Q1 2021 G-III Apparel Group Ltd Earnings Call
Come to the first quarter fiscal 2021 earnings conference call and webcast.
My name is Sydney and I'll be your operator for today's call. At this time all participants are listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have the question. Please press Star then one lender touchtone phone.
Please note that this conference is being recorded I'll now turn the call over to Neal Nackman Chief Financial Officer, Sir you may begin.
Good morning, and thank you for joining us.
Before we begin I would like to remind participants certain statements made on todays call anything you want any session may constitute forward looking statements I didn't mean to the federal securities laws.
Forward looking statements are not guarantees and actually results may differ materially from those expressed or implied forward looking statements.
Important factors that could cause actual results of operations or financial condition as a company to just.
We discussed in the documents filed by the company you see.
The company undertakes no duty to update any forward looking statements. In addition, during the call. We will refer to non-GAAP net income non-GAAP net income per share, which you both 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.
Now I'll turn the call over to our chairman and Chief Executive Officer more schools.
Good morning, and thank you for joining us.
Also joining me remotely today, Sammy Aaron <unk>, Vice Chairman and President.
Wayne Miller, our Chief operating Officer, Neal Nackman out Chief Financial Officer.
Goldfarb Executive Vice President.
Korea, Trivedi, Vice President Investor Relations.
I'd like to address the reason event.
Related protest throughout our country over the past 10 days.
We achieved green maintain a zero tolerance position against racism inequality and injustices of any time.
We strongly believe that we all need to do out part to make a difference both internally and our company on externally community.
We are committing our support to U.S.C.S. and other organizations and the effort to write to help eradicate social and racial and justice.
Furthermore.
Around a virus and data center shockwaves throughout the world.
During these difficult times, the health and wellbeing.
<unk>.
Customers partners and communities remain our top priority.
Let me take a moment to highlight and thank the heart and soul about company and our greatest SASSA a world class local employee base.
They've been working remotely and harder than ever with incredible dedication drive compassionate care through this crisis in order to keep us operational.
I just had damages involved.
We thought it imperative to continue to assist that community at large.
We are contributing about either philanthropic partners to ensure they continue their important work.
We have leveraged our supply chain to donate P.P. either medical facilities first responders.
Police departments in the United States.
The challenges we face from this pandemic a significant.
She three is an adaptive and agile organization with an entrepreneurial culture that keeps us flexible and these difficult time.
As allowed us to add very quickly to address a multitude of issue.
We've had to make some difficult but necessary decisions in response to the disruption caused by the sand Dennis.
As we announced that out prior Corona virus update press release.
We closed all about retail stores in mid March many of our employees have been working remotely.
We implemented significant reductions in pay for us senior management, the most about other employees and unfortunately, we furloughed a large fortune about employee base.
We've also adjusted inventory receipts in response to store closures and have been forecasting about re forecast in the balance of the year.
I've grown collaborative vendor base will afford us the ability to make opportunistic purchases for the back half of this year.
These actions combined with solid balance sheet strength in our financial flexibility and liquidity.
We are well positioned to whether the current challenges that demonstrate our leadership position in the fashion industry as we emerge from this prices.
On that now we continue to reopen our retail stores and are preparing to open a New York City corporate office.
We would do so in a responsible manner with the health of our employees and customers as that's top priority.
We are following CDC guidelines to ensure we provide the safe.
Actually this that workplace with ample p. available for our associates.
Our warehouses that remained operational with a reduced the workforce observing scripts, social distance thing and it and safety precaution.
In order to receive inventory to sell the waters.
Online consumers and ship product to our retail park.
We have begun to scale these operations.
Has had reopen throughout the country.
Now, let's look at the first quarter fiscal 2021 result.
Considering our retail partner stores in their own retail stores closed for half a quarter.
Net sales were $405 million, 36% down from last years 634 million.
Non-GAAP net loss per share was 75 cents.
Compared to net income per diluted share 20 fives.
Now turning around now turning to our own retail segment.
Please to report, we finalized that plans to restructure our retail store operations.
As we announced this morning, we are restructuring in the retail segment.
Well be closing I, wilsons leather and G.H. bass stores, enabling us to greatly reduce our retail losses.
Accordingly, we've hired Hilco global to assist in the liquidation of these stores.
Negotiated flexibility without a lot landlords lots to allow us to adjust that liquidation time frames based on store openings.
This was a difficult decision to make.
We're incredibly appreciative of all the members of the retail team for their hard work and dedication over the years.
After completion of the restructuring I retail stores will initially consistent what is 41, Dick and why.
13, Karl Lagerfeld Paris.
We plan on returning these brick and mortar businesses to profitability.
Additionally, our ecommerce site, although small unprofitable will include Dk why.
Donna Karan Karl Lagerfeld, Paris, Andrew Marr.
Wilsons leather and T.H. bass.
Yeah, I will walk you through the financial details of the restructuring.
As for wholesale.
We are anchored by by outside logo power grid Sicad why.
Karen Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld.
They'll continue to be the primary sales and profit engine for T. Three.
We remain focused on leveraging our wholesale expertise to drive long term growth.
Prior to the pandemic with half the quarter behind US we were seeing good momentum in our wholesale business.
Allocating a strategy and the strength of that product offerings.
At stores close and shipping dramatically decreased we reacted decisively to reduce their inventory exposure.
We're being conservative with respect to ordering future inventory and we'll continue to work closely with our retail partners in planning out the rest of the year.
Over the last 40 years.
Weve earned their respective out vendor base, our retailers and our licensed stores, we have a well diversified distribution base across retail channels, including department and specialty stores.
Well right stores.
Warehouse clubs and ecommerce site.
We anticipate further closures in brick and mortar retail, but we believe we are well positioned to ultimately retain and increase our business whether through their brick and mortar stores what their online sites.
It's important to remember.
That we do a significant amount of business throughout partners online sites as well as through our own site.
In some categories online penetration couldn't reach over 40% of total product sale.
We will be actively working with our retailers dedicating additional resources to further drive sales in their online sites.
We're also making significant investments in our own online business.
It's a matter of fact over the last couple of months around you can wind Karl Lagerfeld online sites, we've seen a significant comp sales increase.
We ended 2000.
It hasn't 20, with a sizable and growing wholesale business.
Our Calvin Klein brand approach annual sales of $1.1 billion.
Tommy Hilfiger was nearly 500 million annual sales.
And our own became wise Donna Karan brands were over 450 million, an annual sales and Karl Lagerfeld was that just over 110 million and I know itself.
[noise] outside of North America sales grew strong double digit significantly driven by the distribution of Baird became library.
Overall, we have great base to continue to build though.
We will be patient and be prudent decisions preserve liquidity as we get through these challenging times.
I'm confident that are solid financial footing and a dedicated management team will enable us to successfully navigate through this crisis.
We will exit in a strengthened leadership position as a much needed supplier in our industry.
I'll now pass pass the call can deal for a detailed discussion about first quarter results Neil.
Thank you most.
Firstly, let me address the retail restructuring, which we announced this morning and includes closing all of the 110, Wilsons leather and 89 GH bass stores.
We are pleased to reach to deal with all landlords. It provides us with the flexibility to liquidate our stores they begin to reopen.
We have hired Hilco global to assist with the liquidation, which will begin immediately I scores we open.
As a result, the company expects to incur an aggregate charge of approximately $100 million in this fiscal year, primarily related to landlord termination fees seven schools.
Store liquidation in closing costs might also related to write abuse assets and legal and professional fees.
We expect the cash portion of this towards to be approximately 65 million downloads.
Now turning to the results of our first quarter ended April 30 2021.
Corona virus pandemic has had a significant impact on our first quarter.
As Mark indicated we entered this fiscal year with good momentum.
However, mid March we were significantly impacted by the outbreak of defense healing the U.S. and the great majority of our retail partner stores, along with our own outlet stores closed on the state wide shut down orders.
So with that perspective, let me walk you through our results.
Net sales for the quarter ended April 30, 2020 decreased approximately 36% the $405 million from $634 million and the same period last year.
Net sales of our wholesale operation segment decreased approximately 34% typically in $79 million.
$571 million.
Net sales of our retail operations segment for the quarter with $34 million, approximately 59% lower compared to last year's sales.
$2 million.
Gross margin percentage was 30.7% in the first quarter fiscal 2021 as compared to 37.3% your prior year period.
Gross margin percent did you know wholesale operations segment was 29.6% compared to 34.9% last year's quarter and was negatively impacted as a result of recognizing certain fixed cost.
Primarily higher effective royalty rate over a reduced sales based.
The gross margin percentage in our retail operation segment was 35.9% compared to 45.2% in the prior years corridor.
<unk> expenses were $155 million in this fiscal quarter compared to $202 million the same period last year.
We took a hard look at our best DNA.
We had to make some difficult decisions in order to preserve capital.
We significantly reduced payroll by Furloughing, approximately 60% of a wholesale team and 80% of all we joking as well as implementing significant salary reduction the management and other employees.
This is in addition to previous efforts, which we had been reducing head count in our China wants to do is consistent with our efforts to shift sourcing away from China, resulting in a 50% head count reduction in our China Lucky since.
We are bringing our workforce back the thoughtful manner stores open and we ramp up our wholesale operation.
We have also reduced other discretionary spending which includes marketing and capital expenditure.
Furthermore, we continue to have conversations with a license important ours to see contractual really.
Our efforts have enabled us to reduce our monthly cash expense by approximately $35 million.
Net loss for the quarter was $39 million or 82 cents per share compared to net income of $12 million.24 per diluted share in last year's first quarter.
Non-GAAP net loss per share 75 cents for the quarter compared to net income per diluted share of 25 cents per share in the prior year.
Non-GAAP results in this quarter exclude the impact of noncash imputed interest and asset impairments.
Full reconciliation to GAAP results are available in our press release issued earlier today.
Looking at our balance sheet accounts receivable was born in $21 million as compared to $478 million at the end of the prior years quarter.
Inventory decreased approximately 7% to $500 million.
Our net debt was down to $285 million from $363 million in the first quarter of last year.
Our current liquidity position remains strong and leaves us with significant financial flexibility as we work our way through this difficult disruption.
As for our guidance the impact of the pandemic continues to be fluid, making it difficult for us to forecast results for fiscal 2021.
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.
Thank you welcome joining us today.
I've always said that we achieved three a fortunate to have a highly skilled and experienced management team.
And this had them because really put them to the test.
I'm incredibly proud of how well the rally.
Themselves and their teams to respond and creative and innovative ways in order to enable us to manage through the effects of this bad debt.
Our ability to quickly respond to changes in the marketplace will enable us to effectively navigate through these challenging time.
We have the experienced talent.
Global alliances and financial flexibility to manage through this most difficult period and to continue to be a leader in.
We also believe that as opportunities arise.
These three will be in a position to capitalize on the ones. We think we'll sit in our company.
We will emerge much stronger and we will prosper.
On behalf of the entire C organization I'd like to thank all of Akcea holders and stakeholders for their continued support.
Operator, we're now ready to take some questions.
Operator.
Neil.
I'm here.
Do you have an operator.
Yes, Oh.
Right.
HM.
Oh.
Uh huh.
Okay.
Please standby will become part of the kidney roster.
And our first question comes from a line of I'd like your along with Keybanc capital markets. Your line is open.
Hey, good morning, Thanks for taking my question and Hope you and your teams are staying safe and healthy I guess, a couple of quick ones for me first I'm on the retail business on me that on a trailing basis, that's easier kind of what were the losses of the piece that you are I disposing of in kind of I know you said that you hope that the.
Remaining piece, we're trying to profitability, but kind of timeframe around that second Morse any commentary on the outerwear backlog and maybe also click down a little bit on your comment on opportunistic inventory purchases in the back half. Thank you.
So I I will take the back end of the question first that back on I wrote a book on the Coke side of that business is down approximately 30% comp last year.
About where in the process.
Re navigating that piece, we have an opportunity to do business in excess of last year. Our resellers are now back in business.
Factories are waiting for additional orders or the the mills have availability a piece good.
And we can we can do business in excess of last years numbers, and Oh and the coats side of the business before the stars are line.
The Oh I'm sorry, the second part of your question that didn't relate to the coated.
Oh, Okay got it.
Yeah got it.
Yeah, So ed with respect to the retail losses not late last year, we the retail segment lost approximately $55 million on a excluding the impairment charges.
The great majority of that.
It was from the Wilsons and bass business as we then as we said in the past the Donna Karan business as long as is the.
The combination of Don accounting Karl Lagerfeld has run has run losses.
And.
Primarily that as a result of trying to get the Formula might you have a very small store base, we expect expand that store base and be able to leverage that business.
In the first quarter, we continue to run most isn't the retail segment, they probably doubled from where we were just under doubling from where we were in the prior year.
And try to when they do one other quick.
Yes, just in terms of wouldn't discuss becomes profitable, it's a little bit challenging to the pinpoint that we're not really even out with guidance on the entire business. Good. This year. So it's very difficult to assess that at the moment.
Got it and I follow up.
Okay.
And I'm sorry, the second part of your question targeted at me, which was the opportunity buys we have an innovative entrepreneurial team.
That lives.
Lives overseas and an assortment of countries and their challenge is going to find opportunity buys a in Sandra a lot of what we're lucky for today, our core basics fashion is not as important this year going forward.
But you know whether it be fleece.
Data or some technical fabrics.
That are common too many vendors, we're finding opportunity buys.
We believe we can take advantage of to enhance margin and create a.
A suitable a third and fourth quarter business. So that that was my reference to opportunity but.
Great. Thanks, so much faster.
Thank you it's actually a question.
Thank you I don't next question comes from Erinn Murphy with Piper Sandler Your line is open.
Great. Thanks, Good morning, and I Hope you are all things safe and well I guess my first question Morris. It's for you could you speak to what you're seeing <unk> Pos at your retail partners have started to open stores and then how to traffic or haven't bafin looking, particularly if there any major I'd different between regions.
Sure.
Prior to.
The protests and more and more specifically prior to the Lootings business was tracking at about 30, 30% to 35% off would be the closest number I could give you through through out the department store sector and.
Even the even the off price sector.
There are their business was.
Err on the early stages of coming back a there they were ER most retailers who are surprised that it was as good as it was and we were on track to to.
To recapture where what we left off with.
Today, the interruption caused additional stores to be close.
So the door counts I don't know exactly what about retailers.
Closed approximately 50 additional doors is another one close 30 doors so it feels like.
20% of the door count shuttered.
Until that is clarity on a.
On what the looting situation is some of them, we'll be well be delayed and reopening because it would totally damaged is a lot of damage that was done to the physical facilities or the the looting of all the inventories so that'll take a while to get back into this.
But there were many stores that we shut it in anticipation of losing that simply open up.
The traffic.
It seems like traffic is down about 25%.
The and as soon as that are open obviously and the size of the basket has grown significantly.
It seems as if the shopper that's out there truly is a shopper and not just walking through the stores there.
There are armed with money and they're eager to buy.
So the the sales are driven by greater conversion and the bigger basket.
So we're quite hopeful.
Give you an idea of what we looked like we have 60 stores.
In.
In China.
And for the month of May they they went through the pandemic guns as we all know.
For the month of May they are comping, they comped up low single digits. So you know we're hopeful that we can follow that pattern and we believe that there is there is a good lights to come.
Thank you that's very helpful context, I guess, the second question I had it kinda furloughs Labor I think you said you for like 60% of your wholesale labor. How do you think about the case, that's bringing back labor and are you having to currently compete with unemployment.
Whether retail you could think retail you have left or the wholesale labor.
So we have a plan to begin to come back to work on the 15th the June.
We will start with a skeleton crew, we've we've told our associates to see who who is willing to come back to work and.
And who has a handicap the child care health issue or is simply a fear of coming back to work and we believe will will open outdoors.
With approximately 200 people that are properly space.
Properly guided with people he equipment, we have we have temperature monitors in our lobby we have control of five elevators that are exclusively to cheat the reviews to GE three we will.
Permit only for people in an elevator his time well staggered schedules.
And I believe we'll figure out what's the best formulary is where we're coming in where the strategy but strategy that.
Given the problems that we might occur that could change.
The scale, a the scale of the operation and onsite.
As a valuable number we made permit some people to work from home for a period of time.
But culturally we're about working on site and however, long that takes we will all be together sooner or later.
Right. So we're looking forward to it.
The oxides and worked incredibly well.
We've had committed people that that.
Dedicated all their time, probably work harder from home than they do in the office and it doesn't go unnoticed, it's appreciated and needless to say or.
Most of the people that work as hard as they did or were you know were affected by salaried decreases it wasn't about money was about the culture of the company. It was about passion that what we've always advocated.
So.
This is this is a wonderful company to be associated with I must say.
So.
Aaron in Ah Ah I guess normality will come as soon as become.
Thank you. Our next question comes from that go meet with Wells Fargo. Your line is open.
Good morning, guys. Thanks for taking my questions I'm glad to hear all doing well.
I think you come is roughly 25% in the business. If you guys can just talk about what you saw at wholesale dot com and DTC in the quarter and what you're thinking about you know as far as the size of the remaining Wilsons bass business and Mcmorris mentioned, it's profitable, but any additional color there any thoughts on that.
Business going forward.
Hello, Let me address your last comment the size of the Wilson bad business will be limited to little bit of wholesale with bass.
The rest of the business the retail brick and mortar.
All going away all of it.
As soon as that doors opening we will go through a process.
Liquidating our product.
We've engaged hilco global to assist in that process.
Our landlord you've been great.
Obama dated timeframe. If we're done quickly we will shut outdoors and go away.
I read in a period of time that liquidating is either percentage are very reduced rate and we will augment the inventory that we sell through to help ourselves on.
Inventory that sits in our warehouse whether dated door current that was cancelled.
So we are we are done again with with that said well the pieces that will remain movie the online.
There's a royalty that we derive.
As a license software bass and several classifications.
So that you know that just so the drops down to the bottom line there, but there won't be any any cost attached to operating those retail retail that will remain.
Is that you can y and Karl Lagerfeld.
Going through.
Good period of time our business.
During the pandemic area.
So as we're close the.
Online business was up.
Up approximately 60% comp to last year.
On a both Karl Lagerfeld and became y.
And last year was unique year for Karl Lagerfeld Carl.
It's amazing man and this I kind of designer passed away.
And we had we had amazing business during that period of time, everyone. Everyone wanted a piece of the memory of Carl.
And inside of that business. This year for this period of time is comped up 60%.
So where our customers online business has prospered as well some of them.
Doubled their online business, where we have a beneficiary of some of that we provide product for it or warehouses were geared then maybe accommodations to.
Drop ship to the direct customer on occasions, and fulfilled the need of the department stores and supplying them with needed on line CRADA.
So we are well controlled on retail a we recognize the significance.
Of our online business, we believe.
In the coming year, we can we can be as much as a third of that total business will be dedicated to online sales.
Okay. That's helpful and then if I could follow up with one more.
Yeah, there's a big focus on denim this year at three of your core brands and you know given recent events I think denim has been speculated it's a less popular category as consumers are kind of focusing on things through at home or exercise et cetera have of your plans changed at all with the Rollouts are those remain on schedule or you know kind of how are you thinking.
About that.
Quite honestly quite the contrary yeah, we read the same press, but were not the recipient of poor business in denim.
This is in the denim areas.
Exceptionally good one of the early dedications to future inventory that we just work done was buying a significant amount the denim for third and fourth quarter.
We launched extremely well with the CK and Tommy L and we had a softer launch with the.
With Dk and why it was not intended to be a big business. This year, but if anything or denim business is better than we had anticipated.
Not not an area to be concerned about.
Great. Thanks, guys.
Thank you.
Thank you.
And our next question comes from Rick Patel, with Needham and company. Your line is open.
Good morning, and hope everyone is well [noise] two questions on inventory a first can you talk about the current composition I'm curious how much of it do you consider to be seasonal, but I mean right now [noise].
Versus product that could be Oh, hey, or held back fill demand.
And then second I just wanted to a little earlier question and just get clarity on how you're planning to fall I.
Yes, im seeing opportunities and [noise].
Does it mean that you're planning inventories up for those certain categories or does it mean that you're interested ace. It a if you see different areas.
Okay. There's there's level of seasonal inventory that we're trying to manage our way through as stores open.
There's a level.
Packaway inventory that.
We are dealing with the packaway inventory in many cases.
Has an order attached to it we were.
At the earliest stage of shipping swimwear and most of that you know just went to the sidelines or it was too late to ship swim, whereas the stores open and we've got orders that relate to.
Resort for our swimwear, so we've solved the problem of inventory.
We.
We comedy the space needed to house, what what is considered packaway and.
The the bulk of our issues.
The kinda fragmented in every area.
Yes, it depends on the classification, we've always described our business operationally as fragmented by classification.
So not all that well our classifications are equal or there's a performance. The active wear leaves you with areas business is very strong. That's that's all anybody has worn for the last three months.
So clearly there there are no inventory issues.
There have been significant reorders.
And.
That areas.
Has.
Virtually clean of inventory.
Where our inventory strike really exists.
We do have a crime business, we do have a social dress business. So the first thing that we did as this pandemic occurred and we realize stores, we're going to be close then.
We're not gonna be very many social gatherings, we tried to cancel every bit of products that we could we didn't catch it all so we're sitting with I'm a little bit of social dressing we're sitting with some Korea suits were sitting with some day dresses.
But short of that.
We're okay on the inventory side, the Packaways and the somebody described that we're going to put a ribbon around some of what what was created and not fragmented not sell it off just bring it back into next year. The product is great. Its first class.
Problem product.
So we're working towards.
Solving.
The maybe some of the dress businesses.
A shoe business is good the casual shoe business.
The dress shoe business, which has not been a very big part about total footwear side.
Is more problematic, but can be shoe is strong and this is this is a flip flop era literally.
The descriptive form.
The the flip flops a strong sandals this strong.
So we're fine with that and a lot about.
And then business was is more casual than has been star.
We're okay and the inventories side of it great vendor base that accommodated holding some peace goods into next year if needed.
And as a as Neal is described.
Were in great shape as far as cash is concerned we didn't have to goes markets to borrow.
Were in good shape on inventory and as soon as warehouses are retailers warehouse open or inventory levels have come down or we have what is the ship.
And will generate.
More receivables and Ah Ah, that's been a little bit of the delay and payment.
[music].
Very well balanced retailers that there are no credit issues with and we were looking forward to getting back into business.
So just in Wendy.
Sorry about the long winded questions.
As we operate the distance from our associates Nobody's He had a wave me off.
[laughter] I everything else I.
Oh no. It is great and just to clarify the the state you've made earlier on or where I think the order book is down 30, but you see the potential for that business to be I or are you planning inventory opt for outerwear or do you think that you're just position to chase if you see that demand manner.
Oh, it's kind of a better question asked of me. Unfortunately in a couple of weeks yeah. We have this window of opportunity to still execute third and fourth quarter that only goes a few more weeks and we hesitate to be too aggressive.
We don't know, what's coming our way and.
In a second round, we don't know.
How quickly you all the stores that attempted to be opened will open so as as we do the analysis I'll have a better idea.
As to how we manage our inventory last thing I want to do is have excessive inventory going into next year, we like you know.
We like the story of we have plenty of cash and we're fine.
No. One is I don't want to come back to you say you have plenty of inventory fine I'd, rather be with the cash.
Thank you Mark all the best.
Thank you Rick Thanks for your question.
Thank you and your next question comes from Heather Balsky with Boa Your line is open.
Hi, Thank you very much I'm glad everyone's doing well.
Okay.
Morris you talk a little bit about you know potential consolidation industry on the wholesale side and and I believe to retain as customers I was hoping to talk about you over the past few years since you've seen stores close you know what you in your partners have been able to acute or retaining those customers whether its online or another store.
And I guess, you maybe a little more color on how you see the industry. You know team you know over the next year or so given given what's happened what you think girls companies look like.
Oh I went just staring and that's all I can mean for margins some of these.
Our underproductive stores close.
Thank you haven't.
So.
Having.
Having five power brands Ism is an amazing advantage.
When.
When a retail it takes their magic wand and says everything is canceled.
It Hurts committee.
They sit back they recalculate and say, we can't survive unless we have the brand said dry customers doors open.
So the first thing the first level of business.
That.
We're corrected after the first cancellations, where the brand the brands or what drove that customers. It through the door. There's you know whether it's whether it's a club in off price channel or traditional department store or what.
What the customer really is looking for is a value for for product, it's not necessarily the cheapest product out there they want to know that the product that they're buying and Scott intrinsic value that generally is.
It is attached to a Brad so we got huge percentage about.
Or what is reinstated where almost on a normal process and we believe that.
And that we believe the orders that we got reinstated would not at discounted rate, we didnt permit that to happen we have alliances with that.
Retailers that are that go back many years and in most cases, where either the first second and third largest vendor to those retailers.
There is there's the respect there's a need and.
It goes both ways to make the accommodation and where we're fine on the margin side.
The dilution is not what one would expect during this crisis period and I'm happy to to see I was concerned obviously going into it.
But we Oh, we're okay. We.
How about challenges.
But the.
Partnerships that we've created over this company's better business.
Since actually since 1956.
And some of it some of the alliances are 30 40 years old.
They do look out for our longevity then there is a high dependency on us and the retailers that we trade with in most cases.
Not high risk.
Don't provide products for J crew, we were not.
Staged.
Provider, we don't do Forever 21, Oh, we do.
There is a risk that.
What's Lord and Taylor.
We were.
Slightly with J.C. Penney and Neimans.
But nothing nothing astronomical.
And the doors that we have a high dependency on don't seem to be greatly affected.
Macy's is our largest customer.
There's talk of their door count or decreasing or if it does if their door count does decrease.
It'll be there a deed doors, a that generally don't affect us any degree and if it if there isn't effect, sometimes it's positive because we do participate in helping them on the margin assistance. So those are the sold that historically has been the culprit.
And now world. So we see diligent maintaining their businesses, we see kohl's is becoming a better retailers I stepped into coals and so I have is re assorted their mix.
And.
Needless to say, there's the Walmart business to address and yeah. We've cited some opportunities to through all of this that weve never realized we had been pursuing those.
So where we're excited about our time as noted in.
In this industry wide so.
Heather Thank you.
Thank you. Please go ahead.
I understand.
Oh hi.
Hi, incur <unk> Neil I was just wondering if there was there any I guess reserve for future markdowns are markdown dollars in first quarter gross margin.
I'm just wondering if anything there thanks.
Yeah, and weaker yes, we continue to provide markdown support and cools and we did that in the first quarter as well.
Thank you.
Thank you and your next question comes from John Kernan with Cowen Your line is open.
Good morning. This is krista zuber on for John taking for taking her questions just to kind of a follow up on that the 100 million deal that you outlined for the onetime restructuring.
For the retail segment restructuring just kind of wondering I'm trying to get the cadence.
How that'll be spread out through fiscal 20 wine and then just on the follow up question with really just sort of in response to liquidity cash flow generation can you provide something inside a couple of run rate of camp that could be expected to change and you see any pay down or the question.
Gallium tremendously.
On 2020, Kim Thank you.
Sure.
So with respect to the cadence of the liquidation charges that'll hit us significantly in the second quarter in the third quarter.
With respect to Capex, we did about $6 million down from about 13 in the first quarter, we really clamped down on really almost a little cap capital expenditures. So I would expect because that will continue to stay that way.
Good balance of the yen.
With respect to paying down the term and the B L. A again, it's very hard to look into the future of your <unk> and what.
Sales will be what profitability will be in there for what cash will be so at this point I wouldn't suggest that we'd be paying we'd be paying down the term.
Again, we really look at what we've got on hand, and feel very comfortable stepping into what we hope will become the new normal and see business start to rise and then we'll have a better sense of.
What we're really looking at as the year unfolds.
Thank you.
Thank you next question comes from Dan testing your line is open.
Good morning, everyone and glad everyone is safe and healthy.
Marsh's you think about the promotional environment going forward into the stores reopened what are you expecting and what do you think it looks like and then just secondly, if I may on digital given that digital was the only thing that was open during the time period at the store closures what insights to take away from digital what do your own or your wholesale partners and the margin.
Characteristics and customers.
Insights that you learn from that thank you.
Thanks for your question Dan.
Stores are opening with Easter inventory quite honestly, you know there's inventory that was a stage for.
An Easter selling area and those those goods are gonna be highly promotional.
Is that it's time to get rid of it it's not going to get any better.
And if we see product that looks really really cheap, it's it's inventory that should be out of the store.
As they replace that inventory with more current goods were seeing a normalized margin. We're not seeing we're not seeing product that's highly promotional and sales are quite good attached to it so.
So we don't we don't see this as a.
Yes. Good this is the literally just the stores giving away product.
We see it is as a profitable period of time as soon as you know the dated inventory is put out as a way we learned on the digital side that.
We don't spend enough money to be important on digital whether it's our on site.
Or a customer site. So we've created a budget that.
We implemented part of it that relates to our customers and we've gotten the pure benefit of it you know you see it you see it almost immediately so as I said earlier.
If you were on the call.
We believe that our overall businesses as a percentage of sales digital will be.
This year.
The obscenity a third of our overall business.
It is profitable where.
Learning a little bit on the distribution side, who is trying to find accommodations to.
Not use third party providers for it because it is costly where.
We're doing some of the distribution through.
Our own warehouses that were searching for a large facilities that so well accommodate drop shipping directly to to the customer so the future.
The futures clear digital is going to be an important part about business and we're hiring for it.
We'll have a capex budget that we're preparing that it's specific to the digital.
It will absolutely be a way of life.
Thank you.
Thank you Dan I think your question.
Thank you operator next question comes from Adrian need your line is open.
Good morning, and nice to hear that everybody well wants just actually follow up on that digital come that you get.
Recall that what percentage of your digital with your own versus BTD or wholesale digital and it isn't that one third I guess over the course by the ended the year. So.
What will be your own brands digital first it theoretically.
Thank you.
So our own brands.
You need to remember that of our power brands are the two that we have autonomy with ER, Karl Lagerfeld, and Dk and why we own those friends and we have the right to do as we need to build site build product and service.
Consumer directly with these about brands.
With.
Calvin Klein and Tommy Hilfiger, the flow of product to the consumer.
Is.
The right of CK it on their own sites for our retailers and we provide the products for both.
So it's hard to disengage you know the pieces from what we service retailers with and what we what we do on the direct through our business.
Clearly the pieces that we do on a direct bases.
We.
Through our own brands, we much much better we get.
Retail margins.
But there is there's clearly an advantage as well too to accommodate you know the needs of Macy's Dillard's Belk.
I'm their sites or nordstroms.
So.
Again are being cloudy as to the pure.
The dollar separation the the read the.
Our customers online sites is significantly larger than our own site.
But we're building it a we've hired talent, Florida and as I said.
Aggressively.
Trying to become significant on the marketing side.
We are using besides the two power brands.
Bass is an important brand on line side is a factor with closing stores and Ville brick and beginning to.
Pickups and pace of both domestically and internationally.
Operated sites and then.
Great both sites the international piece and the domestic side.
So again.
And to finalize it not giving you a clear picture of the dollar separation, but they will both be significant.
In the future as they are today as I stated there about a third of that business today combine.
And.
Sure that the pace of our company owned brands will increase.
Thank you operator next question comes from Steve Marotta inline with Okay.
Good morning, Neal earlier on in the call you mentioned that international was up double digits in the first quarter I want to make sure that was correct.
He is.
Can you remind us what international penetration was in the last fiscal year.
And lastly are there any blueprints from the reopening of international markets that can be applied here anyway. Thanks.
This is Steve <unk> International business represents about 15% of or like total business.
I think with respect to the you know you did whether or not.
Blueprint for us is.
Probably not it's probably challenging and that it really is a different segmented business than what we have here in North America. So we're learning and it and exploiting that business significantly with the King why the business grew significantly last year to became why side of the strong double digits.
I don't believe they didn't necessarily translate some of US back here in North America, just because of the again segregation stores.
Helpful. Thank you.
Thank you and her last question comes from Susan Anderson Your line is open.
Hi, good morning, Thanks for all the details on the call. This morning, and Yeah. I was wondering if maybe you could talk about that cost reduction flowing three to second quarter in the second half that this year and how we should think about that first is the first quarter and then also what you're expecting for cash.
Burn in second quarter versus first quarter [laughter].
Yes look the second quarter.
Has begun is the first quarter sort of ended we have you had to totally good month may need to totally good month of April Fortunately, we put in a lot of or cost cutting quickly and we started to realize an April. So again, we continue to see that in the month of May.
And now we're hoping that business to start to open up and as business is open up we'll certainly bring back people to fulfill our stores will bring back people to to work with the wood with our own wholesale side as far as directly supporting store business.
So the hope would be that anstine cuts starts to become reduced can we see topline growth and we'll we'll bring those both on as we see the revenues coming on.
So.
Any further questions.
Thank you operator.
So thank you offer spending time with us today.
They are healthy and stay safe and Ah stay tuned.
Well too soon thank you very much.
Ladies and gentlemen concludes today's conference call. Thank you for your participation you may now disconnect.
[music].