Q4 2020 Earnings Call
[music].
Welcome to the Jeep three apparel Corp fourth.
Group fourth quarter fiscal 2020 earnings Conference call. My name is Jack and I will be your operator for today's call.
All participants are in listen only mode. Later, we will conduct a question and answer session. During the question answer session have you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded I would now like to turn the call over to Mr. Neal Nackman. Some back when you may begin.
Good morning, Thank you for joining us before we begin I would like to remind participants that certain statements made on today's call ending acuity session may constitute forward looking statements within the meeting with the federal Securities laws.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied forward looking statements.
Certain factors that could cause actual results of operations are the financial condition of the company to defer or discussed in the documents filed by the company with yet they see.
The company undertakes no duty to update any forward looking statements you.
In addition, during the call 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.
I'll now turn the call over to our chairman and Chief Executive Officer more schools book.
Good morning, Thank you Johnny.
Also joining me remotely today.
Fair enough, Vice Chairman and President Wayne Miller, our Chief operating officer.
Neal Nackman, our Chief Financial Officer.
Yes, Goldfarb executive Vice President and Korea, Trivedi, Vice President Investor Relations.
As we are hosting this call remotely please bear with us and stay on the call Oh, we have technical difficulties, we'll be right back with you.
The Caronna virus outbreak has become a national a worldwide rights.
A top priority is to make sure the health and wellbeing of employees.
In that regard we've closed all our retail stores and corporate offices.
We continue to work remotely where appropriate to remain operational.
I want to remind you that one of the core competencies and well developed supply chain infrastructure.
Yeah, well developed a supply chain infrastructure and we are working celebrity got strong vendor relationships.
As I mentioned during the tower floors, we did not a bad in these wells financing loyal vendor relationships built over the past 40 years.
These relationships that are providing us the ability to manage our receipt flow over the difficult side.
Based on current update the factory operations in China, and other affected areas. We now anticipate only minimal delays in production and transit.
That said the out for both our retail partners than our own retail stores are being impacted.
As a very fluid in evolving situation.
Where are the daily contact with our retail partners than vendors.
We will provide additional information.
But the results about first quarter earnings in early June.
We continue to work towards the restructuring about wrong retail operation, which would greatly reduced the number of scores and losses were incurring.
We see upside potential for the became lie and Karl Lagerfeld, Paris nameplates.
Both businesses posted positive comparable sales for the fourth quarter and the full year.
The effect of the parana viruses negatively impacting sales.
The new products Board became wine Karl Lagerfeld, developing curated that on your on new leadership is working well.
Our ecommerce business, where all the brands are doing well with deep and wide Karl Lagerfeld, leading the way with strong double digit sales increase.
As soon as we finalize that restructuring plans will report back to you.
We're confident that strong wholesale business, along with a more streamlined retail operation.
Creates a solid foundation for continued growth and improved profits for the future.
Exactly exactly by outside our brand.
You can buy Donna Karan, Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld.
We have the flexibility and the ability bolstered by our strong financial condition to adjust and adapt to the challenges and opportunities that lie ahead.
Fiscal year 2020 was another year of growth with GE read Calvin Klein, our largest brand continues to take market share became why and Tommy Hilfiger, both had strong growth benefiting from expanded distribution with significant opportunities that.
This year, we also broaden that product expertise in the denim category as we launched the collection and the CK jeans brand.
This coming year, we're adding comprehensive data collection for three of our power brands.
CK jeans, Tommy Hilfiger, Jane and UK and why.
Which will make us a significant player and the important demonstrates.
Now, let's look at the full year, a fourth quarter fiscal 2020 results.
We reported another year of growth in net sales adjusted EBITDA, a non-GAAP net income per share.
For the full fiscal year net sales of our wholesale and retail segment with 3000 3 billion and $3.16 billion up 3% from last years Me point 8 billion.
Importantly, the wholesale segment.
Net sales grew over 5% to 2.86 billion from 2.72 billion.
Our non-GAAP net income per diluted share was $3, a 19 cents up 12% from last years $2 than 86 cents.
Our adjusted EBITDA for the year increased to 285 million up 6% from last year is 271 million.
Fourth quarter non-GAAP net income was 75 cents per diluted share up 37% compared to 55 from 55 cents per diluted share in the fourth quarter last year.
Now, let's try some details about wholesale business.
I see outgrowth to the year was led by Tommy Hilfiger became lie in Calvin Klein.
In the fourth quarter net sales fell short of our expectations, primarily due to the warmer weather during the important holiday selling season and in the month of January.
Yeah negatively impacted outsells, the cold weather cold weather apparel, including outerwear. However, we were able to offset most of that impacted the net sales Smith, primarily through good expense control of the non-GAAP diluted earnings per share was above our guidance range.
Calvin Klein is our largest business with net sales approaching $1.1 billion this past fiscal year.
The brand remains the dominant resource in women's apparel market. We were pleased with the soft launch of CK jeans this past quarter.
We believe we built the right combination of fashion and basics into the line and will remain flexible to tweak the mix as we move forward.
Tommy Hilfiger business ended the past fiscal year with net sales of nearly $500 million, an increase of 25% from the past year.
Although the fiscal fourth fourth quarter growth was impacted by the warmer weather at Tommy Hilfiger business was up mid single digits importantly for the past fiscal year. The strong growth was broad based across all categories.
Tommy Hilfiger genes line also launches this spring as we continue to broaden our product offering and distribution. We remain confident that we can meaningfully grow and expand our Tommy Hilfiger business over the next several years.
Our Karl Lagerfeld wholesale business.
Ended the fiscal year with net sales of just over 110 million.
Only slightly up from the prior fiscal year, largely due to the teachers that Lord and Taylor.
For the Karl Lagerfeld brand, we continue to build the lifestyle appealing will further work to expand product distribution.
Hi, Rob Dick and why and Donna Karan brands registered another solid year with net sales growth of nearly 25%.
These businesses now generate over $450 million, an annual wholesale sales and licensing revenues.
There are a significant profit contributor DG three.
This spring, we're introducing our new Dick and why James line with the soft launch the line is being well received by our customers.
So this past quarter end year, or so strong sales increases in our de can why international businesses, which include better department and specialty stores in Europe, as well as distribution around the world.
In February we kicked off last spring 2020 advertising campaign for a second season with artist and level of Mega musician halls.
Continue to have a digital first approach to our strategy, especially now focusing our resources to increasing social media messaging to continue to engage and excited to consumers keep that became my Brad top of mind as we work to amplify the brands awareness.
Licensing is another important part about became lying Donna Karan business profile as it is a meaningful profit center profit driver of our business.
We've created a solid licensing base with World Class partners.
Overall, we're very pleased with the development of became wind down of down businesses.
I'll now pass it to now for a detailed discussion about fourth quarter.
Fourth quarter results.
They tomorrow.
Now turning to our results for the fourth quarter net sales ended January 31, 2020 decreased approximately 2% to $755 million from $767 million and the same period last year.
Sales of our wholesale operation segment decreased approximately 1% Suckered in 35 million and 639 million with an impact of course brand in the cold weather apparel categories, including outerwear.
Upset by increases in the Tommy Hilfiger and became like brands.
Net sales of our retail operation segment for the quarter were $131 million, approximately 16% lower compared to last year sales of $155 million.
We reported same store sales decreases of approximately 6% for all Wilson stores, 10% for our G.H. bass stores and for de can why were positive 3%.
Net sales of our retail operations segment were also negatively affected by the decrease of approximately 26 stores operated by us as compared to the fourth quarter of last year.
Our gross margin percentage was 33.3% in the fourth quarter fiscal 2020 as compared to 33.8% in the prior years period.
The decrease in total gross margin percentage is primarily attributable to the lower prep penetration of the retail segment, which operates at a higher gross margin rate.
Gross margin percentage in our wholesale operation segment was 30.0% compared to 28.7% in last year's quarter.
The gross margin percentage.
Our retail operations segment was 45.9% compared to 48.9% in the prior years quarter.
As DNA expenses were $187 million in the first in the fiscal quarter compared to $202 million and the same period last year.
Net income for the fourth quarter of this fiscal year was $25 million were 52 cents per diluted share compared to $24 million were 48 cents per diluted share in last year's quarter.
Non-GAAP net income per diluted share was 75 cents to the quarter compared to 55 cents per share in the prior year.
Non-GAAP results in this quarter exclude the impact noncash imputed interest.
Asset impairments and a one time income tax gain.
Full reconciliation to our GAAP results are available in our press release issued earlier today.
For the full fiscal year net sales for the year ended January 31, 2020 increased approximately 3% to 3.16 billion from 3.8 billion in the same period last year.
Net sales of our wholesale operation segment increased 5% the $2 82.6 billion from 2.72 billion with Tommy Hilfiger decaying lie in Calvin Klein brand the main drivers to the growth.
Net sales of our retail operations segment for the year with $386 million bustling, 19% lower compared to last year sales were 477 million.
We reported same store sales decreases of approximately 13% through our wilsons and our GH bass stores.
And a positive 1% competition can lie.
Net sales of our retail operation segment was also negatively affected by the decrease of approximately 26 stores operated by us as compared to the end of last year.
Our gross margin percentage was 35% for fiscal 2020, that's compared to 36% the previous year.
Decrease in total gross margin percentage is primarily attributable to the lower penetration of the retail segment, which operates at a higher gross margin rate.
The gross margin percentage in our wholesale operations segment.
Was up to 32.7% compared to 32.4% the previous year.
Gross margin percentage in our retail operations segment was 46.7% compared to 47.7% in the prior year.
As seen expenses were $832 million in this fiscal year compared to 835 million in the same period last year.
Net income for this fiscal year was 144 million or $2, a 94 cents per diluted share compared to 138 million with $2.75 per diluted share the previous year.
Non-GAAP net income per diluted share was 3019 cents for this year compared to 286 per share in the prior here.
Non-GAAP results exclude the impact noncash imputed interest asset impairment net of gains on lease terminations and a one time income tax gain.
Looking at our balance sheet accounts receivable increased to $530 million from 502 million up approximately 6%.
Inventory decreased approximately 4% the $552 million.
We spent approximately $38 million on capital expenditures.
We had long term debt outstanding of approximately $397 million at the end of year compared to $386 million at the end of the previous year.
The average debt load net of cash for the company, including seasonal borrowings under our revolver was approximately $450 million and with our strong EBITDA opposition.
Our net debt to EBITDA ratio is approximately 1.5 times.
Our quarter ending cash balance was $197 million.
This year compared to 70 million a year ago.
Further to our strong liquidity position, we have a $650 million revolving credit facility under which at yearend, we had approximately $600 million available and no outstanding borrowings.
Our current liquidity position is as strong as GE three has had in the recent past leaves us with significant financial flexibility as we worked our way through this upcoming trying time.
As for our guidance as the ongoing Corona virus outbreak continues to add uncertainties relating to the ultimate celerity.
The duration and the actions and maybe taken by the governmental authorities. It makes it difficult for us the forecast the impact of the outbreak on our fiscal 2021 results.
Comping, we'll monitor the development associated with the grown the virus.
Great.
And its potential impact on our sales results of operations and supply chain.
Accordingly at this time, we're not providing any guidance.
That concludes my comments I will now turn the call back tomorrow for closing remarks.
[music].
Thank you Neil.
Thank you for joining us today this past year, we grew our wholesale business.
We manage successfully through several rounds of Terex, we've built three new denim business for power brands, CK jeans, Tommy Hilfiger jeans, and decaying wide James.
And we are in the process of restructuring our retail operations.
The Toronto virus prices is greatly impacting our industry as well as many others.
It's important to note that we've built and adaptive and agile organization that business model with a real entrepreneurial culture that keeps us flexible.
We also have a strong balance sheet, our in an AD wearing a solid financial position to weather the challenges and pursue the opportunities that lie ahead.
Combating the Corona viruses global effort.
You have some employees who have relocated their families to save strategic locations around the world, while making personal sacrificing to oversee our business.
I'm amazed with all our employees unwavering focus and ability to execute the.
The dedication drive compassion and care that they exhibit each and every day is truly amazing.
I cannot be proud at a more appreciative of the world class team, we have here at Q3.
A future growth continues to be Andrew bonds.
Strategically leveraging the strength of that level power.
Our team remains focused on developing our capabilities and elevating our position as a supplier of choice for our retail core.
I'd like to thank our shareholders partners and stakeholders for their continued support.
Thank you operator, we're now ready to take some questions.
Thank you we will now begin the question and answer session. If you do have a question. Please press Star then one on your Touchtone phone and they're using a speaker phone you may need to pick up the handset first before pressing the numbers. Once again, if you do have a question. Please press Star then one and your Touchtone phone.
And our first question comes from Edward Yruma with Keybanc capital markets. Please go ahead.
Hey, good morning, guys and thanks for taking the questions I guess first I'm sorry, if I missed this as we look at the outerwear business in its entirety problem. This past season, I guess, how much was it down due to warm weather in your opinion and then kind of broader question. Thanks, probably updates on liquidity, what's your expected kind of cash flow needs for the year particular.
I guess as you continue to look to close some of your retail stores or should we expect the same kind of inventory build that we saw this year or is cash usage is going to be lower given some of that restructuring. Thank you.
[music].
Neil.
The the percentage of outerwear and et cetera that are adequately respond to that yes should so the outerwear season for us a fourth quarter was down for the full year had we were actually were up in outerwear. It you know look we were planning for an increase in outerwear in the fourth quarter. So.
It did it did impact the full year, but certainly the fourth quarter is is not.
It's fairly normal.
Penetration of outerwear for us for the whole year runs about 30% the business. So the the the third quarter is really the is our big driver.
In terms of free cash flow, we're looking at all.
All of our purchases were looking at all of our expenses. It right now it really is about keeping the company is strong and financially flexible as possible. So we will be making.
Just means to the inventory flows obviously as the retail stores closed and we will be and we'll be watching all of our cash expenses as well.
And we got in one follow.
But I mean, let me add to that if it online as far as.
Flowing inventory, we're spending most of that time on the last few days on adjusting inventory flows.
Inventory levels and less concerned.
About the supply chain delivery on time.
That was the battle until about three weeks ago, we had that oil in line and now were going down the other path.
Modifying our inventory levels understanding that clearly understanding that we.
We have cancellations coming our way, we have a store closures and pressure and at retail will probably have credit issues that will also go to disarm us and ER.
Probably prohibit us from shipping a lot of the accounts that we have autism. So we're spending a good deal over.
Time, adjusting the flow of product and.
The flow of both finished then piece could product.
So it's a tough battle, it's hard to forecast the I don't know what we're up against.
Clearly no we don't have the same calendar we did.
And I entire history business. So if we knew the calendar.
We'd probably be able to forecast it better.
Thank you Todd maybe one quick.
Peter.
I guess next question operator. Thank you. Our next question comes from Erinn Murphy with Piper stand. Please go ahead.
Hi cannot Pakistan, Larry and I Hope you guys are all safe and healthy I guess just on that store closures I would actually think that for you that in particular that period at store opening up and could actually.
Potential help just given that they have been locked make going on now historically can you just eight or potential PL impact at Starz remained Claire and then just from a mall operator perspective several of them out claims are entirely since that seems kind of or could you can help from a deferred rent Chris.
However, handle consistent with the exception come operators are the classic hip hop are happy that have you guys how about understand that dynamic.
I think that I can give you the second question.
As far as my belief.
Clearly.
The the store closures.
Will enable us to negotiate with our landlord.
But we also have to understand that.
Landlords are not the bad guys right now we're negotiating to get out of leases.
It's frustrating.
We both have.
Valid arguments, but without landlords without real estate.
We have nothing we don't have malls, we don't have a showcases for our product we don't have department store venues.
So you know they have their own prices.
And.
I'm sure, they're gonna be some major compromises to enable both the retailers and the.
Let's say to develop it is too to move on and we're not sure what the government will provide them in a but clearly.
The there'll be some provisions from the government two or.
To help developers and ourselves.
Yes.
For the moment, we were on a path.
As far as store closures.
You know, there's a little bit of confusion, but when we were down I'm much more aggressive path and that I'm not sure.
How the current situation plays out for us Im not sure it's a good thing or.
Were negatively impacted by the store closures there was a strategy in place that.
It was supposed to be a trigger date in mid March and based on all these events.
Move that triggered date, the to somewhere down the future so it.
Is there an uncertainty today there was much more certainty.
10 days ago as to our path.
Neil and America, the fair distress questionnaire and had.
The effective the financial effect.
Yeah, Yeah, so I apologize for the bantering back and forth, but I think you'll realize where we're all in different locations.
Yes, I can't help but think that I'm not I understand the underlying party a question as far as soon as being closed in the for your profits but.
The flip side is that if your stores closed and you're not getting rid of product and you're not getting sales and positive gross margins, which we do.
But that's just not a good thing so it's hard to rep to two to look at the situation and suggest that.
There's a net plus to us from from the stores being closed at this point.
Okay. That's all and then just kill letter from me out the path and collectively and I know you guys are in different different places. So I'm just in the in the first quarter. So far obviously in the last week, we've all heard about the store closures, but kind of our prior to that is there anyway. You can help us think about kind of what consumer behavior, what consumer demand a lot.
Like earlier and that the ban and maybe if you could break that out you know what youre seeing typically at now it's story first it may be on any of the dot com or that third party dotcom business as and then the second question I had a really related to expenses and ask DNA, maybe Neal on that one could you speak to what drove the 9% decrease in the fourth quarter.
And then peer flexibility at around expenses and 2020. Thank you.
So herron our business until a weaker goes that's it.
Going beyond the first quarter Autobytel is very strong for the entire year. We were tracking ahead of last year, we're reviewing the merit of that.
The order book today.
So we don't know where we stand, but I will tell you are in great shape.
Our sales.
On a daily basis, we're really good.
Performance business as good a dress business it was good.
Our social dresses were good.
Spring coat business.
It was very good I'm talking about wholesale.
So we were on where on a very good path for the first six weeks of the quarter.
And even as you.
Yeah. The crisis started to evolve the stores that were up and we're posting reasonable cells todays.
Today's kind of another day, most stores or or close, but those that are open or selling our products and selling them fairly well.
As far as what the future holds.
Not really certain notes.
Where where we wind up but a style right.
Brands are right.
And.
The next focus is a little less.
About the fashion that we have it's more about.
Survival cash preservation and coming back and.
Citing another Dan I believe were one of those companies that well.
Live that may be prosper in this period of time, where as I said earlier, we're at job we're compose the.
Bunches entrepreneurs, who have have been citing battle so all of their working career.
Most of them the own businesses.
Has struggled with periods of time to make payroll paid rent and those are the guys that I want to on my side there is.
They are doing an amazing job.
Yes.
You know tempering the problems that are coming at US and then we will we will come out stronger company than we even our today.
Just a matter of time.
Commerce business.
He is actually doing fairly well.
So sometimes we're you know this confusion as to go the merit and their understanding of their different dynamics.
That were.
Looking at different metrics that we're looking at to measure that business.
But that's holding up well our own business, our own ecommerce business as well as the department stores and the Amazon's of the world that we see.
Their business is good they are actually they are actually looking for more product even in this environment.
So there is a world out there we just have to figure out what that world is.
It will unravel and time.
Thanks, Aaron Thanks for your question.
The error with respect to the expenses in the fourth quarter.
The.
The big decreases that we saw we're in the payroll area, primarily in bonus manage some some payroll hires as well.
And then our advertising expenditures also we were able to pull back on some of that.
I think in terms of just viewing us going forward those.
Our real variable expenses in terms of best DNA, we have in that primarily in the advertising area.
Both national advertising as well as advertising that we spend and of course payroll wouldn't even be larger than that.
On Kim.
Thank you. Our next question comes from John Kernan with Cowen. Please go ahead.
Hi, good morning, Thanks for taking my question.
Yes.
We'll go back to liquidity.
On the truncated balance sheet, that's in the press releases showing 397 million in March our debt is there any current portion of our term debt.
No there was not John.
Okay the debt just.
I just didn't just to give you a little more detail on that the the HDL expire.
December of 21, so plenty of time on that the term loan is a 300 million dollar term loan.
That that will expire in December of 22.
The seller notes, which were taking from LVMH, but those are in the middle in end of 2023.
Okay, Great that's helpful.
In the managing working capital in that yeah.
Keeping out on liquidity theme, how much can you push back on inventory receipts, unless you think you'll need to push back.
First half of the year, it's in an effort to conserve.
And efforts to conserve cash.
We will we have a target it's a fairly aggressive target.
Bars pushing that.
We were not sitting with many cancellations that have come out way from retailers, who we have our own planners.
Coming up with with an appropriate level of inventory that would not put us in harm's way, so where we're bypassing what the buyers and merchants are telling or not telling you we're using our own judgment.
With.
An understanding that as I said before.
We'll come back to try to another day, we're not we're not looking to to have an amazing year. This year, though we want to come out reasonably well and that basically means bringing down your inventory levels as far as you can and not taking the risk that the retailer has.
Normally.
Passed down to us.
So we're using our judgment.
Said before.
This is an amazing team that understands what needs to be done then can go beyond just that straight road that is crafted for us by our retailers. So.
They'll be more to come.
We do need our supply chain.
We can't.
We can't put them out of business.
There are very.
Co-operative.
To date, we've not had.
A major conflict with any one of them.
They understand the need to take cancellations. They also have no future most cases.
We're the largest where the largest.
Customer of most of our suppliers, but can you go out of business. They close up shop. So they also understand that they need to make the compromises to enable us to sustain tough times. So we're getting an amazing level of cooperation today, you know and talk to me and and.
Other mines that may be another story, but everybody's working together.
No the logistics people landlords suppliers.
Paul.
We're all even our competition.
This is a time that now people need to work together to.
Enable the industry to sustain the times that we're in so to date.
I can't tell you that.
We've left the anybody in terrible paying overseas, but they that may occur at another month.
Understood and just finally on the store closures.
On the balance sheet, we can obviously see the non.
Current recurrent portion of the operating lease liabilities.
Viability would be nowhere near what you would need in terms of closing costs I would imagine.
We have gotten some questions from investors on this I just think there's some confusion out there as to what the long term.
ER, which total costs are going to be from a cash perspective.
And in total and to close down the the outlay retail stores.
No that who or what you're seeing is the absolute nobody ever settles for the absolute.
We have our case.
[noise] landlords have there as we were.
Down a very nice their pass.
And.
What you're seeing.
Would not have been the result.
Where we were not not even close.
In the artist National Park.
Right.
The that don't forget the liability that you see on the balance sheet is the total company the lead the retail piece of that.
Good would be probably half of the total.
Got it that's helpful. Thank you.
Okay.
Our next question comes from record talent with Needham and company. Please go ahead.
Thank you good morning, everyone.
Question on the wholesale business.
How much of your plan one Q.
Sales were already in the hands of wholesale customers around the time the virus escalated a couple of weeks ago I would have more or less I'm just curious how much of your one Q business.
Is locked in versus what at risk given the department store closures and my follow up question is on.
The digital business with traffic the stores falling in early March and with Department stores now being closed.
Are you seeing an acceleration in your department store Dot com business and on your own platforms or has it been steady state.
So the the.
I would say the percentage of.
Product that's in the hands of our.
Retailers those those written for Q1.
It was probably more than half.
We even have situations, where we had.
April and May receipts that moved up because inventory levels were low at the department stores and sales sales are fairly good.
So.
We had.
Comfortably say we had about.
60, 65%, though the.
The quarter.
In the.
Bout of orders at the.
We had in house and so we had that's probably the number probably 60% we ship.
And as it relates to.
Im sorry, Rick could you repeat the.
A question that relates to the Internet the online.
Yeah on the digital side like we think about the last couple of weeks with traffic the stores falling and with stores now being closed are you seeing an acceleration in.
The dot com businesses for your Department store partners and on your on platforms.
On Iraq are our own platforms clearly yes.
On our customers, yes, the not not as much as I would have thought.
I think thats yet to Tom.
You know you have to remember a lot of stores were still open last the last few days around they are only closed.
For two days.
I think Macy's result, and Monday.
I think nordstrom's is open Monday, so where you know we're only.
Dealing with digital part of the business on the exclusive side with.
Major accounts for the last couple of days I'm I'm sure they'll be growth.
Yes.
But clearly as a percentage.
But they'll be a there'll be significant growth people are sitting now they are buying a their choices may change I'm not sure that hours social occasion dresses do incredibly well for the coming months.
But I'll tell you that our performance business is selling incredibly well people are relaxing in hall and they're buying it. So if I give you a dollar value there. There's some some pieces that just kind of dropped off.
There's no real needs for co today, there's no need for social dressing today, so social is a big part of.
Let's say, it's it's a nordstroms or Dillards. This is a prime business.
It depends heavily on.
Digital sales on that Thats gone there are no problems. There are no parties. So we have segments that faded away.
Segments that are growing.
And just the last one if I may on the fall order book I know the situation is all very fluid right now and it's extremely difficult to put from numbers are on anything but are your wholesale customers assuming that it's going to be a normalized environment in the back half of the or are they planning things.
I can be very cautious and how are you managing decreased inventory in this environment for the back half.
We're managing it very tightly.
Transactions is.
There's the retailer and then there's ourselves.
The retailer.
Basically has at all times to backstop of the wholesale.
So they're able to not not that I'll put it operates casually, but there's less pressure on be right.
On the retail side than there is on the wholesale side, we have to be right.
Tempering our inventory.
Were less concerned about the coat business, because we believe fourth quarter will be fine people will be buying coats.
We are less concerns about performance.
But there's segments of the business that we're going to be.
Very very careful on.
How we manage through.
So it's.
Just to respectfully I am not as concerned as to what the retailer feels the future is like I'm more concerned about how our planners and how our operators who are.
[music].
Challenge with have been challenged for many years to run their segment of business.
It's their decision on how to take the risks.
Thank you Morrison stay safe everyone.
Thank you Rick Thanks for your constructive questions.
Our next question comes from Heather Paul Sky with Bank of America. Please go ahead.
Thank you very much for tooling question I guess first no on can you just remind that's like a covenant bar for your revolver and term loan just just as they kind of go into the sensor overtime and then also.
With regard to the uncertainty that inventory are you on Pos system and.
Licensing partners about equally off quite soon or more as we go through the years away to kind of manage potential access product constrained category.
So with respect to the covenant the on the Abbeel actually has.
A covenant, there's a springing covenant based upon availability and it's a fixed charge a covenant.
One to one that's or EBITDA, the fixed charges, which are primarily interest expense in income taxes, there's a tremendous amount of room on the that one.
Obviously with all of our availability, it's not even applicable at the moment with respect to the term note. There is a senior senior debt to EBITDA ratio that is four and a half to one as I mentioned, we've got significant coverage a significant room on that at the moment, where we wanted to have too.
Two I wanted to have to one now that's with all that.
So where even richer than that essentially versus the four and a half.
In terms of.
Where we were January 31.
And the Heather to respond to your off price opportunities.
We have.
As we are.
Verbalize that as is very obvious.
We have an amazing relationship with PV.
We've overcome many situations and in the past.
They understand the problems as well as we do we have the brands that we operate for them.
Heart and.
They are paramount to the future if we destroy those brands.
We have a problem, it's not only it's not only a PVH problem.
We've cited half our business.
With PVH brands and.
Prepared presentation.
Billion won the Calvin Klein at about a half a billion dollars.
Of Tommy Hilfiger.
And.
We'll do what's necessary to protect those brands.
But clearly.
We'll be sitting table with.
Each in strategizing as to how to move inventory.
Appropriately so currently in Delaware.
Our distributions for those brands it just North America.
Distribution with decaying why is under our own control, where global and we decide.
What percent, which goes to off price, where we where we dispose of it you know throughout the world if we need to dispose of it.
But were.
As I said earlier.
Our main focus is not to provide.
Inventory for the off price channel, it's to stop it before it gets here, we're working hard on Rightsizing the level of inventory that's coming into the into this country for us for potential orders so in the sense.
My belief is the off price chat on May have less of an offering then there they've had historically.
From us.
They'll have amazing opportunities throughout but I'm not sure we're going to do that work.
Great. Thanks for answering my questions is painful.
Our next question comes from Jim Duffy. Please go ahead.
Thank you good morning, all hope you're all healthy as you managed through these difficult times.
Not surprisingly it seems that GE three team is really rallied to navigate the ships are these pharmacies.
Morris you touched on this earlier can you talk more about how you balance off fence versus defense to manage risk for GE three.
By both planning inventory receipts into an uncertain market and also managing receivables risks no doubt difficult decisions around shipping to long time customers, who may be a credit risk.
So.
Some of that let me answer the second question first.
The receivable risk is.
Again, we have a partner and.
We credit ensure.
The high risk as well as a percentage of the.
The safe accounts.
So I don't believe were.
Have a major problem again.
All bets are off I think I can give you.
I can't give you anything that's factual and do you understand why we're at a time period.
Just changes.
Every 15 minutes, so, but I can tell you I feel comfortable on the receivable side.
And just just disclosing how we're managing inventory.
From a strategic competitive point of view, it's a little difficult to fully disclosed we do have a strategy.
And that strategy is come out of this incredibly strong regardless is basically what we need to work where that company. We leave those stood up our ground when we won.
I don't want to say, we need that but we were criticized for the level.
Inventory in production, we were doing in China, and everybody was exiting China.
Today that turns out we if we look at where we are with our vendor partners, where we are with product slow it turns out that staying in China.
And and respecting the relationships that we had.
Really paid off we have partners that are willing to take the pain. Some of them are incredibly financially sound some of them or government owned.
So.
We are no.
We're developing strategic plans so that we come out of this in good shape.
So that that turned out to be.
The appropriate thing to do.
We're on the ground I assure you that.
[music].
We're doing the right thing and where where that company that.
Had a muscle our way through we're not going to be somebody that's pointed to as being collateral damage in this in this environment.
There will be a host of people that will be and who knows we might be the acquirer of those companies and maybe we we partner with some of the brands that were.
Never available to us because there were there were funded well for the period of time. So I, we're looking at not only protecting the downside, but clearly aware of what the upside opportunities are.
We're not only.
Operating with the strong balance sheet, we're operating with a with a strong team.
Call. It Navy seals that can accomplish anything.
So we are there we have those provided 700 keep falling out about New York Office I'm not sure you notice, but we had 1800 people and one building in New York City.
700, even went home with computers.
Man I've never seen communications like that happened last couple of days that everybody's working all day every day.
To find solutions for this segment of business, it's almost rate that we know we always explain that we're we operate by segment of business. So there are many leaders that.
Our autonomous running a segment.
So each one of them is out there fighting for their piece.
And there are there with different vendors, it's not it's not a collection of of.
Sportswear that's run by one team we have 32 floors, we have many brands and we have many operating teams in each one.
Bye bye.
Bye bye a brilliant general so I'm really comfortable we come out of this okay.
Great and then Neil Christian you recognize it's a dynamic situation, but given that historic circumstances, you think there's opportunity to flex the covenants working with your lending partners.
Yeah look I think that ultimately GE GE three.
Has been and we'll continue to be perceived as a very strong credit.
With lots of different opportunities from the financing standpoint so.
Obviously, we were concerned as everyone is about the current situation.
And so many people being on on locked down but.
Again, I think from a from a financing standpoint very strong.
As we could be at this moment and strong as we've ever been.
Lots of lots of room at the moment.
I think there's lots of people who will be interested in helping us. It should we need help go forward, we don't see that in the near future is a need but I'm sure they'll be people out there.
Thank you very much everyone. Good luck.
Thank you Jim Thanks for your support.
Our next question comes from Suzanne I understand what barely SPR. Please go ahead.
Hi, good morning, everyone. Thanks for taking my call.
I guess, maybe just a follow up a little bit on the wholesale partner I guess just curious.
If you had in out Cox, yet around canceling orders it doesn't sound like they have cancelled any yet or then also if you have moved on yet to just talks around markdown money for the wholesale partners or is that still very fluid and.
No one that's really with the situation, it's going to be when the consumer comes back. Thanks.
I guess I'm going to use your final sense, nobody knows what the dilution going to do and everybody congrats.
Quite quite honestly.
No.
We need each other to survive.
Where.
We're on cancellation mode.
We haven't determined what is not needed yet on it again every moment in the day since this occurred.
And we're communicating with our factories with our retailers.
We believe we know what the desire as the wish lists are for our retailers.
And.
Were trying to get is near to it as as we can but none of it is resolved.
So complicated you know you're taking.
Six months and longer of order placements and and preparation for production and trying to disassembled and a couple of days.
That's that's a tough mission.
So where we're all over it but.
But I can't I can't tell you.
Anymore than that.
And that.
Hiding any of it just impossible to gauge at this very upset.
Yeah that makes sense.
And I guess, maybe just a follow up.
On that became why retail store, it's nice to see the positive comp. There I guess you have any color maybe you could give just on the profitability of those stores or improvement versus your other retail stores.
Well there the those are.
The retail stores that.
Hi, I'm probably in product.
With an understanding that.
Oh, and we're working through a process and our retail stores. There was no scrape purchase me for Wilsons or the came lie.
The fossett was absolutely turned off and we were using this period of time to solve some of the inventory problems that we had.
David back good carried at times and there was no flow of current product and when no MDR describes the 90% decreasing and sales and retail.
A lot of that is impacted by.
Just not having.
Our fashion product with the stores.
As.
As far as.
Okay, and why and Karl Lagerfeld, we were tracking tracking a double digit increases.
We.
We spent a little money on Capex.
Paid off.
International stores for Teekay and why.
No we're performing amazingly well, so we were down a path of identifying new locations for decaying why.
As we right size, the rest of our Dick and why and Karl Lagerfeld.
As we were Rightsizing the rest of our fleet of retail.
So again the story was a bedlam till recently store closures in traffic being down to the extent that it was so we've got we got the expected results but.
Product is right.
Training is because it's been great.
That the.
The appropriate product was de Kenwyne Karl Lagerfeld, we did ship spring.
For decaying line, we did ship screening for Karl Lagerfeld.
And.
For for that matter a sales again.
Well just started in every category. We have you know we got a great leader again, one of the general so those were starting to.
Running meta.
A couple of amazing people that have done more than their share to minimize the damage that were.
Incurring probably about to occur incur.
So things and thank you for your questions.
Great operator Terry.
I think maybe well.
One final question and then we'll let everybody go on with their day.
Thank you know our final question comes from Dana Test Lee with Tesla Advisory Group.
Let's see.
Good morning, everyone and nice to see the.
Nice to see the strength that you had with balance sheet and the game plan go forward.
Two questions. If you think about inventory levels, you've mentioned inventory management and how that helped you manage inventory.
Doing exactly is a cancellation is it postponement of the borders how do you keeping the inventory is tight and then can you just confirmed the loss at the retail operation for this year and how you think about it for next year. Thank you.
But then at the how we're managing.
Our inventory and resolving some of the excess inventory issues that were going to have is a combination or anything we can find whether its cancelling piece goods that that.
Still have left the mills, whether it's a slowing down.
Production, where it's a where we're having.
Vendors warehouse product.
In anticipation of.
Having to hold the New York inside of the fact that they are no cancellations.
We're doing everything we can were being creative in that process.
And as as I said, a little bit earlier I gave you all of it.
We wouldn't be the company that we are it's it's an internal game plan, but maybe it's a competitive advantage. So.
Where we are all over and that's that's paramount to the future business managing their inventory and not not.
Bringing inventory that into the states that.
It's going to be worth a fraction of that cost and who knows when we'd be able to markets. So we understand how critical it is and we have so great team not only in the United States.
We proved it out yeah, we have.
Global team.
That.
Is managing.
Pretty much managing the impossible so that piece of it's great.
Your second question that related to.
Two retail deals you on that yes. The today the retail segment, most approximately $75 million and that includes about that about a $20 million charge for the impairment so pretty much in line with with what we've been but we were expecting at the end of the year.
Thank you stay healthy everyone. Thank you.
Thank you Dan. Thank you for your question.
So thank you all for being part of our call today.
I wish you all Hell.
Yes, they save.
We'll give you the details of what we've accomplished it's in this weekend.
Thank you for being supportive.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.