Q3 2020 Earnings Call

So you won't be allowed to ask one question and one follow up question. You can ask your question by pressing Star then one I know touchtone phone.

Please note that this conference call is being recorded I'll now turn the call over to the Companys CFO Neal Nackman, Sir you may begin.

Thank you good morning, thanks for joining us.

Before we begin I would like to remind participants that certain statements made on today's cool and then the Q1 day session may constitute forward looking statements within the meaning of the federal Securities laws.

Forward looking statements are not guarantees actual results may differ materially from those expressed or implied in forward looking statements.

Important factors that could cause actual results of operations, where the financial condition of the company to defer or discussed in the documents filed by the company with the FCC.

Company undertakes no duty to update any forward looking statements.

In addition, during the cool we will refer to non-GAAP net income non-GAAP net income per share into adjusted EBITDA, which are all non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website.

Well now turn the call over to our chairman and Chief Executive Officer Morris Goldfarb.

Good morning that give a joining us.

With me today, a semi Arizona, Vice Chairman and President Wayne Miller, Our Chief operating Officer, Neal Nackman out Chief Financial Officer, Jeff Golf Club Executive Vice President of Korea, Trivedi, Vice President of Investor Relations.

This past quarter, we continue to achieve good growth in our wholesale business, notwithstanding the challenging retail and geopolitical environment.

We exceeded our bottom line plan for the quarter as we maintained good momentum in our wholesale business.

Gross margins came in better than planned.

Merchants did a good job managing credit costs.

We benefited by accelerating inventory receipts ahead of terrorists and obtaining some great support from our vendor resources in China.

Here are the highlights about third quarter results.

The third quarter net sales were up 5% to $1.13 billion.

A third quarter wholesale net sales increased 6% to 1.07 billion.

A third quarter non-GAAP net income per diluted share came in ahead of plan as $1.99 compared to $1.88 last year's third quarter.

By yearend, we will have eliminated nearly 150 locations or 40% about bass and Wilsons store base.

Compared to just three years ago.

However, as we've highlighted on a second quarter call, we're planning to move faster and deeper on closures.

And remain committed to eliminating the retail losses as swiftly and efficiently as possible.

We're working diligently without landlords and external advisors to find an appropriate solution I believe we will have a resolution without alone landlords by the time, we'll report our yearend results in mind.

I look forward to updating you on our progress at that time.

In November we saw positive benefits from the new product Assortments in store layouts, we've implemented in both there do you can why and Karl Lagerfeld stores.

We're also seeing double digit comp increase in the e-commerce businesses are both brands.

We continue to feel good about the positioning of performance of Dk, and why and Karl Lagerfeld with positive year to date comps through the third quarter and productivity movement.

Improvements we've experienced since the beginning of fourth quarter.

We've always emphasized and we're real proud of that I I way of developing strong global resourcing and out of vendor relations.

We continue to lean on these relationships to accelerate the efficient and effective diversification about manufacturing base.

We estimate that China based production will be approximately 50%.

By the end of this fiscal year from over 80% four years ago.

We're also reallocating some of our experienced personnel in China to other parts of the world.

As the terrorists and this fiscal year as I previously stated we're seeing the benefits of strategically accelerating inventory receipts and added last the last round of Darrin implemented in September .

Some major support from our vendors to maintain their level of participation of price concessions.

We will also seek additional tariff mitigation from continuing our sourcing diversification and selectively raising wholesale prices.

Now, let US review, our wholesale business, which had another strong quarter.

Compared to last year's third quarter with strength across major classifications.

This quarter, we shipped out a first product for CK jeans and have installed about 25, CK jeans jobs at Macy's.

Including one at their flagship Herald Square store in New York City.

So we're very pleased with the design and placement of the shop on the fourth floor.

If you have a chance I encourage those of you in New York City to visit the shot.

On a buffer CK jeans is also up two very good start with the product receiving great reception from retailers.

Initial reads of the sell through their encouraging we remain confident that we can build the substantial lifestyle women's CK jeans business over the next several years with the potential of reaching $250 million an annual sales.

We experienced quarterly growth that was broad based across categories.

This coming spring.

We look forward to launching at Tommy Jeans collection focused on a younger customer.

Previously part of the Tommy Hilfiger Sportswear line, we've now expanded the jeans collection, which will be how's separately in the genes area of department stores.

The line well now also be sold to select specialty stores.

We continue to grow at Tommy Hilfiger businesses, both organically and through product product line extensions.

In addition to our established and growing business at Macy's.

Distribution has been expanded to dillards nordstroms than a broad assortment of specialty stores.

And helped fuel the growth of our business.

Net sales in that Karl Lagerfeld business with down for the third quarter due to fewer distribution do as compared to third quarter last year.

Primarily due to the door reduction taking place at Lord and Taylor.

We're now working to further expand the distribution of Karl Lagerfeld product and are continuing to build a lifestyle appeal of the brand.

We just signed a license to launch Karl Lagerfeld Perez betting on Bath products. This spring without long term partner in the category CHF industries.

So with whom we built the successful business right Dk Wyant, Donna Karan brand.

This September Karl Lagerfeld also launch Karl Lagerfeld X L'oreal Paris, a makeup collaboration between the two iconic region brands.

Featuring a limited edition elegant beauty products.

Hey that brand a lifestyle status of Karl lagerfeld positions that well for growth in the North American market.

Our own Dk and why it Donna Karan brands registered another solid quarter, 20% sales growth compared to last year's third quarter.

This spring, we're expanding our distribution of the brand with several categories launching and 100 glass doors that village.

As well as further increasing the footprint in Macy's with additional doors.

We're also developing a detailed wide fuse line with an urban chic and edgy vibe to appeal to the consumers more casual apparel needs.

The line will have a soft launch for spring 2012.

With a full launch expected for fall 2000.

On the international fried besides the around sales growth in Europe .

Also expanding that business globally through our distribution partners in key regions.

Continued growth brand development and marketing in these key markets is critical to drive in level brand recognition.

You can why is currently being distributed in the Middle East, Russia, Indonesia, Philippines, Southeast Asia and Korea.

In China, we operate as a joint venture.

We launched the fall 2019 brand marketing campaign for de game, why which featured the global Ameristar policy.

This marketing campaign combined with a decade white thirtyth anniversary celebration and it starts that it gets placed deliberate elevated brand visibility impressive for us many media channels.

Dk why continues to take a digital first marketing approach across a multitude of social media outlets.

Further the digital campaign is complemented with premium outdoor media placements in key cities across the globe.

This marketing approach is working well we saw a significant increase in traffic to the fall season.

Our holiday campaign is already launch.

Licensing is another important part about dk wide Donna Karan business profile.

We've built the successful licensing business continue to add additional lifestyle categories. The introduced a decade wide Donna Karan brands to a wider consumer.

We've built the kids category through a lives through a license for apparel and footwear, both domestically and internationally.

You also build the growing bedding and Bath license without partners CHS home, we've developed a robust distribution in the U.S. and Canada.

Additionally, this quarter I became why furniture licensee living style group.

Launch that Dk why line to great reviews by retail.

Given the year to date sales growth and the strength in decaying why what a book we continue to believe that dk lying Donna Karan brands.

To achieve fiscal year wholesale net net sales growth of approximately 25%.

[noise] without successful management crowded developments and distribution capabilities, we remain well positioned to achieve many years of meaningful growth for the de game Library.

And that team sports business, we recently signed a new three year deal with the NFL.

The new deal structure has terms that are more appropriately aligned to the size of the business today.

We have plans to continue our partnership with the NFL I look forward to building and growing the overall team sports business.

Lastly, as that is swimwear and resort brand build brick and continues to perform well registering low single digit comp sales growth.

We continue to expand the brands footprint, we opened the women's store in Monaco as a complement to the menstrual we already have.

We also acquired developer again business in Mexico for Mt. Four distribution partner and now operate nine retail stores and have an additional 12 points of sale in department stores in Mexico.

In China, where we where we have to partner operated stores. We just opened a first company operated freestanding stores Shanghai.

Outerwear, which is a key category in the quarter had good sales.

Considering the though whether the the weather handicap, we had compared to last year.

We're positioned well for the balance of the fourth quarter as we're now seeing good sell through that pick up and reorders in the category aided by the colder weather.

Overall I P. Three we're keenly focused on capturing a share of growing online sales.

Through our retail partner sites as well as our own.

Our marketing and planning teams worked very closely with digital team is about retail partners to cure a product assortments and optimize search engines.

A second their results for our brands with the goal of drying driving higher sales and conversion.

These results are also aided by significant marketing campaigns.

I'll now pass it to me up for a detailed discussion about third quarter results and our guidance for fiscal 2020.

Thank you Mark.

Net sales for the third quarter ended October 30, Onest 2019 increased approximately 5% to 1.13 billion from 1.07 billion in the same period last year.

Net sales of our wholesale operations segment increased 6% to $1.07 billion from $1 billion in Calvin Klein, Tommy Hilfiger and became why brands with the main drivers of this increase.

Net sales of our retail operations segment for the quarter were $90 million, approximately 19% lower compared to last year sales of $111 million.

We reported same store sales decreases of approximately 8% for our Wilson stores, 15% for our GH bass stores in a flat comp for Teekay and why.

Net sales of our retail operation segment were also negatively affected by the decrease of approximately 45 stores operated by us as compared to the third quarter of last year.

Our gross margin percentage was 35.4% in the third quarter fiscal 2020 as compared to 35.6% in the prior years period.

The gross margin percentage at our wholesale operations segment was 33.2% compared to 32.7% in last year's quarter.

The gross margin percentage in our retail operations segment was 49.3% compared to 48.5% in the prior years quarter.

SCR expenses were $247 million in the fiscal quarter compared to $232 million in the same period last year.

Net income for the third quarter of this fiscal year was $95 million were $1.97 per diluted share compared to $94 million or $1.86 per diluted share and last year's quarter.

non-GAAP net income per diluted share was $1.99 for the quarter compared to $1.88 per share in the prior year.

non-GAAP results in this quarter exclude the impact of noncash imputed interest and a gain on lease terminations.

Turning to the balance sheet accounts receivable increased to $899 million from 820 million at the ended the third quarter last year up approximately 10% and relatively in line with a wholesale sales growth.

Inventory increased approximately 6% the $651 million as expected these levels have normalized to align with sales growth and have moderated from the 24% increase in the second quarter.

We spent approximately $32 million on capital expenditures on a year to date basis, we had long term debt outstanding of approximately $675 million at the end of this quarter compared to 694 million at the end of the previous year.

Quarter, ending cash balance was 56 million this year compared to $66 million a year ago.

As for our guidance, we're revising our guidance for fiscal year ending January 31, 2020, we're now forecasting net sales of approximately $3.2 billion net income of of between 147 am $152 million or between Rio one and 311 per diluted share.

This compares to net sales of 3.08 billion and net income of $138 million what to 75 per diluted share in fiscal 2019.

On an adjusted basis, excluding noncash imputed interest expense of $5 million and a 2 million dollar gain on lease terminations. We are anticipating non-GAAP net income of between 149 and $154 million well between three or six and 316 per diluted share compared.

non-GAAP net income of $144 million with 2086 cents per diluted share in the previous year.

To be clear as to terrorists our previous and current forecast includes all current tariffs in place and does not anticipate any future changes.

Our guidance assumes a weighted average diluted share count of approximately 49 million shares.

We are projecting full year adjusted EBITDA for fiscal 2020 of between $283 million to $288 million compared to $269 million in fiscal 2019.

We now anticipate the non-GAAP retail losses in our retail operations segment in fiscal 2020 will be approximately $10 million higher than the loss in fiscal 2019.

This assumes low double digit comp declines at both Wilsons and bass for the full year.

You can why retail sales are planned about flat to the prior year.

That's a decapitalize wholesale and licensing operations revenues are now plan to grow by approximately 25%.

For our fourth fiscal quarter ending January 31, 2020, we are forecasting net sales of approximately $790 million net income between 29 and $34 million well between 60 and 70 cents per diluted share.

This compares to net sales of $767 million and net income of $24 million or 48 cents per diluted share reported in the fourth quarter fiscal 2019.

On an adjusted basis, we are forecasting non-GAAP net income of between 30 and $35 million will between 62, and 72 cents per diluted share as compared to non-GAAP net income of $27 million were 55 cents per diluted share in the previous years quarter.

That concludes my comments I'll now turn the call back to Mars for closing remarks.

Thank you.

It's hard to believe but next week, we will be ringing the closing bell at the NASDAQ stock exchange to commemorate our Companys thirtyth anniversary as a publicly listed company.

However, our existence spends much farther back to 1956, when my father Erinn Gulf created Gbpthree as the leather code manufacturing company.

As you know we now have expertise in most fashion product categories and the development of that expertise has been instrumental in our ability to expand our partnership with globally recognized power brands.

Our future growth continues to be anchored on strategically leveraging the strength of our global power brands became wide Donna Karan.

Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld Paris.

We also have a world class team there remains focused on continuing to grow at capabilities and elevate our position as a supplier of choice for our retail partners.

I'd like to thank our employees, whose drive and dedication helps us succeeded in these challenging times.

Finally, I'd like to thank all last shareholders another stakeholders for their trust in us and their continued support.

Behalf of myself and the G. Three team I want to wish everybody a happy holiday season.

Thank you.

Operator, we're now ready to take some question.

Thank you as a reminder, if you have a question. Please press Star then one on your Touchtone phone. If we are using his speakerphone. Please pick up your first before pressing any number of.

Please ask one question and one follow up question.

Our first question comes from at Heart Your math from Keybanc Capital. Your line is now open.

Hey, good morning, guys and thanks for taking my question. One quick housekeeping question bigger picture question, I guess first a housekeeping.

What were the retail losses in the quarter and kind of what are the losses expected in the fourth quarter and Ontario did that include the adoption of four beyond the 15th and then more as kind of a broader and broader question. Obviously, some nice momentum in CK denim, how how long do thing I'll take for a larger rollout of that business.

And what other opportunities do you see kind of in a three to five year time premise as other category as you would look at thanks, so much.

Yeah. So it on the on a housekeeping items the route the retail loss.

Similar to the prior years Lois.

Turning to the fourth quarter, we actually expect to incur a loss in the retail segment as opposed to the prior year, we actually had a gain.

With respect to the tariffs.

Similarly, the tariffs that were incorporated that were effective September 1st captured really all of our categories.

We've rolled into our previous years adjusted a previous quarters adjusted guidance, we talked about a 12 million dollar impact.

Netted than the support to GE three as a result of those towers.

And in response to CK denim.

Jeez part of it.

We we're going to hit our stride very quickly.

Product is.

Now being ship.

The response for the last couple of weeks is has been good is that is.

The category or two that we're going to work on on improving but.

We're more than pleased as to the response that we've gotten these store orders a significant we have all the distribution we want for the early stage of shipping and we believe that that number that I stated earlier and that commentary, which is $250 million of.

Business is not far away that that could possibly be achieved within the next three to four years.

You should recognize that when we took this on this was not exactly a continuation of.

Successful category, we had a back staff and we had to.

Clearly inventory that was or the retail I had to clear the inventory that was in the system and we got them incredibly excited about the future of this category. So as far as you had a follow up which I guess.

Relates to other categories or maybe maybe the better answer to you. The classification extensions, we have most categories on the women's side of it where we don't seem to peak down in any one of them.

We show growth every year and what could possibly be.

One of the.

Is certainly one of the largest wholesale distributed brands on the women side in North America yet.

Does this shows signs of the tiring.

We have.

We're showing approximately 10, 11% growth.

And scale of this business.

And that's a that's a testament to how we take care of an asset that we license and we're not far behind.

On Tommy Tommy is hitting its stride and we've achieved.

Basically what we've told the street that we would when we first sign Donna.

Thank you Ray for your question.

Our next question comes from Erinn Murphy from Piper Jaffray. Your line is now open.

Great. Thank you good morning, I, just a couple of questions for me as well maybe more on a retail side of the business can you provide any additional detail on.

The landlord negotiations and what's going on from a strategic RV perspective, firewall and I think that Youve uncovered.

So those of you who have been in a position that you have to wind down businesses.

Probably know you need to be discrete as to how you disclosed where you are at any given time.

It all comes together when it when it's done but there is a process.

Sure you were active in that process weve negotiated with that two largest landlords and we believe were near near the finish line with both of those.

And the results will be one that we will be satisfied with and hopefully wall Street will be as well.

So.

You've got to have a little bit of confidence in the company that to cover or invest in that they're doing the appropriate.

They are doing all the appropriate things to manage through.

Yes.

Negotiating process, we are not forgetting what we've committed to upstream we are mitigating all the damage that that has been done in last few years into retail and we're conscious.

Tell you exactly where we are that wouldn't be strategic.

Understood. Thank you and then I guess, just a couple of questions on the retail backdrop.

First there I think last quarter, you talk about taking price increases what you've done within your brand portfolio adapt our how is that consumer bonding and then on the retail side can you share with what you're seeing provide spring order Buck open to buy dollar sorry, where the freeing up in $5.

We go into the next season. Thank you so much.

So Eric when.

When you're in the fashion business is not quite the same as as a commodity where pricing is.

The consumer screams up and down if there is an increase in in fuel or millercoors deal for that matter in fashion.

You create an art.

You are making product that is not always is same it's not.

It's not put into that and pulled out so Fortunately our art is working and were able to raise some about prices as we as we change fashion as we change fabrics as we as we accommodate what the consumers now.

Looking to achieve.

We are.

We're not a Walmart resource.

And we are not.

Bergdorf Goodman resource, where we're kind of a middle market.

Businesses at Walmart they'd be a great deal a sensitivity to every nickel you might try to raise.

And in Bergdorf Goodman, they might be zero impact.

We're careful as to where we raise at prices and it's been working we've gotten increases.

And.

It's not.

Not quite the challenge that we thought it might be with delivery were known to delivered great value product.

And it is certainly worth.

The increase it where imposing on the consumer.

Our next and I should add this spring ought to book I'm, sorry, Aaron.

Question on spring order book.

I can't tell you it yeah its record breaking it's it's a little bit difficult.

Retail stores, a conscious of their inventory levels and know what theyve brought into play today that that through wasn't as critical in the past is turned on inventory so are there.

Being kind of wedged in the middle were not verticals.

We've shown that retail isn't forte wholesale is.

Were put into position that might might include taking some risk as the retailer refuses to take in a level of inventory that they have in the past.

So where we are composed of.

Not so many salespeople any longer our organization is all about planning.

It's about accounting and it's about measuring numbers and what.

What the planning cycle has has to say as to how we buy product when we buy product, how we flow product and that well we assume the retailer will will need we were looking at our deferred business much differently than we have historically not about sales.

And just getting in front of the stage and showing nice product into platter.

Estimating to the best of their ability and we've got some amazing planners.

What was the consumer will abide from the retail venues that we ship.

Thank you happy holidays.

Here.

Our next question comes from John Kernan from Cowen and company. Your line is now open.

Good morning, everyone. Thanks for taking my question.

Thank you Dan.

Okay.

Yes, a little bit more color on gross margin.

The year over year change did improve in the third quarter was better than what we've modeled at least.

Okay, even with the incremental task.

The underlying growth market performance and what you expect the fourth quarter. It does feel like there's quite a bit of margin pressure in general in the wholesale channels, just wondering how you're thinking about.

The underlying.

Merchandise market growth market, we had in the fourth quarter and beyond.

Yes, yes, so look wholesale gross margins was a positive story for us in the third quarter.

It did exceed our expectations did help it did help to offset some of the the softness we havent topline.

We mentioned before and just to reiterate we think that the fourth quarter wholesale margins will again, so lift we think we're up against the lowest compare in the prior year. So we feel pretty comfortable with that and again that's despite the additional tasks that we do have of course, we did offset a bunch of.

We're taking inventory in early.

But that's what we're expecting John .

Got it and then yeah.

Brought up inventory.

Improve relative to overall topline trends I think we're actually looking for that back in line with sales in the fourth quarter actually is back in line more in line is a third quarter.

If you think about inventory, where do you how you're.

In the year added that I guess now that we're pretty.

Our into the fourth quarter give us any color on free cash flow per year now you've got a pretty good or working capital benefits.

Well our inventories in the in control right now.

We had a reasonable third quarter.

Where.

Conservative and how we're approaching fourth quarter, but what we've done in many cases is we have shown of the retailers that we trade with that there is an extended season that they can take advantage of in the Coke business.

Historically, we've proved that out with one or two department stores and we're on a path.

That getting cooperation from pretty much of the rest of added department stores to carry and sell codes.

Through part of this low normally would be the spring season.

So we anticipate our inventory levels coming down to almost record lows.

As to how.

As to how were planning our business as I said earlier most of it is coming through.

Planning explanations going back to history, and showing the economics that that product winter product and can provide in Q1.

Prove that so we believe not only will we ended with low and they carry in.

At the end of year, I think Q1 will even show greater improvement.

John as far as the free cash flow with we're thinking it's about $75 million to $80 million.

And of course is after about $35 million of stock that we brought back during the year. So it's been a pretty strong year for us in terms of generating free cash flow.

Got it thank you.

Our next question comes from Rick Patel from Needham and company. Your line is now open.

Thank you good morning, everyone I've a question on the drivers of fourth quarter revenue. So as we think about wholesale I'm curious how much growth do you expect from the new CK denim business and do you expect to get some initial shipments from Tommy jeans in the quarter as well I'm just trying to understand how much of the under.

Relying business is driving growth versus new classifications in the pipeline.

I wouldn't consider the new classification.

New classifications, we're shipping as impactful at all.

It's a soft launch it's in a handful of doors and it gives us the re that both give ourselves and the retailer read on what next year will look like.

You're planning on.

An increase in our business due to.

The addition of classifications this would not be the year to put it in.

Got it and can you talk about the genes category as a whole you have some really interesting things and development there.

Think about the overall industry, how fast is that category growing right now and can you talk about what gives you confidence to gain market share there.

So.

What would you shouldn't do is take it literally as the jeans business.

At the junior active business. That's composed of T. Shirts is composed of for these it's composed of of outerwear as shirts, it's all the components that.

That a woman would wear with her jeans and as a pure genes play I would tell you we would be somewhere around 20% of our inventory would be denim base.

Contrary to if you looked at.

People like Levi's or wrangler and their gene businesses. They flipped at the other way they are more.

I would estimate their business to be at least 80% denim and 20%.

Yeah.

Accessories too.

Accessories to denim the top.

The.

Hoodies and some of the outerwear that goes with it.

So does it.

It's a misnomer two through believe that it's just the June jeans business gives us an additional point of sale of the department store and we have.

We have some brands that fit perfectly in it.

As we've stated in that commentary we have Calvin we have Tommy we have.

Dk and why and.

The combination of oil three if they share.

Jason Real estate.

It's a much visit location for the consumer rates in that.

And we're exiting retry, we're trying to do some of this internationally as well so.

It's an exciting.

Classification for us for the future, but again, let me stress that.

Don't plug it into this year's numbers.

Got it thanks Mars happy holidays. Thank you. Thanks for your question.

Our next question comes from Heather Balsky from Bank of America. Your line is now open.

Hi, Thank you for taking my question.

Can you talk about how your wholesale business performed in the quarter versus your expectation and then can you also walk through your revised guidance, especially around EBITDA.

It sounds like retail profit expectations are $5 million slower than what you are talking about last quarter.

Our mantra that delta from wholesale and what's driving that thanks.

Go ahead, so with respect to the third quarter.

I guess I'd add some some color in terms of.

Priority I would tell you that the level of on season orders were certainly not where we had anticipated.

In addition to that we had it was it was slightly more promotional than we had anticipated.

And certainly lastly, the retail business also was weaker than we had anticipated.

And with respect to your second part of your question in terms of the the the full impact on EBITDA. The read the retail is approximately half of that the 10 10 million or so reduction in EBITDA in terms of pool forecast now.

In response to your question on wholesale performance.

We did exceptionally well relative to the universe that we we exist with where.

Very proud that we.

Some of common knowledge and harvest store sector.

We overachieved, where we're best in class our performance.

The stands out and pretty much every classification that we ship.

So wholesale performance is not not our issue were put into the stores.

Part of what what is going on.

As I said earlier department stores are managing their inventory a little bit differently.

Our focus.

Where we're meeting with them regularly trying to come up with this strategy that services both well.

For the moment, they're focused on churn.

And.

That hurts a little bit the fact that we're not able to ship everything that we anticipated on shipping into stores.

And.

And when you look at your fourth quarter guidance, how is that environment after it and in terms of care wholesale expectation.

On the huh.

It.

Black Friday, who is.

Indication, we had a really good black Friday, both in our own retail stores and the department stores that that we service.

Where we're being conservative partly because we don't understand exactly what goes on in the retailers mines that there have been some changes we've lost a couple of accounts.

The we cited.

A little bit of a loss said, Lord and Taylor with the.

With Karl Lagerfeld, and a couple of.

Our other categories were one of the largest vendors.

Two Lord and Taylor and there is an impact on.

On us as they try to figure out who they are today.

Manage through their door count.

So we're not certain were certain about what we have.

We have everything we've stated we have great product, we haven't priced well we have appropriate inventory with them. We don't have dated inventory we've done a great balance sheet well were it not certain of is what the retail field is.

The field is light.

So.

We can't we can't speak for that.

Thus, we're trying to manage our business appropriately.

Great. Thank you very much.

Thank you Heather.

Our next question comes from Jim.

All your line is now open.

Hi, This is Peter Mcgoldrick on for Jim. Thanks for taking my question I was curious I got on tariffs if you could remind us about that how tariff mitigation progress is into fiscal 2001.

Between sourcing price concessions and potential for price increases can you quantify in any way, what we should be expecting for fiscal 21.

I am.

Hi.

Clearly, we'll be paying a little bit more for our product.

Well, we stated earlier where.

Getting the cooperation.

Vendor base.

We're producing.

Product that is.

A little bit more fashion than it has been historically the I guess the good news Bad news is the best selling product that is out in retail world is the fashion side of what we do.

Historically.

The.

The inventory that we depended on for success was the replenishment side of the business.

Today, that's changing and fashion is really what what is driving success. So in fashion drive success, you're able to raise your prices, it's not not replenishing the same items that you've had to the last three or four years.

So fortunately were quick to respond to fashion.

We have more designers and we can count.

Well productive thereof quick to responses to the needs of the consumer and planning and salespeople are equipped to move product through this cycle.

And it's.

It's a piece that is probably most responsible for mitigating some of the damage it'll be done due to Paris, and we all need to remember we're in a competitive world everybody has the same challenge it's not as if she three stands alone as the only resource thats paying these terrorists.

It's the entire community that we operated.

And we are as competitive as they come we buyers.

Efficiently as anybody in the industry. We we measure every element that goes into ultimately delivering the product to through the consumer.

So I'm I'm comfortable that if there was the last standing man, we would be it.

Where where.

We're doing everything too.

Two.

Exist for the future. This is a company that wasn't built yesterday.

Commentary I.

Gave you earlier, we were a leather code company in 1956.

Sensing 72, and I'm joined this company it was two and a half million dollar company doing leather codes and today you'd be hard pressed to find the category of product in fashion that we we don't do.

We we do them all well every category that we've entered into we've become.

Highlight in that.

Category, where there is no doubt that we can achieve success and anything that served up to us and.

What we've also served up is the ability to recognize.

Change when changes needed and we've changed our model as an operating company about a dozen times.

Im not I can tell you today, we won't be the same company five years from that but we will be a successful company.

Thank you and then a follow up on Heather's line of questioning it sounds like the power five brands are tracking X., Lord and Taylor impact to Karl Lagerfeld.

Outerwear was tracking reasonably well relative to the backdrop can you itemized.

The delta in guidance for revenue by brand or any other.

Category or quantification you might have.

Yes.

Level the specificity, we have not been giving I again as you indicated the power brands are performing well the outerwear business is performing well.

Again, we are not as high as we might have originally expected, but they are all performing very well compared to the prior year.

Okay. Thank you.

Our next year.

Next question comes from Susan Anderson from B. Riley FBR. Your line is now open.

Hi, good morning, Thanks for taking my question.

I was wondering if you could maybe get your updated thoughts on Eric distribution as the Department store. It's continued to be structurally challenge I know your fair to think buying your own online or DTC.

I guess, where you with that and then also distributing on other retailers such as Amazon or even have resolved.

So I.

I guess, we'll start with a less owns his Amazon we have fairly good distribution at Amazon all our brands.

South product on Amazon.

It's not not the game changer for us yet.

We build every year, we have a double digit growth every year, we have our own online businesses that provides us with.

Growth and today.

With the ownership of.

Of GKN wide Donna Karan and the partnership we have with Karl Lagerfeld, It affords us the ability of creating our own site.

And marketing.

In a manner that suits and owner of a brand versus one that that licenses.

Those areas growing nicely.

What we've achieved.

As well with some of these acquisitions is the ability to market globally.

Historically, we were a north American resource.

That was that we couldn't we couldnt.

Can ship into Europe , we couldn't ship into Asia.

Licenses provide has provided us the right.

North American many cases simply be us.

So today.

Welcome.

With.

Distributing into Europe quite successfully we're doing very well in the middle East.

We're forming alliances in Russia, and China and is not an area of the world that we're not attempting to grow our business with.

And.

It's.

It's now pretty much at a scale, where its worthy of discussion where we opened I.

I believe it's 32 shops in.

And our quota in glass that we're managing they're doing very well.

We we believe we can get to approximately 100 doors in the next three years with El Corte dei added.

We are taking elements of what we've learned in the us and bringing them to Europe and the Europeans are anxious to modify how or improve how they do business, they're learning from us.

They're they're eager to try categories and classifications that.

Our not shown within there they're selling pads.

So.

That is potential for growth.

We believe will succeed we have.

Strong initiative really for the first time with the.

With Kohl's, we're not known to vehicles resource.

Pretty much for my entire working history I was more of a JC Penney resource and that's.

My favorite place to go as coals was growing was really not calls today.

We've got many initiatives startup initiatives that.

We believe will pick up scale some of them are licensed some of them private label.

And as some may be.

Brands that we might dedicate to them exclusively.

So there is the there is growth potential there is.

Same time, there's concern as to know where door count goes.

In the retailers that we trade with.

But I think we have I think we have a balanced business and an unbalanced time.

Great Thats very helpful. And then if I could just follow up a little bit on past calls Sal sales and just being a little bit lighter than expected this quarter. So it sounds like it with.

We finished.

Crop on in the way that retailers are flowing their inventory now I guess I was curious if you see that the same dynamic across all of your brands and then also including outerwear or was it just one category specifically.

Maybe outerwear, you're expecting kind of prolong season now for outerwear sales team continued into first quarter. Thanks.

So the flow of inventory is.

This is evident in all our brands, it's not one unique brand.

It's the manner in which the department stores are.

Operating the business today.

The Codecided the business what we did is we plan against last year's business for the month of October October was an incredible year credible.

Coat view.

Month last year and it didnt quite anniversary. This year, we did have a warmer.

October the sales were not as good and therefore, the replenishment and the call for a more product was not what we anticipated.

We believe weve remedied all of the issues.

Might occur through with partly with the extension of the season and partly with you know what's occurring right now the weather is working for us on the code side of it we have great inventory that selling and.

That would have been that would have been the major impact on.

On the business the flow of inventory and maybe the code side of their business.

Great. That's helpful. Thanks, So much good luck of our Helane, Okay holiday.

Thank you.

Operator, this will be our last question. Please.

Our final question comes from Mac call Me from Wells Fargo. Your line is now open.

Yeah. Good morning, guys. Thanks for taking my questions.

Just want to not can help us quantify the tire APAC you saw in Threeq, you and applied headwind remaining in Fourq you based on the 12 million.

Guide that you had mentioned and then on the retail side of the business. We saw improved sequential comp set at both Wilsons and bass can maybe just comment on traffic in their stores and then tourism impact.

Changed at all and that given the lower comp guidance that you had.

For your across all the brands.

Maybe just comment on expectations for Fourq you.

So.

The the impact of tariffs in Q3 was somewhat negligible, we were paying tariffs that we had inventory that.

We had own that was.

Pre tariff inventory so the blend of the two worked out for US as you can see with the margin enhancement.

We were created for US as time goes on those enhance and enhancements aren't quite there I can't give you the exact number but there is more of an impact in Q4 on.

If increases than they were in Q3 and if they continue there will be a way of life for the future there will be.

Greater impact in Q1 Q2 in Q3 of next year.

So as as we deplete our low cost inventory.

And as far as.

The traffic in stores.

They vary.

We.

Vast was probably out west.

Brad as far as traffic is concerned we had.

Double digit in decrease in traffic flow.

Which created a little bit of.

Inventory issue for us, which we're working through right now.

Dk, and why and Karl Lagerfeld, they're running neck and neck.

Their traffic was.

Kind of flat to last year, but.

The.

The amount of business that was done at the registered the customers that were brought to the register were.

Greater than the traffic that.

That generated sales in both Wilsons and in.

And bass so.

We're pleased we're very pleased with deacon why and Karl Lagerfeld, and as I said earlier, we're working through the issues of the other two larger brands.

We're finding that.

Welcome.

We don't have a customer that is as sensitive to two price said became wine Karl lagerfeld as they are Ed that bass.

A price change it best does have an impact.

And that an increase in pricing it became lie and Karl Lagerfeld has.

Somewhat negligible impact.

The added feature for a detailed lives were fairly well positioned in some of the outlet centers in Europe .

For a detailed Y and business there in the outlet center is.

Last few weeks has been off the charts. So that has helped us a great deal as well.

Great. Thanks, guys.

Thank you. Thank you for your question.

Operator.

We are finished I. Thank you very much for your question is staying with US This morning.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.