Income Taxes

Income taxes recorded for the twelve months ended January 31, 2009 was an expense of $0.7 million, compared to a benefit of $9.5 million recorded for the twelve months ended January 31, 2008.  The tax recorded for fiscal 2009 resulted in a 22.4% effective tax rate which included tax accrued on the future repatriation of foreign earnings of $7.4 million somewhat offset by a release of valuation allowances on foreign tax losses of $3.0 million.  Excluding the tax accrued on repatriated earnings and the effect of the release of the valuation allowances on foreign tax losses, the provision for taxes was a benefit of $3.7 million.  This was primarily attributed to the income and loss mix by tax jurisdiction as taxable losses were recorded in the U.S. compared to net taxable income in the Company’s foreign entities.  The tax rates in the U.S. generally are higher in relation to foreign jurisdictions.  The tax on income for fiscal 2008 was the net result of an effective tax rate on base business operations of 20.6%, which was more than offset by the recognition of a $12.5 million previously unrecognized tax benefit as a result of the effective settlement of the IRS audit (see Note 8 to the Consolidated Financial Statements). The tax on income was also favorably impacted by the Company’s expected utilization of a greater portion of its net operating loss carryforwards.

International Wholesale Net Sales

Net sales in the international wholesale segment were $231.3 million, representing a 39.2% increase over prior year sales of $166.2 million.  All categories were above prior year.  The licensed brand category was above prior year by $37.3 million or 63.1%.  This increase was primarily the result of market expansion in the HUGO BOSS and Tommy Hilfiger brands, as well as the launches of the Lacoste and Juicy Couture brands.  The luxury category was above prior year by $22.3 million or 37.9%.  This increase was primarily due to higher liquidation sales of excess discontinued inventory of $17.0 million, as well as sales increases in the Ebel brand primarily due to sales of new product introductions.  As a result of the weak U.S. dollar, international wholesale net sales increased by $13.2 million.

Wholesale Operating Income

Operating income in the wholesale segment increased by $2.1 million to $50.2 million.  The increase was the net result of an increase in gross profit of $11.7 million, somewhat offset by the increase in SG&A expenses of $9.6 million.  The increase in gross profit of $11.7 million was primarily the result of an increase in sales volume over the prior year.  The increase in sales volume was primarily the net result of higher sales in the international licensed brands and higher liquidation sales of excess discontinued inventory, somewhat offset by the one-time charge related to estimated future sales returns.  The increase in SG&A expenses of $9.6 million related principally to higher marketing spending of $7.3 million as the Company continues to invest in brands, the negative impact of foreign exchange from translating the European subsidiaries’ financial results of $2.9 million, increased third party fees of $2.2 million primarily related to the Movado brand strategy, the negative impact of the prior year out-of-period adjustment of $2.2 million related to foreign currency and increased expenses of $1.6 million in consolidating the Company’s joint venture operations in France, Germany and the United Kingdom.  These increases were somewhat offset by lower accounts receivable related expense of $6.5 million.