Q2 2021 G-III Apparel Group Ltd Earnings Call
At this time participate trying to listen only mode.
Because the presentation it'll be a question answer session.
The question Dinesh Anita I start wondering your telephone.
Please be advised cities conference is being recorded if you're crazy criticisms. Please press star zero.
I'd now like they had a conference over to your speaker for today, it's been known that we see Oh, you may begin sir.
Thank you good morning, thanks for joining us.
Before we begin I would like to remind participants that certain statements made on todays call and acuity session may constitute forward looking statements within the meaning the federal security laws.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied forward looking statements.
Important factors that could cause actual results of operations or financial condition of the company could differ or discussed in the documents filed by the company with the FCC.
The company undertakes no duty to update any forward looking statements.
I will now turn the call over to our chairman and Chief Executive Officer Morris Goldfarb.
Good morning, and thank you for joining us.
Also joining me today, a sammy Aaron as Vice Chairman and President.
Neal Nackman, a chief financial Officer, Jeff Goldfarb, Executive Vice President and Korea, Trivedi, Vice President Investor Relations.
Gee three is a merchant led company with an entrepreneurial culture that can identify and swiftly execute on opportunities and situations.
This has always been a competitive advantage and even more so in this pandemic world.
We have evolved into a well diversified apparel company.
It is impressive to see the expertise and the dominance we've developed especially over the last 15 years.
Weve fueled our growth and captured market share in almost all major classifications, including sportswear.
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Dresses athleisure.
Separate.
Jesus.
When were handbags and footwear.
These categories enable our brands to be displayed in multiple locations and multiple floors about retailers stores.
With some brands in over 10 locations per door importantly, our merchants have proven to be nimble.
Shifting talent their resources to product categories based on rapidly changing consumer demand.
Our strong portfolio globally recognized brands sold across a broad array of diverse distribution channels has also set us up well to successfully manage through these unprecedented times.
Hi management teams structured by brand and bike category, a responsible for driving sales and profitability of their individual businesses.
This enables us to continue to operate efficiently and at high levels of productivity.
I am I am incredibly proud about people for meeting the challenges posed by the pandemic to adjust quickly as we navigate through this complex environment.
Let us review some of that key developments and accomplishments for this quarter.
We work with our retailers to reassert and reallocate our order book for the balance of the year.
Although a product categories had been evolving toward more casual dressing over the last several years.
Teams were able to move rapidly the further change up fall and holiday seasons product Assortments to address the clear a shift in consumer needs.
We feel comfortable with our inventory positions as our vendors have worked collaboratively with us to ship I production to align with our redevelop daughter book.
As a matter of fact inventory levels were down 32% this past quarter as compared to last year's second quarter.
Let's walk through some of that bigger categories and provide you with some additional color on the product mix.
The demand for outperformance or athleisure, where category is really accelerating.
We've built the strongest Central's program, which enables us to replenish quickly that's still a tape demand both in stores as well as digital.
I recently added genes lines for three of our power brands lend themselves perfectly to today's casual an active lifestyle.
From their initial launches we designed these lines to have a ratio of multiple times to one by them.
Our focus is on casual uncomfortable tees woven tops sweaters and sweatshirts.
We've also added in sort of end of relapse bottoms leggings and casual pants in a variety of fab.
Overall with three of them most globally recognized power brands became like Calvin Klein and Tommy Hilfiger, we've become the dominant resource in athleisure, where.
We expect the athleisure, where in jeans category to be a bit growth area for us going forward.
Coats or another classification that we're best positioned to capitalize on.
We're seeing a greater demand for codes based on a population is growing interest in an active lifestyle and an indoor activity outdoor activities, including walking running biking, hiking and dining.
To meet this demand we've expanded our offerings and traditional midway styles, Packable jackets and layered pieces.
All designed for comfort and functionality.
As for sportswear for the fall and holiday season, we're emphasizing the casual components of these collections, featuring knit and woven tops and sweaters.
As well as casual comfortable dresses and bottoms.
We're also seeing good traction and casual handbags and footwear.
The flip side, we have de emphasize categories like suit separates.
The Korea come out components of as sportswear lines and social dresses.
I'm full assortment of products come together to offer a great selection of casual comfortable clothing, and accessories that can be mix match and layered for spending time at home and outdoors.
In early June we also announced the restructure in Nevada retail segment, which includes the closing of all out G.H. bass and Wilsons leather store locations.
The store liquidation is are underway and progress going to plan.
Last year, a annually operating losses for these stores were approximately $50 million.
We expect the restructuring to eliminate almost all of these losses.
We are optimistic about our ongoing dk, and why and Karl Lagerfeld, Paris stores and digital sites.
In addition to restructuring our retail operations. We also made the difficult decision to reduce our global wholesale headcount by approximately 20%.
To better match AD business needs.
Staff reduction is expected to result in annual savings of roughly $22 million.
We further solidified our capital structure and enhanced our financial flexibility and liquidity by refinancing our balance sheet and extending the maturity of our revolving credit facility and term debt to 2025.
We issued $400 million in senior secured notes, which repaid the previously outstanding 300 million dollar term loan and increased our cash balance by approximately $90 million.
We also simultaneously amended and extended the $650 million revolving credit line.
Now turning to some more of the specifics about business in the second quarter.
Many that brick and mortar locations that partners as well as our own were closed for about half of that second fiscal quarter.
The majority of the stores reopened the current generally in the months in June and July we saw positive week over week trends as a result of the pent up demand.
This resulted in sequential improvement in our wholesale shipping for each month of the quarter.
Let's review the financial results for our second fiscal quarter ended July 31st.
Net sales for the second quarter were $297 million compared to last years 644 million.
GAAP loss per share was 31 cents compared to a gain of 23 cents per diluted share last year.
The GAAP loss per share for this quarter includes a 53 cents loss per share related to the operations of the G.H. bass and Wilsons leather stores, which will be closed after the liquid the liquidation sales.
The pandemic spirit ripple effect on the retail industry has been evident with the unprecedented disruption, causing bankruptcy filings and announced store closures.
And our view the reduction in bottom tier unprofitable retail store locations will be a long term net positive for our retailers as they deploy resources to their digital business and top tier locations, which will ultimately improve their overall financial health.
Our consistent track record for execution is drawn financial results physician position us well to capture market share and grow our business and what will clearly be a narrower field of competition.
Let's take a moment and talk about a digital businesses.
The second quarter. This year, we saw significant demand in our retailers sites through all categories.
On our own became Lion Karl Lagerfeld parasites, we had comparable sales increases in excess of 60%.
We approximated last year's digital retail revenue on our partner sites as well as ours to be an excess of the billion dollars.
We are increasing our investments on both the Frontend and backend.
Dedicated teams in the us.
Europe, and Asia working to capture a growing share of the digital businesses.
These teams focus on our brands sites as well as our retail is sides, which amongst others include Macy's nordstroms, Amazon fanatics, Lando ace of us and tab out.
In addition to our dominant position in North America, we're just getting started and that growth and to grow internationally with our became library.
We've seen improving trends through the second half of the quarter Cross China with some comps up about 20% over the last two months.
We operate China through joint venture and will be increasing their ownership from 49% to 75%.
With thrilled to accelerate growth and awareness of the Dk and why brand live consumers in this key international market.
We're also expanding our sales in Europe, and the elsewhere through our distribution partners.
Now with our own Brandy now with our own brand weekend, why we're finally, developing and expanding these overseas markets and believe they present the potential for growth.
Our wholesale business will continue to be the primary sales and profit engine to G. III.
We remain focused on leveraging our wholesale expertise to drive long term growth.
As we navigate through this pandemic I'm confident that as strong financial position dedicated management team and adaptive and agile organizational culture will strengthen our leadership position as a as a supplier of choice and will enable us to grow our market share.
Ill now pass it to neon for a detailed discussion of our second quarter results. Thank you most.
The results for our second quarter ended July 3100, 2020 were significantly impacted by the ongoing effects independently.
We began the quarter with many of our partners owned retail stores close.
So as began to open midway through the quarter and the majority of the stores are now reopened.
As we announced in June we are restructuring our retail operations.
We will be closing all of the 110, wilsons leather and 89 GH bass locations and have reached early lease termination agreements with our landlords.
In connection with this restructuring we expect to incur an aggregate charge of approximately $100 million.
Wish of which cash charges will approximate $65 million.
Accordingly in the quarter, we recorded significant charges for our retail operations, the landlord termination fees severance costs store liquidation and closing cost lightest related to write of use assets and legal and professional fees.
On a year to date basis, we've incurred approximately $56 million in charges.
We have included some relevant break out data for the full retail operations of Wilsons leather and GH bass.
Earnings release issued this morning.
For our second quarter results.
Net sales for the second quarter ended July 31020 decreased approximately 54% to $297 million from $644 million the same period last year.
Net sales of our wholesale operation segment decreased approximately 55% to $267 million from $589 million.
Net sales of our retail operation segment for the quarter with $35 million, approximately 59% lower compared to last year sales of $84 million.
Retail sales included $20 million and $54 million of sales for the Wilsons leather and GH bass stores in the quarter ended July 31, 2020, and 2019, respectively.
Our gross margin percentage was 45.3% second quarter fiscal 2021 as compared to 36% in the prior years period.
The increase in gross margin was primarily driven by the gross margin percentage wholesale operation segment, which was 46.3% compared to 32.8% in last year's quarter.
Wholesale gross margins were positively impacted by the reversal of previously anticipated markdown to pools that are no longer necessary due to reduced wholesale shipping.
Also impacting the positive gross margin improvement was the reversal of a portion of the higher royalties approved last quarter as a result, the favorable negotiations with our licensed stores, which yielded reductions in our royalty commitments.
Gross margin percentage in our retail operation segment was 32.5% compared to 46.5% in the prior years quarter and was primarily impacted by store liquidations for Wilsons leather and GH bass stores.
We maintained our vigilance over cost controls.
<unk> expenses were down 40% to $118 million in this quarter compared to $196 million in the same period last year.
We have brought back a portion of our furloughed staff as needed in conjunction with the retail store Reopenings.
We made the difficult decision to permanently reduce our global wholesale head count, resulting in approximately $22 million of annualized savings.
We still have a portion of our wholesale employees on furlough.
We continue with significant salary reductions for management and other employees and have been tight with other discretionary spending items as well like capital expenditures in marketing.
Net loss for the second quarter was $15 million or 31 cents per share compared to net income of $11 million were 23 cents per diluted share and last year's second quarter.
Net loss per share in the current quarter included a four will versus 53 cents for the wilsons leather in GH bass stores.
Comparable quarter in the previous year included a 13 Sun was with a wilsons leather and GH bass stores operations.
Looking at our balance sheet accounts receivable were $277 million as compared to 465 million at the end of the prior years quarter.
Inventory decreased approximately 32% to 575 million from $842 million as we did a good job working with our vendors to cancel and we were quarters in anticipation of the challenge fall and holiday season.
This reduction is despite approximately $50 million of spring and summer product that we're carrying over from this year into next year.
This is the inventory that did not make it onto the selling floor and we feel will flow naturally into next year spring and summer season shipping.
Our net debt position at July 31, this year as $156 million as compared to $514 million in the prior year.
We extended the term of Overa of our revolver, which now expires in December 2025 subject to certain availability requirements. In addition in August we issued $400 million the 7.875% senior secured notes, which we used to pay off the previously outstanding 300 million dollar term loan and added approach.
Between $90 million of cash to the balance sheet.
We ended the second quarter with cash and availability in excess of $650 million.
Our current strong liquidity and financial position will enable us to navigate through the current environment.
I was wrong guidance, we continue to expect uncovered 19th endemic to negatively impact our results in the second half of the year.
Accordingly, we anticipate a declining net sales in the range of 28% to 33% and the second half of this fiscal year compared to the same period last year.
Impact of this endemic continues to be fluid, making it difficult for us to provide additional guidance at this time for fiscal 2021.
That concludes my comments I will now turn the call back to Morris for closing remarks.
Thank you Neil.
Thank you all for joining US today Gbpthree has has a long history of successfully managing through turbulent uncertain times.
Prior economic cycles, a diversified portfolio with strong brand equity has proved to be resilient.
Our highly skilled and experienced management team is essential to future success.
Our teams across the globe have performed with unwavering dedication and tremendous innovation to position Gbpthree to successfully meet the challenges we're facing through this unprecedented times in our history.
Im behalf of the entire GCE reorganization I'd like to thank all of our shareholders and stakeholders for their continued support.
Operator, we're now ready to take some question.
As a reminder to ask a question a little bit press star one on your telephone so John your question coal price the powerful clean stand out we can potty couponing Boston.
And our first question comes out.
Well the Keybanc.
You mean Christine.
Hey, Good morning, guys. A couple of quick ones for me I guess, Neil first just a quick housekeeping question. If you could maybe give a little bit more color on.
What's the reversal markdown accruals and Pal.
Kind of quantify that may be.
Just trying to help us understand exactly where that came from and then more so bigger picture question. Obviously, you've highlighted the success you've had in athleisure.
In the Casualization trend I guess, if you look to kind of revamped the business is that an area. We should expect you to continue to invest and and then Conversely are there other areas. The wholesale business that you think are maybe more structurally challenged over the medium term. Thank you.
Yes, so just taking you in order as the look when the gross margin percentage in our wholesale segment was unusually high that was a function of the two things that I mentioned the reversal of markdowns that were previously provided and then in addition, we had increased the first quarters royalty.
Charge as a result of the reduced wholesale forecast for the entire year and we subsequently negotiated similar lease to that royalty. The main piece of the markdown reversal is really a function of the fact that our wholesale business you really did not operate in the normal course of events doing these pandemic.
And so therefore, we were able to take back a significant amount of dollars.
Previously accrued for no without without specifically quantifying those amounts would I would tell you is that if you think about our wholesale business. We see nothing that we will prevent us from continuing to perform really in the low 30% gross margin percentage going forward once we get past what I would characterize this endeavor.
Unusual times at the moment.
So Ed.
Thank you for your question the Athleisure area clearly is become a way of life. It's a way of dressing today people are.
Really I don't know the last time, it really saw a tight.
But nobody is wearing ties nobody's wearing.
Nobody is wearing nested suits.
To work or to go out to dinner or to sit around.
The house and do what they do do their businesses or workout. So there is a new I'm not sure its new but it's certainly much more powerful than it's ever been so the athleisure.
Size of our business is growing very rapidly and fortunately for us.
We have three of the world's best brands that are represented in that leisure and in department stores.
Our digital sites that we serve.
And it's it's grown amazingly well.
We were prepared for growth, but not not at this level and that was an interruption of the.
Production that we had when this pandemic started so it was a stop in a major restart.
As you know you don't switch an off but none and non button than you back to normal so it's taken a little while too good to service the demand that's out there.
Alongside of that we knew we newly licensed.
CK jeans.
PVH on the women's side.
And it has done incredibly well our formula for success is a multiple of tops.
Compared to the bottoms, so they're cutting so to answer knit tops is a ton of amazing T shirts that coordinate with pretty much everything a woman whereas.
That's where very very well and CK and lease again, we simultaneously launch.
Became lion Tommy Hilfiger also known as Dan denim side of the business although small.
I've got to a lot of power in them and we believe is great future growth. There's great demand, we're going to service the demand will will be creative in on our designs and it's the way of life. It's a long distance away from where we started which was the bomber jackets, but it's a testament to.
Who we are.
We'll address what whatever the consumer is asking for and we'll do it best in class.
See you ask about challenged areas. There are certainly there are challenged areas. During this pandemic side.
We have.
We have a challenging nested suit business, although the tops in the suit area are doing well.
The nested suits the more career Susan.
Got it shared suits are not selling nearly as well as they had historically and social dresses.
And as much is we're not going to very many parties weddings.
There are.
No demand for bridesmaid dresses, so that side of our businesses challenge.
We responded immediately we knew we were going to faced with a slowdown and specifically those two areas and we addressed it.
We.
We we had little bit of inventory that we needed to deal with.
And the bulk of what was in where we were able to negotiate out of our vendors.
Either not produced it or found those other solutions in other parts of the world for it.
So.
We're fine we're a malleable company that can do virtually anything and if it's not a high heels. The led though it can be canvas sneaker.
If it's not if it's not an evening band that do where do a wedding. It's a 10. This bad that you put your workout clothing is so we pretty much covered at all.
No, we allocate our resources to whatever the consumers asking for.
Little Wordy international hopefully that helps you.
Absolutely thanks, guys.
Thank you.
And our next question comes from Erinn Murphy with Piper Sandler.
You May proceed.
Good morning.
A question for me as well I think first Neil I was hoping you could speak a bit more about their retail losses.
Sounds like in the prepared remarks, you're planning to eliminate all of the losses and I believe previously like $15 million to $20 million, maybe stranded costs in the business. So just curious what changed and if you see kind of on a go forward basis that he can wind Karl lagerfeld retail businesses actually making money on a standalone basis.
Yes.
Yes, sorry, the the losses.
From a wilsons and bass, we approximated $50 million. If you looked at the end of last year. The Deakin why called business lost about $15 million.
So we will continue to have some trapped overhead they will have to deal with.
And we and those in those businesses that we will continue with our obviously going to have to have improvement from where they were at the end of last year. The calendar 2019, and we expected that that will happen, but we will have to continue to deal with them trapped overhead in the business the disclosures that we've got.
In the earnings release or actually before any of the shared overhead expenses. So we've we've identified only the fool losses in our disclosures.
In the earnings release.
Okay. That's helpful. And then I guess my second question more assets for you and just kind of broader expectations about holiday 2020, I mean, some retailers are talking about setting holiday early I know Amazon Prime day it shifted into October.
Just curious how do you see the holiday season, holding anything that you're changing strategically if you think about product flow.
Paul.
So we're a little bit at the mercy of our sourcing structure on.
On product flow.
As we stopped production for a period of time and restarted as I explained to two Ed.
That doesn't give us free mobility as to how we flow product.
There is some issues on container space as well coming out of several countries. So we're eager to get out product and we believe that holiday will come early and we will have the opportunity the ship earlier than ever for holiday product.
There there is.
I believe there's a shortage of inventory in our industry.
Contrary to what most people believe.
The the adjustments were made early.
Impacting the availability of inventory and as you shops stores you can clearly see that so the early demand should should help us somewhat this weekend services that we can get out product here earlier, I believe we'll be able to ship it earlier.
And with that as we've stated our inventory levels are down about 32% comp to last year.
Residual dated inventory is the dealt with so there's not a lot of.
Inventory that that.
From past seasons. So all that said, we don't have the luxury of being perfect on what the retailer is going to demand.
We're going to service into that Thats, the variability and we're looking forward to having an acceptable year, it's not going to be a banner year, but I believe it will be an acceptable year. Many factors fall into place the on just the pandemic.
It's sourcing.
Is the.
The global initiatives.
The bringing product in through container spaces that somewhat limited at this point, which we believe a lighten up.
But there is there's a whole world of issues that have that have affected us and when I look at what were likely to look at it looked like at the end of the year I think this company has done an amazing job annum I'm grateful for Everybodys participation.
And maybe the patients.
Investors as well.
This is a great company.
Where we are unchallenged in many of the categories that we represent and well come out a stronger company at the end of this year.
Great. Thank you.
Thank you thanks for your questionnaire.
And our next question comes from Patel Lieberman company.
You May proceed.
Thank you good morning, I hope everyone as well.
Nice progress on the growth through digital can you talk about the outlook here and to what extent you believe this strength is sustainable and just given the investments you're making this change your thinking about what the right channel mix for the business could be as you think beyond the pandemic.
So the channel mix for us is a little bit unique we do not own all the brands that we produce we license quite honestly the majority of our volume and therefore, we can build sites for.
For Calvin Klein or at Tommy Hilfiger, or gas oil Cole Haan.
We sell the product we produce.
To the license or who then puts it on their site.
Before we can sell to pure play.
Digital businesses, we sell directly to Amazon to the Lando all the all the sites that are accepted by our license stores. The pieces that we can build and we're working at aggressively Dk why Karl Lagerfeld, where we're keeping the vast side a lot.
Five it's a very good site the product mix will change in retail price points will change the marketing will change.
And we're spending a good deal of we've accelerated.
Budgeted.
On.
Digital marketing, which certainly will enhance our businesses there the other piece that's becoming important.
As I stated in them.
Statement earlier was that we are now.
Distributing in Europe, and alongside of that comes the ability of distributing on on pure play.
Little businesses as well as our on site.
And.
Thats coming along nicely same same goes for China, so over time.
It won't be an overpowering percentage of overall sales.
But hopefully we can.
Get to as much as 20% digital overtime.
And question on the guidance for the back half to be down 20% to 33% can you help us understand how much of that plan represents.
What you would consider demand from department stores versus how much GE three maybe intentionally pulling back in order to avoid future markdown pressure just curious how much of that pullback is by design.
A good deal of it is pullback by design the uncertainty of where we.
Might end up forces to temper the level of inventory, we were willing to risk.
Our department stores.
Not operating at their optimum.
So we were conservative who is still concerned about additional periods of time with the stores might be close so rather than.
That the entire ranch, we took it conservatively.
Well as I said, we're likely to come out with a reasonable year. This will not be a stellar year. It would've been a major risk to shoot for for a great year. This year and that's not the profile of this company.
We're fairly conservative in our approach, we've got sufficient inventory to service the needs of.
Some of the needs of our retailers and as we all know.
If you.
If you try to fill every order you are likely to be left with far more inventory than you'd like without the without an outlet for or an outlet that would be very costs in a market to it so.
So where where.
We're quite happy with.
Would the.
Visibility of the.
The next two quarters look like for us and it's not all about topline we're looking at a period of time, where we're improving on our margins.
Where we are likely to.
Have better earnings and one might expect with live.
Lower topline.
[music].
Thank you all the best this fall.
Thank you thanks.
And our next question comes from Jim Duffy with Stifel.
Christine.
Neil or Morris can you explain the favorable changes to license terms with partners, who said temporary forgiveness on guaranteed minimums or or something more permanent.
Jim. Thank you. Thanks for the question the solutions that we've gotten from our license or as they're all pretty much temporary this is.
[music].
These are forgiveness for the time period that we both struggle to toward it was a fair solution.
And the future is.
Pretty much contractual subject to renegotiations if possible.
But these solutions that you're seeing the royalty reductions are temporary.
Okay, then Morris.
GP organization again, and again it has demonstrated how to be nimble with the pivot things or can you speak about how to manage through supply chain challenges and some of the challenges that you're facing.
Vendors with expertise in these areas that have sufficient capacity available to meet demand and have there been any challenges with availability of raw material.
Let me let me at the last one first raw materials and not a problem at all.
The vendors.
We've done a great job.
Moving a good deal about production from China to other countries.
Dan has become incredibly important Indonesia is important Jordan is very important for our athleisure in our denim areas of business. So we've done a masterful job.
Finding sources through either experienced talent that we hired who had experience in factories or just our network of vendors who.
Manufacturer in many different countries in our focus became the countries that are where most competitive and most appropriate for producing these products.
Jordan is duty free.
That helped us a good deal.
We became a dominant player enjoy literally overnight we've deployed.
The 10.
Managers from our.
From our Chinese office.
To live and.
Oversee our production in Jordan.
It's worth that quite seamlessly and.
That that's a primary source for as I said at leisure and.
And our denim areas the the business that we've developed overseas in Vietnam is incredibly important to US again, we're one of the larger input is from Vietnam, We moved our handbag production from from China to Vietnam.
We produce an incredible amount of codes and Vietnam.
And that that was though is a key solution for.
For Chinese production, we will.
We were as you know Jim we are onetime predominantly a code company.
The best placed in the world to produce codes became China overtime.
The other some of the Chinese vendors Korean vendors.
Or the local Vietnamese is that picked up a proficiency that enables us to produce codes. There. So we've got different countries for different areas of businesses and.
No no no concern for.
Of for really.
Crisis on on quality.
And the.
As I explained to Erin.
The.
The lack of immediate inventory is really a product of how we responded to the pandemic and how the retailers responded to the pandemic pretty much all the lights were shut for a little while and.
It hurt a lot of the vendors and now there they are pretty much back, but it takes a little while.
Thanks, Jay Thank you.
Thank you for your question.
And our next question comes from Susan Anderson.
You May proceed.
Okay. Thanks for taking my questions.
I was wondering Neil maybe you could talk about just your expectation for machine a for the third and fourth quarter versus second quarter, I guess, how much of the cost cuts will continue into the back half and then I was curious just are there any significant differences and gross margin in denim and athleisure segments.
First is the more fashion products. Thanks.
Yes, as soon as far as gross margins, we don't anticipate anything significant.
In terms of a difference between those categories.
With respect to the SGN aimed to the back half of the year, we'll continue to keep a very watchful eye on it will certainly be down compared to the prior year. That's a function of both when you Michael fixed cost reductions as well as certainly variable reductions related to shipping. So we do continue to see.
Tight trends on SGN, a the balance of the year.
Great and then just on the outerwear category looking into that the fall I think you had mentioned that it was one of the categories that actually did relatively well maybe ASP our dining out always more I guess, how are we tolerate thinking about the orders. There I think we are supposed to have a warmer start to this fall winter.
There is that impacting their decision at all or.
Because the category is in greater demand are you seeing some greater demand from that retailers there. Thanks.
We're seeing greater demand from retailers.
There is.
Yes.
Serious demand that.
We still had an opportunity of servicing it came through in mid August.
The anticipation of.
The world living a little bit more outdoors.
And either exercising or xining.
Got a new reality to two retailers and.
We had an opportunity that produce more products, which were in the process of doing.
And again, we believe will be short of supplies for the code side of business.
Inventories have never been leaner.
So going to depend on residual inventory to service Reorders is going to be a problem as well.
Thanks, that's very helpful. Thanks, so much good luck in the back half. Thank you Susan.
Okay.
And our next question comes from John Kernan with Cowen and company you May proceed.
Hi, good morning, Neil and Mark Thanks for taking my questions.
Morris.
How should we think about.
Not being able to issue.
Yes specific guidance for fiscal 2002, yet, but how do we think about how your wholesale partners.
We are going to think about their business than Parsons fiscal 20, I mean, you finished fiscal 20.
Really what your ROE most robust wholesale performance ever as a company pro forma sales and.
Margin perspective, just wondering how we think about the wholesale partners and how they think about there might think about their business in fiscal 2002 on how your vision for that business is going to unfold.
So our vision and talk about like to like accounts.
We are working hard at.
Layering on another distribution channel, which will alter our plans is that comes into place, but if were talking like to like account I would tell you that we would plan our businesses not to fully recover.
But possibly be down 10%.
For.
For fiscal 22.
With the ability of chasing I think it'll be in easier period of time to to chase.
First thing would be much better in much better place the confidence level of that business partners overseas that produce for us.
Would be in better check and.
And there is.
Greater opportunity when everybody is moving at a logical comes is state of mind.
This this is not a year, where anything was logical so to recover fully would be a big bet. So we would plan we would plan our business is down.
Mildly in 22.
Added to that there's a fair amount of bankruptcies that weve.
We've been part of the Lord and Taylor bankruptcy, certainly Didnt help us. This some of the store closures may not help top line. They may help bottom line.
And the store closures might be.
Might be a Macy's and Neiman Marcus.
The the stores that.
We do service.
They're not there we're going to give up some of the topline for it.
But.
As I said, we were known to.
Being ascends miners for new business, and that's we do that well whether its private label, whether it's going after the mass channel that we're not well populated in.
Or.
Or the international side of our business so.
So it's all opportunity.
And the yet to be scope doubt.
Good afternoon short answer 22 is probably about 10% down.
So I mentioned earlier than meals, not kicking me yet but.
I think we're aligned in our thinking we delayed.
Putting a from planned down as you would understand we're working on that now.
Greater visibility it gives us a better plan.
Maybe just one follow up.
How do you feel about markdown reserves as we go in to the back half of the year, obviously, some accruals move gross margin around you on the first and second quarter.
How you feel from about where you are numerous our standpoint right now.
Yes, if we we certainly feel than our reserves are adequate.
Probably will have a little more.
The positive impact in the second half announcing it will be anything the magnitude historically, the second quarter and like I said earlier I think that ultimately the wholesale gross margins again land in those low thirtys in that 31 to three three person zone prospectively.
Excellent. Thanks.
Thank you.
And our last question comes from Dana Telsey with Telsey Advisory group.
Pretty.
Good morning, everyone. As you think about the denim category, which is certainly a highlight given some of the new introductions, where do you see that going as a percent of sales how do you see that impact on the margins and that just following up on outerwear I believe the order book last time, we spoke for coats, whose down around 30% any update.
With that thank you.
Yes, no real change on the on the order book thing.
So.
The percentage of sales on denim side of it is not huge we're a new entry as I described.
The growth percentage rise is off the charts.
As pure dollar is not not going to have the impact that.
You.
You would like to see or I would like to see.
Over time and time is.
Year down the road, it's a different story, we launched I would say, we launched the read denim lines simultaneously and launching is learning.
As as you.
Have you first season do you learn from your mistakes and you prosper for the future on things that you've done right. So we seem to be on prosper mode. It doesnt seem like we made very many mistakes our strategy of doing multiple tops to bottoms as work.
Very very well for us.
The the problems that we have we come out of the code industry and the average unit retail per unit.
Is much higher on the code side.
The.
Distribution costs.
Per unit.
Our.
Much more as a percentage of cost for for T shirts, and they are for coats. So we're adjusting our business. Accordingly warehousing is changing our packing is clean packaging is changing.
And.
Our ability to distribute direct to consumer on some of the low cost items is also changing and becoming much more efficient. So at the end of the day.
We believe that.
There will be.
Better margin than to garnered out of the denim side of the business than the Codecided the business.
How great it coat gross margin dollars on a go.
But.
Your margin gross margin will will be better on the.
The denim side.
Great and then any update on D. can wian, Donna Karan, what you're seeing there and how you're thinking about that for the upcoming year.
Yeah, we were quite aggressive on it.
And the the digital business has grown.
Quite strong somewhere around 60%.
Over last year.
The retail business is much better we like our inventory that consumers liking our inventory we have better managers different management team then is operating.
More efficiently.
Will we are liking the business a lot.
We have a global initiative.
Working very very very well in Europe, and as I said, the Chinese part of our businesses.
We owned 49% of the joint venture we brought a partner in that was.
Quite knowledgeable on the Chinese retail market and lead.
Took back and interest only bought back in interest the 25% interest.
Therefore were left.
Owning 75% and our business in China is comping up.
For the last few months north of 20%.
We're expanding door count, we're adding franchisees and that market.
Should provide a great benefit for us on taobao as well is doing much better than they have historically, so dk and why.
Is it turns out to be a great acquisition for us It gives us flexibility is.
The hours to do as we need.
It's not that we don't have to follow the the guidelines of a license or.
Particularly in a pandemic area. The flexibility is is hours to choose.
We've done a really good.
Job of protecting the brand and prospering through its merits as well.
Thank you.
Thank you to.
Data.
And with that.
I'm sorry.
Okay that.
Right.
With that we'll we'll end the call and thank you very much for.
Being patient with us and being.
Great stakeholders and shareholders. Thank you very much and stay safe.
Ladies and gentlemen, today's conference.
Has now concluded. Thank you for participating you may now disconnect.
Everyone have a wonderful day.
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