Q3 2021 G-III Apparel Group Ltd Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for your patience and please standby.
[music].
And welcome to the G. Threed apparel group third quarter fiscal 2021 earnings conference call.
This time, all participants I know listen only mode.
After the speaker presentation, there will be a question and answer session.
Good question day, and the session you wouldn't be the press star one on your telephone please be advised that todays conference is being recorded if.
If you acquire any partnerships and she's got stars Yeah I.
I would now looked on the comp and she has speaker today Neal Nackman Chief Financial Officer. Please go ahead Sir.
Good morning, and thank you for joining us.
Before we begin I would like to remind participants that certain statements made on today's call and in the Q1 day session may constitute forward looking statements within the meaning of the federal securities laws forward.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied in forward looking statements.
Important factors that could cause actual results.
Operations on the financial condition of the company to differ are 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 are Sammy Aaron on Vice Chairman and President Wayne Miller, Our Chief operating Officer, Neal Nackman, Our Chief Financial Officer, Jeff Goldfarb Executive Vice President and Korea, Trivedi, Vice President of Investor Relations.
During this past quarter, we realized significant sequential improvements in sales trends from a previous quarter retail.
Retailers are figuring out how to manage their this pandemic and consumers are buying to their adjusted lifestyle needs.
I'm merchants early on were able to identify the meaningful shift in consumer demand toward casual uncomfortable clothing as well as the outdoor activities.
As an agile organization I personnel are empowered to act quickly to redistribute resources and allocate purchasing dollars, enabling us to have the right inventory at the right time for the right price.
The distribution on logistics team have also been working tirelessly behind the scenes they've done an incredible job keeping on warehouses operation on throughout this difficult period of time.
We're very fortunate to have an experienced and talented global team at G. III. They proactively met the challenges presented by this pandemic and continue to remain focused as we navigate through this unprecedented time.
Even as this situation continues to evolve we've elevated our position as a key supplier to our retailers and our power brands continue to gain market share.
Now, let's review the financial results for our third fiscal quarter ended October 31st.
Net sales for the third quarter were $827 million down 27 per cent compared to last year's 1.13 billion.
Net income per diluted share was down to 29 as compared to a $1.97 last year.
Our third quarter sales were driven by athleisure, the newly launched jeans lines for Atthree power brands, Calvin Klein, Tommy Hilfiger, and Dk on mine as well as casual footwear and outerwear.
We had we are tightly managing our inventory levels, which ended the third quarter down 29% compared to last year's third quarter. We.
We remain comfortable with our inventory levels and category composition.
Moving on to get this fiscal fourth quarter, we expect sales to be down approximately 30%, 30% compared to last years fourth quarter.
Let me discuss our exciting and fast growing digital businesses, where we are seeing strong on accelerating trends. We continue to focus on invest our resources to follow the consumer where they are shopping day.
Capture a larger portion of these digital sales were accelerating on global investments in best talent systems quick response distribution distribution networks as well as new on creative marketing.
For the quarter on digital sales penetration for our department store retail is approached approximately 40% upfront.
Up from last year's approximately 23%.
As for our own digital sites, we continue to experience increased demand with comparable sales increase in excess of 40%.
In China, our digital business, although on its early stages more than doubled in the quarter were really excited about the opportunities that lie ahead for us.
Online business.
Let's spend a few moments discussing the product categories that drove our sales and results for the quarter.
As expected we saw demand for athleisure accelerated across all our brands.
On a replenishment programs continue to present to represents an important sales driver both in stores and online.
Were quickly able to restart product as demand takes shape.
With three of our power brands, Calvin Klein, Tommy Hilfiger, and Dk and why we are known for providing some of the best fashion and technical design and athleisure and see the category is a very significant opportunity as we move forward.
Our Calvin Klein, Tommy Hilfiger, and Dk on wide genes collections are focused on casual uncomfortable fashion across a wide variety of woven and knit tops and relax bottoms leggings bands.
We expect these lines to contribute to our growth and profitability and feel confident that each of these genes lines can grow to be a $250 million business.
Importantly, these lines have enabled us to become an important player on the denim space in a very short period of time.
These businesses also allow us to engage and transact with a younger consumer and further further align us with today's casual casual and active lifestyle.
Speaking of active lifestyles in anticipation of the colder weather and the outdoor lifestyle of consumers, we saw better demand for outerwear this quarter.
On the fall on holiday season, our outerwear collections.
Featured expanded offerings of transitional mid weighted styles, featuring puffer jackets, and layered pieces consisting of various stretch fabrics as well as state fairs.
We believe our outerwear business is well positioned and consumers maintain an active lifestyle for the foreseeable future.
As for sportswear, we again focused on casual offerings for the fall and holiday season.
Sportswear collections features some great colors in Prince.
Which show well on digital searches and lend themselves perfectly for gifting.
On a product lines feature knit and woven tops and sweaters as well as casual comfortable dresses and bottoms.
Similar to the trends we saw on during the second quarter on.
Dk and why footwear business, great sales and strong sell throughs at retail driven by relax styles, including canvas footwear and boots.
We're also seeing strength in our Calvin Klein and became why handbag offerings here again on collections shifted towards softer styles, which complement our consumers new lifestyle.
Let me touch upon on growth plans for Karl Lagerfeld, Paris business.
Now accelerated by the consumers current demands we've developed a collection of today's essential fashions that work well with the brands per region fee DNA.
This spring, we expect to launch Karl Lagerfeld, Paris, and approximately 75, new Macy's doors.
In our retail segment, the closing of all of our GH bass and Wilsons leather stores.
Is almost complete as we discussed in the past operating losses in our retail segment relating to these stores were approximately $50 million last year, we expect the restructuring to eliminate a substantial portion of these losses.
On Dk on why and Karl Lagerfeld Harris stores are performing better than we expected.
We now operate 39 became Y in 13, Karl Lagerfeld, Paris locations, although the stores are still traffic challenged.
We've seen good increases in conversion our product is resonating with the consumers base.
Based on higher levels of conversion and cleaner inventories, we've been less promotional resulting in increased value ours.
Our store teams have also been incredibly innovative working with customers and partnering with influencers to quickly adapt virtual selling techniques to offset traffic headwinds.
We are seeing very strong results on our website for both Dk and why and Karl Lagerfeld Paris VAT.
Validation that these brands continue to resonate with consumers we were on a path to profitability for our ongoing retail segment.
In addition to the restructuring of our retail operations that we highlighted on our second quarter call, we streamlined our global wholesale headcount.
Additionally, this past quarter, we further rationalize that cost base and are now on track to recognize annual savings of roughly $28 million.
We're confident that our current staffing is appropriately aligned to support our business needs.
I'd like to take a moment to talk about our international opportunities.
Okay, and why international business was down approximately 15% for the quarter and has held up better in spite of the pandemic. We continue to develop new accounts in Europe, and the middle East a bright spot in China, where we've just increased our ownership from 49% to seven.
35% in AD de gain wide joint venture the third quarter.
We saw a month over month recovery in comparable sales trends, which culminated in a positive 13% comp for the month of October.
As I mentioned earlier on digital business in China has increased substantially.
We see significant opportunity to grow at DKL on why businesses engage with the local China market with a well known global brand.
We have a talented and experienced management team and great partners to help us achieve this growth.
We successfully navigating through what continues to remain one of the most challenging and fluid retail environments about time.
We feel good about our product assortments and our ability to work collaboratively with that strong vendor base and retailers to successfully design and provide great product.
We are well positioned to complete the year in line with our expectations.
I will now pass the call to Neil for a detailed discussion about third quarter financial results.
Thank you Morris.
The results for our third quarter ended October 31, 2020 were significantly impacted by the ongoing effect of the pandemic.
Let's begin with the retail segment.
Restructuring of our retail operations, which include the closing of all 110, Wilsons leather and 89 GH bass stores is going as planned.
In connection with this restructuring, we expect to incur aggregate net costs and charges of approximately $100 million.
This 100 million dollar operating loss is inclusive is allocated overhead some of which will remain in order to support the ongoing retail operations on.
On a year to date basis, we have incurred direct for well costs and charges of approximately $74 million, which exclude any allocations. We have included some relevant breakout data for the four wall retail operations in our earnings release issued this morning.
Well, our third quarter results net.
Net sales for the third quarter ended October 31, 2020 decreased approximately 27% to $827 million from $1.13 billion in the same period last year net.
Net sales of on wholesale operation segment decreased approximately 27% to $783 million from $1.07 billion.
Net sales of our retail operation segment for the quarter were $58 million, approximately 35% lower compared to last year sales of $90 million.
Retail sales included $38 million and $60 million of sales for Wilsons leather and GH bass stores in the quarter ended October 31, 2020, and 2019, respectively.
Our gross margin percentage was 36% in the third quarter of fiscal 2021 as compared to 35.4% in the prior year's period.
This increase in gross margin was primarily driven by the gross margin percentage in our wholesale operation segment, which was 35.5 per cent compared to 33.2% in last year's quarter.
Wholesale gross margins were positively impacted by the reversal of previously anticipated markdown of pools that are no longer necessary due to the reduced wholesale sales.
The gross margin percentage in our retail operation segment was 33.9% compared to 49.3% in the prior year's quarter and was primarily impacted by store liquidations for Wilsons leather and GH bass stores.
We continue to watch overall, our expense is very carefully.
SGN expenses were down 28% to $178 million in this quarter compared to $247 million in the same period last year.
We further streamlined the head count in our global wholesale operations and as a result, we now expect approximately $28 million of annualized savings.
Net income for the third quarter was $63 million or $1.29 per diluted share compared to $95 million, where dollar 97 per diluted share in last year's third quarter.
Net income per share in the quarter included a four wall loss of 25 cents for the Wilsons leather and GH bass store operations.
Last year's earnings per share included an eight cents loss for the Wilsons leather and GH bass store operations net.
Net income also includes a non cash charge of $6.5 million in this quarter associated with the write off of deferred financing costs, primarily related to a prior term loan facility, which was refinanced and replaced with bonds in August 2020.
Effective this charge is equal to nine cents per diluted share on the quarter.
Looking at our balance sheet accounts receivable was $721 million as compared to $899 million at the end of the prior year's quarter.
Inventory decreased approximately 29% to $462 million from 651 and in line with sales expectations.
We ended the third quarter in a very strong net debt position of $359 million as compared to $620 million in the prior year.
Our third quarter ended with cash and availability of approximately $800 million, our current strong liquidity and financial position will enable us to navigate through the current environment.
As for our guidance, we continue to expect to COVID-19 pandemic negatively impact our results in the fourth quarter of the year. Accordingly, we continue to anticipate a decline in net sales of approximately 30% in the fourth quarter as compared to the same period last year.
The impact of the pandemic continues to be fluid, making it difficult for us to provide additional guidance for fiscal 2021.
That concludes my comments I will now turn the call back to Morris for closing remarks.
Thank you Neal and thank you all for joining US today. This quarter was further validation that GE threes entrepreneurial culture built over almost 50 years can weather any challenge put in front of us we.
We took proactive measures early on the pandemic to strengthen our financial position and quickly collaborated with our retail and supply chain partners to align our businesses for future success.
Our agility combined with our wholesale expertise and strength across a broad range of apparel and accessory categories has proven to be a winning formula.
Our strong financial condition positions us well to further increase our market share drive long term growth and take advantage of the right opportunities as they present themselves.
On behalf of the entire Gbpthree organization I'd like to thank all of our stakeholders for their continued support.
Operator, we're now ready to take some questions.
Thank you as a reminder to ask a question you on need to press star one on your telephone.
So let's try a question press depend on key T standby will be compiled the current day roster.
Our first question comes from advent your romer with Keybanc.
Your line is now open.
Hi, good morning, Thanks for taking the question I guess first of all the housekeeping question, Yes, some really constructive commentary on leisure and performance I know you havent across multiple brands, how big is that business today and kind of how should we think about kind of medium term growth and then as a follow up Morris I know, you're starting to think about kind of.
Second half of 21 vaccine hopefully by then.
How are you positioning your business against what could be much stronger apparel demand. Thank you.
Yes.
Thank you Ed Thanks for the questions on.
Is this isn't really a topic of ath leisure as as a category, it's a lifestyle and athlete and athleisure flows into almost everything that we do there are elements of casual dressing as as I spoke to in our sportswear business.
That that emanate from.
The new consumer way of dressing or the current consumer way of dressing.
So our entire.
Our entire product mix reflects what the consumers looking for today, it's not simply the athleisure category.
That said, our ath leisure category is a category of size, it's one of our bigger pieces of business.
Calvin Klein is on.
The one is our largest piece.
Followed by Tommy Hilfiger, and became Y and positioned in department stores I would say.
They could be classified as the largest piece of the department store athleisure on.
Offering.
So.
Again, it's not it's no longer a startup it's fairly well developed and developed what is addressing what what is likely to gross significantly in its second year of offering is the gene business. This is our first year in the gene business, which also reflects.
A casual lifestyle look and.
We penetrated the business aggressively with CK jeans again, followed by <unk>.
On Tommy Hilfiger, and Dk, and why and we are beginning to.
Make our mark in the gene business very very quickly you will see us.
In other retail venues that we serve it's not.
Not limited to one retailer is it's fairly well distributed and as I said.
Earlier, we believe those three businesses can individually be $250 million in size.
As far as the second half of <unk>.
The year on.
Our calendar.
21.
There is.
There's lots to learn we what we emphasize is that we.
Where an agile organization, we kind of prove that out just recently, we believe we know where we're going for Q2 and product mix, we are aggressively designing and creating and bill.
Building on.
Building on collections of products that are suitable for through what the consumer is looking for.
We have.
We have been under pressure with our social dresses and our dress business. This year.
They they're highly profitable traditionally for us we've altered the styling and we believe we've we've corrected the path and even the dress business will be much more casual for the back ended the year as well as Q on Q2, so we're addressing it with styling we have.
Yeah.
A recent cost structure globally, that's supporting all of our needs.
And where to go we are intact.
Were an aggressive company that figures it out and we've got.
We've got a talent pool that.
That is very much aligned with home office and does.
Does the unimaginable to accomplish success.
I hope I answered a little bit of what you've asked.
Sure. Thanks, maybe one other quick follow up that makes me think again, we've heard more retail or talk about wanting to lean on vendors for dropship inventory I know you do a little bit of that but kind of how comprehensive is your infrastructure to support the dot coms of your retail partners. Thanks.
It is not comprehensive we do it on.
Side by side basis, we are not structured for a drop shipping, but we will be we've hired talent. We are searching for the appropriate real estate, we're putting systems in place to accommodate drop shipping to.
To the direct consumer and taking some of that responsibility away from our department store partners.
And as well as an Amazon to some degree so given given the appropriate time and the appropriate investment that we're making we should become great in that aspect of the business. It's an essential need we recognize it.
And we're all over it we've we've staffed for it and now we're searching for the appropriate distribution center that can accommodate it.
Our our distribution is.
As you know we started as a code company a lot of what we do is product that is shipped hanging.
And it's a far cry from what needs to be done to efficiently.
Handle the cost structure that is in that entails drop shipping to the consumer but we're on it.
Back to me in the year and I'll have a on an answer for you that is a little different than today.
Thank you.
Thank you.
Thank you our net.
Next question comes from Erinn Murphy with Piper Jaffray. Your line is now open.
Great. Thanks, Good morning, Morris it sounds like in the third quarter trends for outerwear weren't good can you just speak a little bit more about what you're seeing and how did outerwear order book end up for the season.
So we were as you know we're predominantly a wholesale company and thus no. Our orders are written before the weather reacts so.
So our third quarter was good as far as shipping is concerned.
Retail.
Retailing in Q3 for most of Q3 and outerwear was good the tail end of it slowed down weather didn't cooperate and the beginning of Q4 is.
Not what we would like it to be into acceptable, but you know whether cures all those all those sales.
The the outerwear that we're producing is again.
Produce.
Is.
Basically a derivative of the outdoor trends that that people are looking for.
There is the has been.
Outdoor eating.
People are spending more time in activities outdoors, and our outerwear reflects it.
We produce.
An unimaginable amount of filled and unfilled reasonable fabrics.
For the for a puffer jackets most of them had stretch.
Stretch in them, we have unique fabrics unique to gbpthree.
That.
Sold incredibly well and fake for businesses was quite good.
Where where we lack.
Is where we were born which was a leather business and.
As some of the.
Well business that we were successful with years ago that that's not in play right now so it's mostly.
Per and stretch fabrics at a driving our business.
Got it and then maybe just for Neil in the fourth quarter. When you think about sales down 30%.
Is that just kind of what Morris just speaking about a slightly slower start to the sell through season. This fourth quarter to help us think about kind of the wholesale decline that's embedded in the fourth quarter guide.
Yes Aaron.
When we look at it we didn't really see a huge decline from what we were anticipating to tell you. The true I think what was what we experience was actually a stronger Q3 will be not necessarily a weaker Q4 than what we were expecting and I think Q3 was.
Boosted by the shortfall of inventory at retail is what's really helps.
In terms of our demand needs.
Okay, and then just last question on it.
On the M&A front, you guys have been very disciplined this year and I know there is another 28 million in cost savings that you are in the process of realizing but how do you think about if we go into next year.
Kind of key areas of reinvestment for some of the savings that you've been able to do that here. Thank you.
Well look we'll have we'll have a more normalized year on yet it still won't be completely normalized range.
Right. So the big savings that we had this year, we for a load a significant number of people. We are taking pay cuts. We've now taken all the furloughed people back that started at the last month of the third quarter. So.
So we will have that pressure on us in the fourth quarter and we'll have some of that pressure going into next year marketing spend we will start to do the slowly as we see business continues to expand.
And overall, there will be certainly still a slower business activity in the first half of the year, we get benefits throughout some of the new our throughout some of the SDMA items as a result of that as well, but I think the big the big pressure spots. When we normalize will be in people will be in marketing and let's not forget that we did have some pretty.
Good pain points. This year, we took a very large charge this year for the bad debt expense as a result, the bankruptcies.
We've taken some inventory reserves. So there will be some offsets some natural offsets to some of the savings, but that's that's sort of the puts and takes that I see going into next use.
CNN airing on our head count reduction is north of 400 people in North America.
About a dozen people in Europe, ultimately and over 100 people in southeast Asia. So collectively.
As a head count reduction thats in place of over 500 people globally.
That's that's an area that we probably will expand on as we refine our business and we better understand the solutions to prosperity.
Great. Thank you on.
Thank you Eric.
Thank you on our next question comes from Heather Balsky with Bank of America. Your line is now open.
Hi.
First question I'd be curious to hear your perspective on the fourth quarter promotional environment, what you're seeing with regards to holiday.
What that what that might mean for the fourth quarter and then a separate question just curious with Donna Karan your.
Sure.
Total retail, but that's how you're thinking about that.
2021, and especially with some of the real estate opportunities that are opening up with stores closing.
Other competitors closing.
Thank you had.
It's quite strange as one might think that this is a highly promotional period because of the pandemic.
But quite honestly we are seeing.
We're seeing less promotions than we would have expected.
There there are retailers that are achieving success by driving bottom line rather than top line.
And then there are others that are that are.
Heavily in inundated with inventory that needs to move because some of its seasonal but all in all it's not incredibly.
On promotional out there.
So.
The retailer is garnering.
No access.
Acceptable return on on their investment and on inventory so on.
It's okay.
Okay.
As far as Dick and why and the success.
The beginning of success.
At retail.
We are left with two primary brands that will expand over time.
This is a good time to expand on real estate, because the real estate offerings are abundant and they're much more fair than they have been historically a lease that.
We might be able to sign is could be a percentage lease with kick outs. So we're not we're not coupled with.
With 10 year leases that.
We would have to buy our way out of that we learned our lesson we paid dearly for.
For real estate mistakes just recently as we are closing the bass and Wilsons, we're not likely to go down that path again.
Well we're fairly.
Fairly aggressive on some of the opportunities that are affording themselves in Europe.
Were considering opening and.
On the high street areas of the UK with Dk and why.
There is great demand for there.
Stores.
In our store in the UK were an outlet center in the UK, which is our single best store in the world.
And.
We have two other stores in Europe that are performing exceptionally well.
Compared to to North America, So we're likely to expand in Europe.
We cannot expand.
Karl Lagerfeld in Europe.
We have a joint venture partner.
That is domiciled in Europe and their region of expansion is is the.
The global other than North America ours is North America.
So we are we are pursuing.
Pursuing retail very very cautiously and opportunistically.
Got to be a great offering for us to jump in and grab it.
Thank you Heather Thanks for your question.
Okay.
Thank you. Our next question comes from Jim Duffy with Stifel.
Your line is now open.
Thank you good morning, everyone.
Moving on I wanted to dig in some on we'll see an airline group.
Isolate the fall SNA associated with for Wilsons and bass stores, we expect terminal with 109 non store closures.
Yes, Jim if you if you look at the.
Well actually we give you a summary in the press release.
On.
I think if you look at the segment information, you'll be able to get that better when we come out with the third quarter Q.
Okay, but we don't know what the gross margin on the Wilsons and bass stores were versus the retail segment. So.
So first on disclosure will figure that out meal.
Let us look at that and see if we want to if we want to expand upon that Jim.
Oh and then what.
It's like their retail profitability disclosures you are two day suggested maybe you added backs on profitability tool Wilsons and bass stores.
Q1 and two.
Because the.
Yes disclosures.
Along with what Youre, giving for the third quarter don't total.
Yes on the Big difference there is the tax rate, we've got a pretty high tax rate and we use the effective tax rates. So if you. If you focus on the pre tax numbers you should see a steady increase to the operating losses over the over time, there was no way back.
Okay.
I will take a closer look at that and then.
I'm curious within the retail segment, what's the residual component or retail share that will remain in the model for next year.
That overhead plus the four wall.
Our share of the remaining stores.
Yes, I think in terms of.
Let me speak a little bit about the trapped overhead we're thinking that this year will probably ran about $20 million of trapped overhead there will have to continue to absorb we're thinking at that on the trend line is probably down to about $15 million today and then we'll continue to look at that and probably hope hope to make some more improvement in that as we go into next year.
Okay. That's helpful.
On them.
I guess building on Karens question with the removal wholesale business how much of that fuel savings do you expect to be able to keep you mentioned the 28 million normalized savings from the headcount the run rate estimate for this.
This year well below that in terms of savings.
Just trying to understand how much of that comes back into the model.
So keep in mind the other part of Orest DNA that does move is certainly the variable portion of it and so as we have sales will have variable lift.
That variable lift comes in the form of really advertising that we refer to as national advertising associated with our licensed businesses and then of course on a third party shipping is in our selling and general expense category as well. So those are the two variable expense components that you'll see go up and down with sales for the most part and then as I meant.
You will have increases back on the payroll side and then advertising will be the two main drivers of increase offset by some of these bad debt expense is that we've had in the periods.
Okay. Thanks for the detailed responses one more for me and then.
I'll move on but on.
I will come back to the wholesale gross margin fiscal twice a day roughly 33%.
We expect to be able to improve on that based on category Maxim brand mix.
As you look out to next year.
No I think Jim.
That's a pretty good margin for us.
And I think that this year, we've gotten benefits in the wholesale gross margin as a result of these markdown reversals. So I think that if.
If you went back to the the prior fiscal that's probably where we'll start to anniversary our gross margins and those gross margins are fairly strong keep in mind, we've got licensing partners for about 60% of the business. So we operate at a pretty high gross margin. When you when you add that back in and I think that Thats, probably we should think about Hanover.
Pursuing us going forward.
Okay. Thanks for all the help me out.
Yep.
Thanks, Jeff Thank you.
Our next question comes from Jay sole what do you view your line is now open.
Great. Thank you. So much just wondering if you could give us a little bit more color.
On a fourq here, you mentioned the sales picking down 30%, but as far as gross margin and cash today any puts and takes that we should be thinking about offer those line items looking into the fourth quarter.
Yes, I think in terms of gross margin keep in mind, we will going to be at the last part of our Wilsons and bass liquidation. So that will put a little bit of pressure on us as.
As you can expect when the liquidations reach their end you get lower gross margin achievement to get rid of your your final product.
I think in terms of the SGN a the only think again keep in mind is that we did start the furloughs.
People back from flow, So we'll have that full impact.
For us in the fourth quarter as well so while we did a very good job growth.
Really reducing EPS genie almost completely in line with our wholesale sit with our total sales drop.
We will have some deleverage pressure going into the fourth quarter and EPS DNA.
Got it okay. Thank you so much.
Thank you on our next question comes from sales and Anderson with B. Riley. Your line is now open.
Hi, good morning, Thanks for taking my question.
I guess I wanted to touch a little bit more on the lifestyle or athleisure product that.
You've rolled out or increase in penetration I guess I'm curious just relative to the average sales decline of 26%. How is that performing did you see any pockets of positive growth area close to positive growth and then just on the dress side. It sounds like you've definitely casual licensed dresses and.
But I guess are those dresses also down in penetration as a person on the next two for the back half. Thanks.
So I'll I'll hit the 10 on the second comment first.
Our dress business is down for the second half of the year.
Being.
Calendar 20.
Hopefully we recover for 21.
On the the common belief is.
On the woman's wardrobe is getting old and she's going to go out there on aggressively by dresses soon is.
As soon as she is able to commute to go out and have dinner and socialize with their family and friends.
The the common belief is addressed business comes back.
Fast and furious so we believe that to be the case.
As far as.
Performance.
In Ath leisure in our athleisure areas.
They are performing significantly better than any other category that we have.
So there is.
We have there.
Calvin businesses that is.
For the last for the last month.
Is comping almost flat to last year.
Had we have been prepared with the level of inventories that we needed we would have comped up it wasn't about demand it was more about supply.
And for Q4, we believe that.
The it will track in similar form we're finding that.
Take on three power brands on the can why CK and Tommy and compare the active lifestyle piece to the rest of the company.
We're tracking it.
Missing by.
High teens for the quarter comp to the 27% as.
Comprehensive category mix.
Great that's very helpful.
And then I'm curious just for spring 2021 on what you're seeing in terms of order for on your wholesale partners I guess, particularly department stores are you seeing any improvement at all from the second half.
Yes, still seeing improvement I would tell you that the on the order book looks like it's down about 20% in the net.
For the spring book and.
And we were we're comfortable at that will show improvement certainly to the to this fiscal year and that type of sequential improvements that we would hope to continue to see as the year rolls out.
Great. That's helpful. And then lastly, just curious how you're thinking about the promotional environment for fourth quarter in over holiday I guess relative to last year and then also what you saw on third quarter, which.
I guess on a pretty tight, especially given for those products that were in high demand.
Uh huh.
I guess it in all of them and depends on.
The effect of the pandemic clearly we were all aware of the spike on spec up that's occurred.
Which results in store closures. It extends the period of time that tourism is back in our world. So.
It's a hard went live on to forecast as far as.
The promotional level there is a period of time there is intense and then is reality.
The intent is not to be highly promotional but reality is if there is no traffic and there is a need to create liquidity.
On the retailer will become.
Highly promotional.
We've seen it before and we'll we'll see it again, so it's a hard on to forecast, it's not it's not based on fashion.
It's probably not based on much on weather as it is.
The.
The consumer desire to go out and shop, and and her ability to get everything she she might want on.
On the digital side of the World.
That clearly has had an impact but it doesn't it doesn't cure all of it so.
So again, a little low complicated of an answer it's not a non cutting.
Cut and dry one, but it's best that I can do for the moment.
Okay, great. Thanks, so much for all the details and good luck this holiday thank.
Thank you Susan Thanks for your questions.
Thank you. Our next question comes from Steve Marotta with CL King <unk> Associates. Your line is now open.
Good morning, Morris Neal you mentioned digital penetration within the Department store channel in the third quarter with 40% Thats up from 24% last year with the exception of increasing dropship capabilities.
Well can you support that department store digital effort.
We can supported by by having replenishment inventory.
This was kind of a chase year, but if it if its go forward model.
Our responsibility in the mix.
We'll probably be too on to hold on to replenishment inventory.
Which is not something we would love to do but it's a necessary evil for four.
<unk> of doing business.
And.
Marketing, which were spending a good deal of money on both collaboratively with our retailers and independent retailers will help drive that digital business. So.
Those are probably the solutions that I have for for greater penetration on on.
The digital side of the business.
Andrew further to that.
Internationally, we are having success in the middle East.
We are having some successes in although early early stage for us.
We're having a good deal of success in China.
And we.
We believe we can grow those businesses.
Those areas of the world, where they do hit the charts in coming years. So.
So the expansion of the globe.
Would be another element of further success in digital.
Helpful. Thank you.
Thank you Keith Thanks, Steve.
And our last question comes from Dana Telsey with Tesla Advisory group.
Your line is now open.
Good morning, everyone. As you think about shipping capacity or surcharges on what's happening where are you on shipping on getting good when you need it.
And to this upcoming holiday season going into Twentytwenty, one any update on manufacturing in China, and how you're positioned thank you.
Thanks for your question Dana.
Shipping huh.
Depends it really depends on the day of if there's a hurricane.
We lose a few containers as a container ship, but topicals.
If there is a pandemic and the the ports are closed were backlog there.
There is high demand for container space and we have been impacted from pretty much every area of the world whether whether its Viet Nam on Jordan. This week, Bangladesh has got its displacement issues of our freight so it is a challenge.
Where we're paying surcharges.
We're doing what we need to do or what we the best that we can do or not on full control.
There there are times, where.
We are provided with bill of Lightings and then we find that the freight was on boarded and is on a 10 day delay on this.
This is this is a very very unique years so.
Shipping shipping is a problem in spite of it.
On.
Third quarter was was fairly good and I believe we can figure out the fourth quarter, but it's not it's not a perfect world.
If.
All the shipping routes and container ships, where we're aligned and we got what we had planned on getting it would do it would be a better plan.
So and as far as our development of product in production in China, We're not really focused on it quite honestly, it's come down significantly we're focused on producing in the REIT countries.
The appropriate product we.
We've done a masterful job of bringing down.
China production from.
Possibly 85% of this company's production several years ago down to its hovering around 30%.
Today, so it's not a test of bringing China im not im not in politics quite honestly unless I have to be we're.
We're in a business.
Providing product.
On an appropriate price with with appropriate quality and.
And China has always been a good partner as it relates to that there are areas that we have figured out that are.
More competitive than equal on quality and lessen duty and we've gone to those areas, but I'm not I'm not on a mission to stay clear of China I'll stay clear of.
Of.
Cotton mills that.
Aren't cash.
Compliant with what the world of specs.
We are very cautious as to where we produce how we produce.
We've got an office overseas, it's actually based in China.
That is clearly focused on.
Making China comply with everything that that we ask for.
So.
Then they do a really good job of it so again bottom line, it's not it's not a race to leave China.
Thank you.
Thank you Dana Thanks for your questions.
Thank you operator on one more question.
Okay.
Operator, we are finished thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating on that disconnect.
Thank you.
Thanks.
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