers.

But our own intention is not not to be more promotional on our side.

Great. Thank you very much.

There are no further questions at this time I would like to turn the conference back over to <unk> for closing comments, okay, well. Thank you very much everybody and I wish everybody a great Thanksgiving holiday.

We look forward to.

With you again after our year end.

Thank you again.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Q3 2023 Movado Group Inc Earnings Call

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Movado Group

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