Movado Q4 Earnings Conference Call: Full Transcript

Operator: Good day everyone and welcome to the Movado Group's Fiscal Fourth Quarter 2016 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. Rachel Schacter: ICR, Inc.: Thank you. Good morning, everyone. With me on the call is Efraim Grinberg, Chairman and Chief Executive Officer; Ricardo Quintero, President; and Sallie DeMarsilis, Chief Financial Officer. Also in the room is, Rick Cote, Vice Chairman and Chief Operating Officer who will join us for questions and answer. 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 include 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 would like to turn the call over to Efraim Grinberg, Chairman and Chief Executive Officer of Movado Group. Efraim Grinberg: Chairman and Chief Executive Officer: Thank you, Rachel and thank you for joining us on today's conference call. We are very pleased with our fiscal 2016 performance. Despite the extremely challenging retail environment slowing growth in the watch category and strong currency headwinds, we're able to deliver solid year with sales growth to $594.9 million and adjusted operating income growing by 3.7% to $74.1 million. We generated $74.6 million of operating cash flow and ended the year with a record $228.2 million in cash. Fiscal 2016 marks the third year in a row that Movado group is delivered adjusted operating income in excess of $70 million despite the increased level of volatility in the market place. We are very proud of the strong execution by our teams around the world. We have built a solid global infrastructure and have continued to drive the growth of our brands. As a Company, we remain focused on driving innovation across our brand portfolio which was truly exemplified by the extremely successful launch of the Movado Edge collection introduced late last year. As a leadership team we are focused on driving long-term value for our shareholders, customers and employees. We are pleased that our Board has authorized both an 18% increase in our quarterly dividend as well as the new $50 million share repurchase authorization. While we expect the environment to remain challenging in fiscal 2017, we remain optimistic about our opportunities longer-term. We have decided that during this period, we will continue to invest in marketing, brand building programs, and our connected watch initiatives. We believe that these investments along with continued product innovation, will position us extremely well for sustainable profitable growth in the coming years. With this in mind we are planning for sales of $585 million to $600 million and diluted earnings per share of $1.85 to $2. Before I turn the call over to Ricardo, who will highlight some of our brand performances and initiatives, I would like to acknowledge Rick Cote, who has announced that he will be retiring in June. Rick has been an extremely valuable partner and colleague and in helping to lead the growth of the Company since he joined us in 2000. We are fortunate that Rick will continue to serve on our Board of Directors where he will tremendous council and strategic advice. I would now like turn the call over to Ricardo. Ricardo Quintero: President: Thank you, Efraim and good morning. We are pleased with our fourth quarter and our full year fiscal '16 results as it demonstrates strong execution of our strategic approach to growing our business and capturing the full potential of our brand portfolio. In the fourth quarter, net sales were $143.3 million, up 10.1% on a constant currency basis and up 7% on a reported basis and adjusted operating income of $12.9 million, up 29.6% on a constant currency basis. We delivered solid international growth with net sales increasing 16.4% on a constant currency basis and up 9.6% on a reported basis, and US wholesale was up 6.8% both on a constant currency and reported basis. For fiscal '16 full year results, we were well within our guidance with net sales of $594.9 million, up 5.5% on a constant currency basis and up 1.4% on a reported basis and adjusted operating income at $74.1 million, growing by 18.1% on a constant currency basis. As discussed previously on our third quarter call, we are living in a VUCA environment that is accelerating in terms of volatility, uncertainty, complexity and ambiguity. This environment has affected the global retail landscape, has accelerated shifts in consumer purchasing patterns, and as made it much harder to grow. At Movado Group we have taken a proactive approach to navigate in this environment, leveraging our strength and focusing on superior execution of our strategies, centered on the consumer to create compelling innovation. We believe that great product always wins if it is desirable, relevant and at a competitive value. So while the short term is difficult, we are confident in our stated strategy and we will continue to invest to build our brands and our people to deliver sustainable profitable growth in an industry that continues to have great long term growth potential. To this effect, during Q4 we completed the acquisition of the remaining shares of the two strategic entities which previously operated under a joint venture model in Germany and France. This will allow us to accelerate our business ever future and build big meaningful businesses across our portfolio in two of Europe's key markets. In Q4 we continued to build momentum in Europe, our largest international region. Our largest shipment growth was in the UK where we experienced high double digit increases in net sales as well as sell-through. Other strong results were reported in Germany and France with the total EMEA region up more than double our total international growth on a reported basis. These positive results are partially driven by increases in traveling consumers, particularly the Chinese, who are known to shift travel destinations in pursuit of an attractive value from currency fluctuations, but also with a local market consumers where we saw solid growth across our brand portfolio in both our luxury and license brand categories. Conversely, our shipment performance in Asia continued to be difficult in Q4, including a sharper slowdown of the Chinese economy and the further decline in spending in Hong Kong and Macau. In Asia we continued to experience double digit declines of sell-through and high single digit declines at sell-in. China continues to be challenging and we have recently reorganized ourselves to focus resources on productive doors with the highest growth potential including those that we operate directly and in creating desirability and awareness for our brands in China to achieve conversion either in China or wherever Chinese consumers travel. So, while we continue to expect growth for the unit in the region, we'll be more efficient and productive. Our shipments in Q4 for Latin America increased to mid-single digits while our sell-through in Brazil, our largest market in the region, grew by double digits for all of our brands in local currency, we are seeing a significant slowdown as of late. As a general environment is challenged and consumer sentiment is dampened given the political, economic and social dynamics. We expect us to have a significant effect through the balance of fiscal '17. In the US, our fourth quarter wholesale shipments were up 6.8% versus last year driven by market introductions and expansion of major innovation initiatives such as Movado Edge, Movado Motion, BOLD Motion and the Coach Men's collection. From a retail perspective, our Movado company stores in US were about flat in Q4 in a difficult highly-promotional environment, where we were competitive while maintaining our profitability metrics. Continuing the positive momentum throughout the year, our sell-through trends continued to outpace the market for most of our brands led by our flagship brand, Movado. In the US, we were able to effectively track market share through NPD in the $300 to $3,000 price category where we compete, our Movado brand market share continued to grow. For the full 12 months through January, Movado share increased to 21.4%. That's up 150 basis points versus prior year growing 8% on a market that was flat. Sell-through results in the US for license brands were challenged, by a difficult holiday season for retail in the fashion watch category in our main channels of distribution, but still ahead or at market trends for all of our brands. Conversely, our license brands experienced strong sell-through internationally in particular strength in the UK, Germany, France, Brazil, Mexico, and the continued recovery in Spain. Our business in the Middle East is impacted by the price of oil and regional issues where we have seen a significant slowdown in retail. But our sell-through results continue to outpace the market. As discussed on previous calls, the overall retail environment has made our retailers even more cautious as they continued to rebalance their inventories and many are enforcing even more rigorous retail metrics. We expect this strength to continue for fiscal '17 particularly during the first half of the fiscal year. We're extremely encouraged by the consumers' response to our major innovation initiatives. Movado Edge is shaping up to be one of our most successful launches ever. This modern interpretation of the museum dial, designed in collaboration with world renowned industrial designer Yves Behar, continues to build positive coverage in the press and across social media platforms. Sold in only a 150 doors in its initial launch phase, it experienced extraordinary sell-through levels and it helped propel our business in Movado. Our Movado Motion and BOLD Motion introductions met our expectations and although it is still in the early days, we are pleased with our approach to smart watches where design comes first, creating beautiful time pieces with added value via consumer preferred functionalities such as activity tracking, notifications, and sleep tracking. These launches are an integral part of our overall strategy of accelerating our efforts in digital marketing and building capabilities to serve today's mobile first consumer. Our strategy in the wearable category forges ahead into our license brand portfolio. As recently announced at BASELWORLD 2016, we have extended our partnership with HP to launch over 25 SKUs in the fall season. These beautifully designed watches were presented to our key customers around the globe and the response has been extremely positive as we are able to truly represent each of our brand's DNA in an analog watch with smart functionality such as notifications and activity tracking. While we're encouraged by the positive response we received during BASELWORLD 2016 for our major launches scheduled for this year, we also recognize that the overall retail environment is challenging, particularly during the first half of fiscal 2017. Considering where we are today, leading the trends in the current global macroeconomic environment particularly in major markets like the US and then planning with our key retail partners across the globe, we are projecting our sales to between $585 million and $600 million and EPS in the range of $1.85 to $2. Fiscal '17 will challenging from the growth perspective and what we believe is a cyclical transition and where we intend to continue outpacing our competition and acquiring market share to emerge even stronger once the cycle reverses into an upward growth trend. I will now turn the call over to Sallie. Sallie A. DeMarsilis: Chief Financial Officer: Thank you, Ricardo and good morning everyone. For today's call I will first review our income statement and balance sheet and then discuss our outlook for fiscal 2017. Before I review the quarter and the year in total, I would like to point out the special items included in our fourth quarter and full year results for fiscal 2016. Please refer to our press release for a description of these items as well as a table of GAAP and non-GAAP measures. Our fiscal 2016 results include a $4 million pre-tax charge which equates to a $3.9 million after-tax or $0.16 per diluted share in connection with our operating efficiency initiatives and other items, $1.3 million or $0.06 per diluted share of this charge was in the fourth quarter and the remainder was in the first quarter. The balance of my remarks will exclude these special items just discussed. For the fourth quarter of fiscal 2016, our sales increased 7% to $143.3 million. In constant dollars, sales increase 10.1% as currency unfavorably impacted our sales by $4.1 million. While all sales categories experienced positive sales growth as compared to last year, our largest dollar growth within our luxury brand category followed by our licensed brand category. Sales increased 4.1% in the US and in constant dollars increased 16.4% internationally. Sales in our wholesale segment were $121.2 million or 8.3% above sales of $111.9 million for the same period of last year. In constant dollars, sales in our wholesale segment increased 12%. By geography, our US wholesale business increased 6.8% to $54.5 million compared to $51 million last year. Our international wholesale business increased 9.6% to $66.8 million compared to $60.9 million in the prior year. Sales from the Company's retail business for the fourth quarter were up 0.3% from last year. At the end of the period, we operated 40 outlet locations. Gross profit was $75.3 million or 52.5% of sales compared to $67.4 million or 50.3% in the fourth quarter of last year. The 230 basis points increase in gross margin was primarily driven by the favorable impact of channel and product mix which includes selective price increases and sourcing improvement opportunities, partially offset by a 160 basis point unfavorable change due to foreign currency exchange rates. Operating expenses were $62.4 million, an increase of 8.9% year-over-year. The increase was primarily as a result of the following; a $3.2 million increase in performance-based compensation, a $2.2 million increased in marketing expense, and a $1.1 million increased in other operating expenses partially offset by a decrease of $1.4 million resulting from the favorable impact of foreign currency exchange rates. Operating income increased 27.9% to $12.9 million or 9% of sales compared to $10.1 million or 7.5% of sales in the year-ago period. Income tax expense was $2.9 million compared to income tax expense of $33,000 last year. I will talk further about the increase in our tax rate when I discuss our full year results in a moment. Net income in the fourth quarter was $9.2 million or $0.40 per diluted share versus net income of $10.1 million or $0.40 per diluted share in the year-ago period. Looking at the results for the full year ended January 31, 2016. Sales were $594.9 million, an increase of 1.4% from fiscal 2015. Similar to the fourth quarter, all sales categories experienced positive sales growth as compared to last year. Our largest dollar growth was in our luxury brand category followed by our license brand category which is more heavily impacted by unfavorable currency. US sales increased 1.8%, international sales increased 0.8%, and on a constant dollar basis, international sales increased 9.9%. Gross profit was $317.6 million or 53.4% of sales as compared to $310 million or 52.8% of sales last year. Operating income increased 3.7% to $74.1 million or 12.5% of sales compared to $71.5 million or 12.2% of sales in fiscal 2015. Income tax expense was $23.5 million compared to income tax expense of $19.3 million for last year and our effective tax rates was 32.1% for fiscal 2016 compared to a 27.1% effective tax rate last year. The increase in the effective tax rates was primarily due to the mix of earnings with increased domestic profits as a result of the US price increases being taxed at a higher rate than international profit. Additionally a tax benefit was recognized last year related to intercompany profit in certain jurisdictions. Net income decreased 5.4% to $49 million compared to net income of $51.8 million in the year-ago period. Diluted earnings per share increased to $2.06 per share in the current fiscal year compared to $2.02 last year. The unfavorable impact to diluted earnings per share resulting from the higher effective tax rate in fiscal 2016 as compared to fiscal 2015 was approximately $0.15 per diluted share. Now turning to our balance sheet. Cash at year-end was $228.2 million as compared to $199.9 million last year. We generated $74.6 million in cash flow from operations which allowed us, along with $40 million of borrowings on our revolving credit facility, to repurchase $48.7 million of shares under our share repurchase program. In fiscal 2016, our teams once again did an outstanding job executing. While sales were up $9.4 million or 7% in the fourth quarter, accounts receivable decreased $3.1 million to $71 million as compared to last year. Inventory decreased $8.3 million to $162.5 million. Capital expenditures to the year were $8.1 million and depreciation and amortization expense was $13.2 million. Let me now discuss our guidance for fiscal 2017. Our plan is based upon the current challenging retail environment and volatile global economy and assuming currency rates consistent with recent level. Our results maybe materially affected by many factors but the–such as changes in global economic conditions and consumer spending, fluctuations in foreign currency rates and various other causes. In light of the foregoing, for fiscal 2017, we anticipate our sales will be in the range of $585 million to $600 million. We expect the first half sales performance to be below last year's levels in the mid-single digit range as retailers continue to focus on their inventory positions. As usual, we will be closely managing our expenses for the current year. However, as Efraim mentioned, we will continue to invest appropriately in our business. Fiscal 2017 will reflect the full year impact of investments made in fiscal 2016 as well as additional investments to best position us for future growth. This includes investing in connected watch initiatives and other innovations and an appropriate marketing spend to continue to build support and build our brand awareness. Operating income is projected to be in the range of $65 million to $70 million. We would expect our first half operating income to be below the prior year, based upon our expected first half sales results. Due to the projected mix of global pre-tax results, the estimated effective tax-rate is expected to once again be 32% and net income is planned to be in the range of approximately $43.3 million to $46.7 million. We expect diluted earnings per share in fiscal 2017 to be in the range of approximately $1.85 to $2. Capital expenditures for fiscal 2017 are estimated to be approximately $12 million. The guidance we have provided assumes no unusual items for fiscal 2017. We anticipate reporting an approximate $2 million pre-tax charge in the first quarter of fiscal 2017 for divesting of stock awards and certain other compensations related to Rick Cote's retirement. Therefore, this charge is excluded from the guidance that's provided. And in closing I too would like to add a few comments about Rick Cote's retirement. Since joining Movado in 2008, it has been my pleasure to work so closely with Rick in so many different aspects. He is a great mentor and partner to me and I look forward to continuing to work with him as a Director. I wish Rick all the best in his upcoming retirement. I would now like to open the call up for questions. Question & Answer Operator: Thank you. We will go first to Oliver Chen with Cowen and Company. Oliver Chen: Cowen and Company: Thank you. Congrats on a great and then tough environment and Rick I will miss you as well. It's been great working with you and looking forward to thing and touch. We had a question regarding sell in and sell out the sell through is for several quarters have been out pacing your sell-in. So will this dynamic kind of mitigate overtime in terms of what's happening in the wholesale channel and then also on the international side this is a different question, but are there trends you could decide between the main land Chinese customer versus the tourist Chinese customer and how as they the Chinese customer impacting your portfolio overall in terms of which products or how would you characterize some areas is they related to that cautious? Thanks. Efraim Grinberg: Thank you and I'll take the first part of that question and then hand part on China over to Ricardo. We've continue to see an intense focus by retailers on inventory and as the environment continuous to be challenging and we expected to continue to be challenging especially through the first half of the year. We expect that focus to continue both within the watch category and so should I think in the fashion watch category but I think overall retailers especially department stores are focusing on their inventory levels. Ricardo Quintero: Yeah, and thank you as far as the Chinese consumers are concerned we are seeing a pickup in the travel retail quarter so, we have actually done a number of initiatives on in flight and we're in the process of doing more airport presentation, but I will tell you brands like Ferrari, are doing extremely well in the traveling quarter we've introduced new products that are attractive to the consumers that's traveling buying they go back and they do get we've been seeing traveling Chinese consumers in Europe and seeing a pick up on some of these offerings also on the, on our luxury portfolio Movado also performing very well with those traveling consumer which we're very happy with because as we said it before our business within Mainland China is tough but we did some initiatives on the travel retail side that are try and need to get some attractions, so we're very encouraged by that. Oliver Chen: Okay, and as from your connected watch initiatives have been impressive and the product we've looked that is innovative well brought out in terms of consumer and design, as far investors and clients where do you think connected watches should go as a percentage of your portfolio overtime do you have any thoughts on the magnitude and the size of that and potentially timing I know it's very early on this technology. Efraim Grinberg: Sure so I wouldn't be able to answer as what percentage it could be. But I do believe this is the quickly evolving category but again it's a category that's going to get better as it goes on and technology and battery life and functionality improved to allow us to do what we do best we just design beautiful product around this technology. So I believe that you'll see that intensify in the third and fourth quarter from our prospective. But really you're going to start seeing some really interesting things beginning next year and we are very encourage by our ability to be able to play in that environment and believe that down the road connected product will play a significant part in our business but again continuing to do what we do best which is designed beautifully branded product for the consumer with increased functionality. Oliver Chen: Okay best regards. Thanks a lot. Efraim Grinberg: Thank you. Operator: We will go next to Eddie Yruma with KeyBanc Capital Markets. Eddie Yruma: KeyBanc Capital Markets: Hi. Thanks very much for taking my question. I guesses a follow-ups all others question on selling versus sell-through are there particular brands that are weak you mentioned some weakness in fashion watch at least in sell-through is that may be some other weakness and if you could also kind of help us understand how you characterize inventory in the channel today. Thanks. Efraim Grinberg: I'll start with the beginning and I'll then also turn out turn it to Ricardo to add to that. I think the fashion watch challenge categories particularly challenged in the US in the department store channel and that's an overall category phenomena. So I don't think it's really -- within our case actually with particular brands in fact some of our brands we are very pleased with their results and beginning to grow market share also significant for our fashion watch business is the Brazilian market which we have very good results in last year but given the political and economic environment we know that those results will not be repeated this year and you read about that in the newspaper everyday on the inventory Ricardo would you like to add something. Ricardo Quintero: Yes. I mean mostly you know if you break it down by channels the department store channel is probably the most challenged but when you look at some of the change some of the destination locations we're seeing that you know the consumer is -- the traffic is there and we're seeing that in a much healthier place. But and then have of course the online phenomenon where you seeing a lot of acceleration. So I think it's combination of the three but mostly you're seeing in department stores you know the biggest inventory. Eddie Yruma: Got it and two of the quick follow-ups I guess first how much have you think to your fiscal number for those connected and finally that performance in business should improve in the back half? Thank you Efraim Grinberg: So to answer both of your questions I mean you're little breaking up but I think I got it. We really believe still that are connected efforts will play a small role but a little stronger role in our business in Q3 and Q4 as we began to deliver product into our license brands that we're very excited about in collaboration with HP and there is several things that give us little -- I wouldn't say confidence going into the second half but little more optimism about the second half and that's what we have a number of new product initiatives that we we're excited about in the second half of the year and quite frankly I think in the first half of the year retailers will focus more on their inventory metrics and in the second half of the year when consumers when the major holidays come along purchasing patterns should improve and retailers than focused on also driving sales in addition to inventory optimization. Eddie Yruma: Great. Thanks a lot and thanks very much Rick. Ricardo Quintero: Thanks. Operator: We will go next to Jeremy Hamblin with Dougherty & Company. Jeremy Hamblin: Dougherty & Company: Good morning and thanks for taking my question. Want to just get a little more granular on the first half of your guidance and I think what I call was you're expecting sales down mid-single digit to the first half of the year and then I think operating income to be down as well but I don't think you provided a level on that. In terms of where that the split is coming from it sounds like there is a few areas of weakness the US department store channel but also clearly international whether its Brazil, Middle East or China can you just breakdown for us. How much of that, that kind of down mid-single digit is coming from the US business versus how much of that is being contributed from this international locals that are struggling? Efraim Grinberg: I would say that the main part of that will come down from the US and the Brazilian market. We're seeing the rest of our international business a bit more stable from that perspective. Right Ricardo? Ricardo Quintero: Yes. Correct. Jeremy Hamblin: Okay, thanks and then if did and I am sorry, did you have any ability to give additional color on the magnitude of operating income being down on a year-over-year basis in the first half. I mean we thinking similar to that down mid-single digit or just down slightly any additional color to be would great. Sallie DeMarsilis: Right. No, unfortunately we didn't provide color, but as you know the first half of our year is smaller than the back half. So when the sales go down it does impact the bottom line more significantly as we need to cover our operating expenses and other initiatives that we talked about. Jeremy Hamblin: Okay. Great, and then I want to come back to the edge series and it sounds like you're very pleased with the launch of that and I think the feedback has been very strong. Can you put some metrics behind how the launch of this and they're realize its only in 150 doors. So, it still early, but how did the launch of this compared to when you did bold several years ago? Efraim Grinberg: It's very similar, in terms of the momentum that it generated and had even a more aspirational levels. So, we're really pleased with that we've also gotten some consumer research back on the type of consumer that's buying edge and receiving a young effluent consumer purchasing these products. So we believe that it has a lot of potential, we have a lot of innovation and extension coming into that also in the second half of the year in as we show those products for our customers in we've got a very positive reaction as well. Jeremy Hamblin: Okay. Great and then one last one. In terms of the buyback plans, you did quite a bit less in the fourth quarter then you had done in other quarters, but you did re-up or add $50 million here. Is this now going to be a little more opportunistic how should we be thinking about the buyback and recognizing the time frame is a little bit longer than last one which was really a twelve months program? Sallie A. DeMarsilis: So I will take part that and the some perhaps that from and Efraim will jump in afterwards. We did take advantage of our stock price in the past twelve months or so and we were very aggressive I would say in the market buying back shares of the very good investment for us and we are very bullish on our business. So that plan was larger and did have a sorter expiration date kind of by design the new plan is really more in line with what our prior year's plans have been which is really to offset dilution. So at this point the $50 million program and in 18 months life. Efraim Grinberg: And we obviously have very strong cash position in the company and I think that also allows us tremendous flexibility and opportunity as we enter or as we operate in a volatile time and we can continue to invest in and grow our business from many perspective. So we did also announce today that we increased our dividend 18%. So we were pleased to return funds to shareholders also in that manner as well. Jeremy Hamblin: Right and just follow up to that to the question on funding the buyback. You used loan payable our loan to finance that so much of your cash overseas would we expect that to be the way that you would pay down that share buyback again? I mean you did you did pay back $5 million I think during the fourth quarter but is that how you would fund the buyback going forward is potentially using a little more borrowings to do that. Sallie A. DeMarsilis: No I think in our current model where we are looking more to offset dilution our US cash flow would be adequate to buy back the shares. Jeremy Hamblin: Understood. Thanks for taking my questions. Best of luck. Efraim Grinberg: Thank you. Operator: We will go next to Frank Camma with Sidoti. Frank Camma: Sidoti & Company: Good morning, guys. Couple of quick questions can you just talk a little bit about the smart watches and you license for specifically just are there any specific brands that you find that may be more appealing for that technology? Efraim Grinberg: We actually got very good reaction across our brand portfolio in Basel from our customers that we previewed our connected watches to. So it's really in every single brand and they've done very brand appropriately if they do not appear to be smart watches if you didn't know it and they look a Tommy Hilfiger watch looks like a Tommy Hilfiger watch and a Hugo Boss watch looks like a Hugo Boss watch were currently working on the apps that will co-ordinate with this products and we are excited about that effort as well and when that we are putting investments in is as well. Frank Camma: Great. I am sorry if I missed this but does your guidance include projected buybacks or exclude projected buybacks? Sallie A. DeMarsilis: Our guidance reflect the buyback that we've already done this year in fiscal '16 as well as our normal purchase and repurchases which should be more than offset to dilution for fiscal '17. Nothing unusual we would have called that out. Frank Camma: Okay and just last thing is on your CapEx I think you say $12 million which obviously seems a little bit of your historical trend I was just wondering if there is that sort of some of those investments that you mentioned. Sallie A. DeMarsilis: Most of the CapEx would be related to you know infrastructure type things like replacing servers refreshing our stores our shop and shop things like that not necessarily anything related to our wearable's or other initiatives that we're talking about. Frank Camma: Okay so it's just sort of a time because it is a little bit above where you would typically spend a timing issue on refreshing the stores. Sallie A. DeMarsilis: Well even this year quite honestly if I know somewhat need to the picture it was low this year lower than our historical pattern a lot of that really was that's looking at our Chinese business and slowing down some of the shop and shops we built there as a result refocus on priority doors and owning your own concessions and things like that in that market. Frank Camma: Okay great thanks. That's all I have right now. Operator: And we have no further questions in the queue I would like to turn the call back over to management for additional or closing remarks. Efraim Grinberg: Hi, I would like to really ask I know I would like to Rick to actually say a few words and then I will come on and conclude the call. Ricardo Quintero: Okay, thanks Efraim. It assume it's an pleasure working with our long-term investors and market analysts that cover and had covered Movado Group over my 16 year carrier, we have always work to be informative and transparent in our disclosures and that many times been the first in our category to highlight market trends. Movado group has transformed itself over the years and I believe is in excellent position with its talented global team of employees it's world class infrastructure and brands to continue delivering new sustainable levels of performance. I look forward to my continued participation in helping Movado to achieve its goal and my new role as a non-management member of the Board of Directors. I am also appreciative about the terrific group of global employees that continue to drive excellence and performance with our global customers, consumers and business partners around the world. Our employees and our culture make Movado Group such a terrific and enjoyable place to work. I retiring knowing the businesses ingredient with Efraim, Ricardo, Sallie and our entire leadership team. Also a special thanks to Efraim, who has been terrific partner, mentor and leader for me. Thanks everyone for listening to me for 16 years. Efraim Grinberg: Okay. Well, thank you very much Rick and I think that really said it's all about how strong we will feel about our company and I would really like to thank Rick for his help over the last 16 years. But as well in helping us plan our success and planning as effectively and seamlessly as we are now ready to do. So again and thank you all for participating with us today. Operator: Again that does conclude today's presentation. We thank you for your participation.