Q4 2021 G-III Apparel Group Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the G. G. It fail group fourth quarter and full year fiscal 'twenty 'twenty One conference call at this time, all participants on a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need your bus just start on day one.
Moving on you touched on the telephone and you see.
We advised on today's conference maybe recorded if he would call offer assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker House. He said Neal Nachman CFO of G. III apparel group. 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 and the Q&A session may constitute forward looking statements within the meaning of the federal Securities laws.
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 of operations on the financial condition of the company to differ or discussed and the documents filed by the company with the SEC. 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.
Yeah.
Good morning, and thank you for joining us on.
Also joining me today and as Sammy Aaron our Vice Chairman and President.
Wayne Miller, our Chief operating Officer, Neal Nachman, our Chief Financial Officer, Jeff Goldfarb Executive Vice President free.
<unk> Vice President of Investor Relations.
Yeah.
For all of US 2020 was a year like no other.
We've had to manage through a global pandemic, which has lasted for more than 12 months. The pandemic has impacted the way we live our lives and conduct our business.
At the outset, the pandemic caused significant disruption to our business as retailers were required to shut their doors across the country for an extended period of time.
As stores begin to reopen and we've seen a steady improvement and our business.
At G. III, we powered through this tremendous adversity, adjusted our strategy and adapted to the changing conditions, which did with determination and grit.
The resiliency and flexibility demonstrated by our high performing teams has been nothing short of amazing.
Throughout the pandemic and warehouses remained operational and I'm grateful to the staff, who manage that process.
The well being and safety of our employees has always been important to us our human resources team did a great job engaging our people and sparing no resources and implementing safety protocols throughout our operations.
I'm, so incredibly proud and thankful to our employees, who have collectively enabled G. III to emerge from this past year as a leaner and more efficient organization.
Our entrepreneurial culture with a merchant led focus on product selection and development proved to be and valuable.
And the casual outdoor and work from home trends took over the world, We quickly reallocated resources and revised our product lines to capitalize on the changes and consumer demand that accelerated throughout the year.
We were able to provide the right and merchandize to our retail partners.
Gain market share and further elevate our position as a key supplier of choice for a broad range of casual and comfortable clothing and accessories.
This past year, we also completed the liquidation of and GH bass and Wilsons leather stores.
This was the project and we were working on pre pandemic and are pleased to have the restructuring completed.
Looking ahead, we feel good about our remaining stores under the DKNY and Karl Lagerfeld, Paris nameplates.
Our new retail model is now positioned on a path to profitability.
We ended our 2021 fiscal year on a positive note with improvement in our wholesale operations.
As we enter the 2022 fiscal year, we're managing our business with cautious optimism and closely working with our retail partners to match, our product offerings with consumer preferences.
We will continue to lean into the casual trends that remained strong sellers.
We are already beginning to see the signs of recovery for addressing your apparel.
Our designers and developing great product and newness and categories like social dresses and suit separates and career sportswear.
Our year end inventories ended down 25% and are in excellent shape positioning us well going into the new fiscal year.
We are aggressively working to grow our digital business.
With the goal of becoming best in class with this increasingly important distribution channel.
With a portfolio of global brands and we understand the importance of E. Commerce. The pandemic has accelerated our efforts over the past year on marketing.
And logistics teams and keenly focused on supporting digital sales.
Overall, our strong financial position and liquidity provides us with significant flexibility to run our overall business.
And again look at acquisitions.
Now, let's look at the fourth quarter and full year fiscal 2021 results.
Net sales for the full fiscal year was two point on $6 billion compared.
Compared to 316 billion last year.
Net sales for the fourth quarter were $526 million down 30% compared to last year's fourth quarter net sales of 755 and in line with our internal expectations.
Importantly, and the wholesale segment less and less net sales for the quarter were $488 million down 23% compared to last year's $635 million.
Full fiscal year GAAP net income per diluted share was <unk> 48.
Compared to last year's $2 94.
These results include the impact of operations and restructuring costs for the GH bass, and Wilsons leather and retail operations.
<unk> thousand 14, and the current year and <unk> 65 and last year.
Fourth quarter GAAP net income was <unk> 30 per diluted share compared to 52 per diluted share and the fourth quarter last year.
These results include the impact of 17, and the current year and 33 cents and last year's results related to the operating results and restructuring costs with GH bass and Wilsons leather stores.
Now, let's look at on our wholesale business and take a closer look at the product categories that drove our sales and results for the quarter.
Yeah.
As expected we saw we saw and demand for athleisure continue to accelerate across our brands throughout the fourth quarter.
This is exactly what our customers wearing on a day and day and day out basis as she works from home or expense time outdoors with that in mind, we don't and we designed our athleisure collections to provide a wide range of design choices and a variety of looks and functionality.
For example, arris and our expanded sweatshirt collections included fashionable styles for that important virtual meeting as well as styles that incorporated technical functionality to support the active and outdoor lifestyle.
We continue to see significant and opportunities to grow at leisure for our power brands, Calvin Klein, Tommy Hilfiger, DKNY and Karl Lagerfeld Paris.
As for our new Jeans collection. The recent launch for three of our global power brands, Calvin Klein, Tommy Hilfiger, and DKNY happened and opportune time.
As significant entry into the jeans category enabled us to negotiate some prime placement and our retailers' sales floors as well as the digital sites.
The jeans category lends itself perfectly to casual uncomfortable fashion.
Our offerings span a wide variety of woven and knit tops as well as relapsed bottoms.
These lines are off to a very good start and expected to garner more and more much more success in 2022.
We are a dominant player and jeans and are well positioned to capture greater market share.
Okay.
As the fourth quarter progressed.
And the weather turned cooler we saw good sell throughs and our outerwear business.
As expected the business was driven by mid weight styles, featuring featuring Packable buffer and layered jackets.
The weather continued to be cold into the first quarter of this year further fueling outerwear sell throughs, we have a clean inventory position, which sets us up well for the fall 2021 outerwear season.
We believe consumers will maintain active outdoor lifestyle for the foreseeable future and we will continue to provide will provide trend right products to meet that demand.
Yeah.
As casual offerings continue to drive the sportswear category.
Our net product lines have remained strong sellers and we also saw growth and casual bottoms, featuring some great stretch fabrics that offered functionality and variety.
Sneaker dresses, which are essentially extended net T shirts that are easy to wear and comfortable also performed well.
As a matter of fact, we're seeing early signs of good selling and social dresses, both online and in stores and many part of the many parts of the country.
We are in good position and the casual assortment and avast sportswear collections and look forward to improving trends as this year progresses.
The footwear and handbag businesses also continued to outperform based on our strategic shift to focus on casual offerings.
And our footwear business, we saw a notable strength and strong sell throughs and booties and soft soled shoes, such as fashion sneakers.
As for handbags, and our Assortments featured a good mix of casual and tailored styles with a contemporary esthetic and <unk>.
Handbag collections were Merchandised dwell and resonated with consumers also resulting in great sell throughs.
And both these categories high conversions resulted in improved margins.
We will continue to drive growth and footwear and handbags.
I am pleased to announce that a couple of weeks ago, We launched the Karl Lagerfeld, Paris Women's brand and 75, new doors at Macy's.
We've developed a casual collection and that works well with the brand's Parisian chic DNA. The early results of selling has been really good.
And Karl Lagerfeld men's where we began with just outerwear.
We have now expanded the collection to include sportswear and footwear.
These collections have gained good traction and have quickly found distribution at Macy's Bloomingdale's, and nordstrom's online and Neiman Marcus.
We look forward to continuing to grow the brand's distribution and both women's and men's apparel and accessories.
Our digital business.
Our businesses continue to experience accelerated growth on <unk>.
<unk> brands and we're also participating and the growing digital businesses of our retail partners, where digital sales penetration is now approaching 40% up from last year is approximately 25%.
Our own websites delivered another quarter of strong results for both DKNY and Karl Lagerfeld, Paris, posting comparable sales increases of approximately 40%.
As for GH bass, although we closed the brick and mortar stores, we will build the brands digital business.
We remain focused on capturing market share opportunities across the digital landscape with investments and internal talent talent and a new CRM and loyalty program re platform, the ecommerce sites and enhanced logistics capabilities.
These efforts are supplemented with increased spending on focus digital marketing to target customers, where they're shopping.
The CRM and loyalty programs will help us better analyze the behavior of our customers online and in stores and will aid and will aid us and communicating with them more effectively.
The re platform of our own ecommerce sites will upgrade the technical operations as well as the visual look of the sites.
The sites will fully be revamped to offer rich experiential content and better showcase our products.
We're looking to create a more seamless.
And.
Forgive me.
A seamless shopping experience and strengthen the customer connection and brand affinity for both DKNY and Karl Lagerfeld Paris.
We're also working to further develop our direct to consumer logistics capabilities to enhance the customer's experience of receiving product from our brands.
Internationally, our own brands and developing a digital presence as well.
For DKNY, we are a global site service from North America.
And Europe DKNY product is also distributed via a premier online sites, such as asos, So lando and Farfetch.
And China digital sales penetration increased sequentially each quarter this year.
Ah status resort, and and Swimwear brand and Bill broke and also saw significant traction and their global digital business with digital sales up nearly 30% as compared to last year.
We're really excited about the significant digital opportunities that lie ahead for us.
With the liquidation of our GH bass and Wilsons leather stores completed we expect to eliminate a substantial portion of approximately $50 million of annualized losses.
We currently operate 36, DKNY and 13, Karl Lagerfeld Paris locations.
Similar to trends, we experienced in the third quarter store traffic remained challenged.
But on a product continues to resonate driving higher shopping conversion and AUR as well as expanded margins.
We added a capsule collection that is exclusive to our DKNY and direct to consumer channels.
Our store teams have begun to use virtual selling techniques, which gained additional momentum in the quarter and are helping to offset reduced traffic and improve store sales.
And our objectives are clear and improve store productivity and increase sales online and to ultimately bring the retail business to profitability.
Yes.
Let me discuss our international opportunities next and start with our status Swimwear brand Ville broken.
The brand is celebrating its 50th anniversary this year and has an incredible slate of innovative product launches and collaborations planned.
We're proud of the great job Bill broke and has done to incorporate and incorporate sustainable fabrics developed from recycled plastic bottles and plastics removed from the oceans and.
Impressively this coming year is 60% of their globally recognizable swimsuits will incorporate these sustainable materials with the goal to get to 80% of total products made with sustainable fabrics and 2025.
As for DKNY sales of our international franchisees were up 10% and the fourth quarter predominantly driven by the middle East.
DKNY and China's saw significant growth and fourth quarter sales.
Further as I previously mentioned, China E. Commerce sales also grew significantly during the quarter.
We remain very optimistic regarding our DKNY businesses and China.
Our DKNY business and Europe continues to be challenged with widespread spread COVID-19 shutdowns.
As DKNY as a well recognized brand throughout Europe. Our goal is to establish a substantial business and that market as well.
International and represents a significant growth operating opportunity for G. III.
And the early stages of developing this business.
As brand owners, DKNY and Donna Karan and licensing income continues to represent an important profit driver.
We've created a solid licensing base with world class partners and categories, including fragrance watches intimates, and sleepwear bedding and Bath and childrens apparel.
And Europe, we're now growing DKNY mens through licenses for underwear sports and golf apparel.
We will continue to strategically develop and grow our licensing business.
We see tremendous opportunity to expand our reach and growth through our ability to take market share with our global power brands and diversified product offering.
For the upcoming year, we are optimistic about the business.
But there continues to be some uncertainty as to how the pandemic will impact shopper behavior and their business.
As a result, we are only providing guidance for the first quarter of fiscal 2022 looking ahead to the remainder of the year, we're confident that when more opportunities open up we will be and are positioned to work with our vendor and retail partners to capitalize on them.
I'll now pass pass the call to Neal for a detailed discussion of our fourth quarter and full year financial results as well as the guidance for first quarter of fiscal 2022.
Thank you Morris the results for our fourth quarter ended January 31, 2021 continued to be impacted by the ongoing effects of the pandemic and the restructuring of our retail operations.
Let me begin with the retail segment.
If completed the restructuring of our retail operations and closed on Wilsons leather and G. H bass stores and connection with closing of the stores and a restructuring of our retail operations, we incurred aggregate costs and charges of approximately $100 million for the full fiscal year 2021 day.
These costs and charges include $85 million for the four wall losses.
And restructuring charges for these stores and approximately $15 million of allocated overhead.
We anticipate and some of this allocated overhead will continue on a go forward basis to support the ongoing retail operations and DKNY and Karl Lagerfeld Paris.
As for a breakdown of sales full fiscal year 2021, net sales for the retail segment were $170 million on.
Of which $92 million came from the Wilsons leather and GH bass stores that were closed.
The remaining $78 million were generated from the ongoing retail segment operations and we have included some relevant data relating to the four wall retail operations and our earnings release issued this morning.
Net sales for the fourth quarter ended January 31, and 2021 decreased approximately 30% to $526 million from $755 million and the same period last year.
Net sales of our wholesale operations segment decreased approximately 23% to $488 million on 636 million net.
Net sales of our retail operations segment for the quarter were $44 million, approximately 66% lower than last year's sales of $131 million.
Retail sales for the Wilsons leather and GH bass stores were $15 million and the quarter and <unk>.
$86 million in the previous year's quarter.
On gross margin percentage was 35, 6% and the fourth quarter of fiscal 2021, as compared to 33, 3% and 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% compared to 30% and last year's quarter.
Wholesale gross margin percentages were positively impacted by the reversals of higher royalties and were previously accrued as a result of favorable negotiations with our licensed stores.
In addition, inventories were clean, resulting in lower promotional activity and lower mark down accruals.
The gross margin percentage and our retail operation segment was 32, 2% compared to 45, 9% and the prior year's quarter.
And decreased and this decrease was primarily as a result of the final stages of store liquidations, who wilsons leather and GH bass.
SG&A expenses decreased by 20% to $151 million and this quarter compared to $187 million and the same period last year as a result of cost reduction efforts undertaken in response to the pandemic and reductions in sales.
Net income for the fourth quarter was $15 million with 30 cents per diluted share compared to $25 million or <unk> 52 per diluted share and last year's fourth quarter.
Net income per share included a four wall and loss of 17.
And <unk> 33 per share for the Wilsons leather and GH bass store operations and the current and prior year's quarters, respectively.
Net sales for the full fiscal year ended January 31, and 2021 decreased approximately 35% to $2 <unk> 6 billion from $3 $1 6 billion and the same period last year.
Net sales of our wholesale operations segment decreased approximately 33% to $1 92 billion from $2 86 billion.
Net sales of our retail operations segment for the year $170 million, approximately 56% lower than last year's sales of $386 million.
Retail sales for the Wilsons leather and GH bass stores with $92 million and the year ended January 31, and 2021 and $252 million and the year ended January 31 and 2020.
Full year gross margin percentage was 36, 2% and fiscal year 2021, as compared to 35, 4% and the prior year's period.
This increase in gross margin percentage was primarily driven by the gross margin percentage in our wholesale operation segment, which was 35, 9% compared to 32, 7% and the previous year.
Full year wholesale gross margin percentages were positively impacted by the reversal of previously anticipated mark down accruals due to our reduced wholesale sales volume.
The gross margin percentage and our retail operation segment was 33, 6% compared to 46, 7% in the prior year and resulted from the liquidations for Wilsons leather and GH bass.
SG&A expenses for the year were down 27% to $605 million compared to $832 million and the same period of the previous year.
<unk> expenses were significantly reduced by cost reduction efforts and response to the pandemic.
These reductions resulted from expense savings initiatives implemented to preserve cash and included employee furloughs layoffs and other payroll reductions reduced discretionary spending for marketing and travel as well as lower variable expenses associated with reduced sales.
As part of our cost reduction efforts, we streamline the head count and our global wholesale operations.
Full year net income was $24 million or 48 per diluted share compared to $144 million with $2 94 per diluted share for the previous year.
The full years net income per share include a forward loss of $1 14, and 65 per share for the Wilsons leather and GH bass store operations and the current and prior full year respectively.
Looking at our balance sheet accounts receivable was $493 million down, 7% as compared to $530 million at the end of the previous year.
Inventory decreased approximately 25% to $417 million from $552 million and we entered the new fiscal year and a clean inventory position.
We ended the year and and improved net debt position of $160 million compared to $200 million as of the prior year and we.
We had cash and availability under our credit agreement of approximately $825 million.
We ended the year with a stronger liquidity and financial position.
Which is a which is truly a testament to our managing through a year like no other.
As for our guidance, we are still uncertain as to the continued impact of the COVID-19 pandemic to our results. Accordingly, we are only providing guidance for the first quarter of fiscal year 2022, which ends on April 32021.
For the first quarter of fiscal year 2022, we expect net sales of approximately $460 million and increase of 14% as compared to $405 million and the same period of the previous year.
Excluding net sales of $19 million from the closed wilsons leather and GH bass stores in the first quarter of fiscal 2021 on forecasted net sales would be approximately 19% higher.
GAAP earnings per diluted share for the first quarter of fiscal year 2022 are expected to be and the range of five to 15 cents per diluted share. This compares to a GAAP net loss of <unk> 82 per share and fiscal 'twenty, one first quarter, which included net losses per share of <unk> 33 associated with the Wilsons leather.
<unk> and GH bass stores.
I also wanted to provide a modeling point in the first quarter gross margins will significantly improve as compared to last year's first quarter primarily.
Our wholesale gross margins and the prior years.
Were negatively impacted by the royalty reserves, which are not expected to occur in this year.
That concludes my comments I will now turn the call back to Morris for closing remarks.
Yes.
Thank you Neal and.
At G III, we pride ourselves on and our proven track record of success and important part of that success is a strong relationships, we've developed and fostered throughout the industry.
And we've built a powerful entrepreneurial culture and have the most talented group of passionate and loyal and individuals and our industries.
As I stated at the beginning of this call I'm very thankful and grateful to all of our employees who've worked tirelessly throughout this year to help us preserve shareholder value.
I've never been more confident than I am today, and the ability of our teams to weather any situations thrown their way.
We've thrived as a company for decades, holding and growing our dominant and U S wholesale position.
We've only just begun to tap into the opportunity and white space, we see internationally and.
Diversified portfolio anchored by our five global power brands DKNY, Donna Karan Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld, Paris will continue to fuel our growth and market share across all our major classifications.
We see numerous possibilities for continued revenue and profitability growth.
To that point, our Donna Karan International acquisition has proven to be successful.
As you may recall when G. III relaunched the brand it was a Macy's exclusive now we've expanded the brand to have a well balanced distribution across major retailers here in North America, and importantly, with a known brand we're just beginning to grow globally.
We are and a strong financial position.
Which we believe will fund our growth domestically and internationally and enable us to take advantage of other opportunities including acquisitions.
On behalf of the entire G reorganization and I'd like to thank all of our stakeholders for their continued support.
Operator, we're now ready to take some questions.
Thank you, ladies and gentlemen, if you would like to ask a question on the phone lines. Please press the star and the one key on your Touchtone telephone.
Your question please.
On key place and that will be compiled and Kenny roster.
No first question coming from the line of Edward <unk> with.
And with Keybanc capital Your line is now open.
Hey, good morning, guys and congrats on navigating a really difficult year.
Just a quick housekeeping question for Neil I noticed and gross margins will improve and that first quarter.
Because of the reserve and any kind of more context behind that and then Morris kind of a bigger picture question. We've heard a lot about vendor managed inventory drop ship by a lot of wholesale partners and I know you guys have some of those capabilities.
Growth and interest like what does that do to your margin structure balance.
And then finally.
And you know as it relates to gene kind of how big was the business last year and how big could it be this year. Thank you.
So and with respect to gross margins.
Look we had significant.
Things happened last year that sort of moved on wholesale gross margins up.
Up and down and the first quarter one of those and moved it down was that we did see significant reductions for the full year in terms of sales.
We have not fully renegotiated our license agreements at that point and therefore, we were in a position where we had to accrue up higher royalty expense in the first quarter ultimately.
We were successful and negotiating more reasonable arrangements with a licensed stores and those did reverse throughout the year overall when you look at the prior year on gross margins are up most significantly because of the reversal of Mark Downs I think that with that question. It's important for me to give you a little bit of a.
Sense of what we're thinking about as we go into this year with respect to gross margins on the wholesale side and that story is a little bit different and what ive really been saying in the past, which is and I expect it to get back to Anniversarying previous the two prior year ago gross margin percentages were now feeling a bit more bullish and thinking that we really well.
C lift and the gross margin percentage in the wholesale business that's relative to two years ago. So we're feeling that we will be trading a little bit tighter and be able to avoid some of the promotion alley that did hit us in this past year.
And this is Morris.
Your question I believe related to drop ship and how we how we managed through that business today and how it might affect us on a balance sheet, if I heard you correctly.
Sure.
Is that correct that where you want to go.
Okay. So so currently our digital business as it relates to.
Our key customers.
And in many cases is north of 40%.
Digital business, a small percentage of that is handled internally.
Through drop ship.
And now and the process of.
Evaluating we're very close to signing a contract quite honestly to provide drop ship for many of our customers, we're going to do it slowly because.
It involves.
A great deal of training, new systems, new hardware and new warehouse new employees.
So we're not we're not going to let it all flow and immediately we're still going to recur.
Our requests that.
Our customers taken on.
The inventory to drop ship to their customers will take on initially.
Our own internal sales as well as certain categories that involve less and Lee.
We believe it will be a major advantage there is a need for this company to be best in class to provide every bit of service that the customer is looking for will be and control of how our product is presented when it went on.
It arrives we will be and control of how it's distributed will have the appropriate analysis.
And enabled us to do.
To enhance our profitability as it evolves.
Balance sheet and Neil to.
To that and.
And what effect.
All of this is going to have and we believe it's it's fairly balanced we're not.
No we're not.
Taking on.
And acquisition of the building and we're leasing for.
The term that is somewhere around five years and will appropriately and we have we have.
The ability to terminate on.
Lease over a period of time.
And the partnership.
Is not what we believe it will be with our.
Uh huh.
Warehouse partners warehouse and logistics partners.
And do you want <unk> only thing I would add and we're not anticipating any significant increase just yet in terms of impact on the inventory carry as Morris said, we're going to get into this slowly so.
I think we'll be fine.
Got it and just I was trying to think kind of more and more broad based on the vendors asking youre seeing at the retailers ask you to carry more inventory do you think you'll be able to get a better margin for it.
And maybe that traditional kind of wholesale relationships. Thank you.
Yes.
Currently there is a service charge that we impose on drop shipping for our vendors and and the future.
The fact that we will be taking part of the inventory risk.
And that certainly will enhance our margins and we are dealing with a couple of our retail partners and.
And as much as theyre, creating a marketplace.
We're sharing on the retail revenue.
So that's that's.
Coming into its own form in the coming months.
That is a little bit outside of what I was describing but it's another initiative that we.
We're taking on debt, we believe will be accretive to our earnings.
Thank you guys.
Thank you Ed.
And our next question coming from the line of Erinn Murphy with Piper Sandler Your line is now open.
Thanks, Good morning, Mike.
And my first question is around what Youre seeing on the global logistics front, I mean port congestion and logistics have just been on the forefront of a lot of conversation. So I would love to know if youre seeing any delays and product getting here to United States and kind of on the floor of your retailers if that impacted any of your Q1 revenue guidance and then how you're expecting that if at all.
All to potentially impact Q2, just Kevin on that.
Typically a replenishment or a reorder quarter.
And thank you.
We've incurred some delays nothing nothing monumental nothing that I would tell you.
And is critical to our was critical to Q4.
Or are currently and Q1.
We've.
Moved a lot of our receipts into the east coast, which is working much better than the west coast.
We've.
And <unk>.
Accommodated for traffic on the West coast divide taking on.
Another port.
And we have the.
Put some of the liability of timing on our vendor base, which is not the norm generally they're not responsible for the logistics part of how we handle life.
And this case, we saw it coming and we made them play an active role and how product and.
And when product lift ports. So we were valuable yeah, there were some additional costs incurred.
And we contracted for pretty much our entire year's needs.
And for containers and traffic.
And we had to modify that.
We either stood firm and said and they can't deviate from our contract and phase III Ality of lines, which would have been further delays or supplemented the contract and enabled the.
And our people to get product on board and year on time.
So internally I would say, we're really in good shape and we are clearly aware of the issues were not faced with the drama that surrounds us.
Great. That's helpful. And then my second question is really around your comments Morris during the prepared remarks on what Youre seeing and social occasion dressing it sounds like youre seeing a little bit attraction and certain regions and United States.
Kind of vaccinations or measures are starting and fac patients on rolling out our metrics and relaxing. So can you share a little bit more about kind of your optimism on some of these green shoots and and these categories and then bigger picture at least in 'twenty. One how are you planning to mix.
Business between somebody athleisure that you've developed into the denim versus you know some of that going out again categories. Thank you.
Good question Aaron.
As I walked in this morning on and email is forwarded to me.
And I guess a text.
Let me read it units from one of our largest accounts. It says get ready swim is on fire and dresses is right behind it need product, having said that and the year. It feels good and that's from one of our largest retailers and quite honestly I'm on the same form I haven't heard a lot of that and we.
See it coming and we've seen it for the last few weeks one of our other accounts, who has got a huge prime business all of a sudden is selling and.
Piece of this inventory and price some of the carryover very little of it was newly bought product and there is.
This seems to be a pent up demand and some of the classifications that.
And we were concerned with off a very good reason.
So there is hope they're as good hope and there is a reality.
The we all watch TV if were in regions, where we are.
Careful with our lives.
We watch it on on a screen and we see life is normal and many parts of the country and those parts of the country are opening up most on social and dressing and.
And the rest and hopefully the rest is yet to follow.
Totally bank on it but the risks seem to be better than they were 60 days ago.
And the at leisure piece of the business is taking on its own life, it's a category on its own.
Every one of our brands has a component and it.
And we leverage our manufacturing to enable us to produce.
Fairly and productively and competitively.
And in many cases.
And those factories are full.
And we dominate many of those factories many of the larger factories and supply has not been a problem demand has not been a problem and it's an area that we are aggressively growing.
So.
The casual way of life as a way of life. The outdoor living is a way of life and.
And <unk>.
And we geared up for the problem is as we are for the mountains.
Sure.
Sure.
We're a company that is well diversified.
And kind of a friend of mine used to describe Ceos as war time and peace time Ceos.
I believe were profiled as a wartime company.
And.
We've done it.
We believe we've come out on and the other side and where we're.
And we're positioned for growth and the future and prosperity that comes with it.
Great well, thank you and all the best.
Thank you our next.
And our next question coming from the line of Susan Anderson with B Riley Your line is open.
Hi, good morning.
Nice job, managing three and that really tough here and.
I was wondering if maybe you could give some color on the DKNY Europe business and how that has performed in the fourth quarter and just curious is it similar to the U S. How are you seeing different performance. There and then also what are your expectations for that business and the first first quarter and then this year.
We're expecting similar improvement thanks.
Susan Thank you for your question and again, it's a good one.
And quite honestly and as much as we view that as white space and opportunity for growth I would tell you, it's probably the worst piece of our business countries with totally shut down.
Q4 was not good Q1 is worse in Q4, but again Fortunately for us it's a tiny piece of our business.
And area that we cited as a significant and opportunity.
But.
And Fortunately it was not.
And was not a big plan.
And yet today, we are seeing is same thing I was just describing on on our dress business and.
Some of our other categories, we see retailers in Europe teeing up for what they believe is a pent up demand that will be taken advantage of by the retailers that have sufficient inventory to serve it.
Our backup.
And our inventory there is.
And is really teed up for success on that.
Not in Q1, maybe parts of Q2, but certainly Q.
And three and four.
So and it is an area that we're concentrating on growth and repositioning and the digital side of the business there is quite good.
Great and then just a follow up on the digital side of the business for DKNY and Karl I guess, and just curious like where you're at with the investment there and you know what.
What are your investment plans for this year and then also are you expecting that business to continue to grow this year as stores are open at least and the U S. And then also as consumers kind of get out more.
So the.
The investment and digital for us is quite significant.
We are building.
The the appropriate.
Distribution centers and logistics team and.
In house.
We have top talent thats been engaged to focus on our digital business for DKNY and Karl Lagerfeld.
Reminded.
And the past that.
Many of our brands and several of our brands. We are not in control of the direct to consumer debt that emanates from our building we supply it to places like Amazon and our brick and mortar accounts, but we can't do direct shipping.
And on on licensed.
Product, so DKNY and Karl Lagerfeld, and we shouldn't forget about that.
Those are three platforms that we are building aggressively the investment is significant.
And talent space and.
Technology so.
We are.
And we're trying to we're trying to provide.
The best customer experience.
And I would suggest that if you have the time look at our sites look at DKNY and Karl Lagerfeld and.
If you see on them before this is a good reference to.
And where we're going.
We are.
We believe strongly and that business.
Great and then if I could just add one last one.
Not sure if you could give some color I guess on Europe.
Next step wholesale partners versus say three to five years ago, how much has that and move to more online players or even specialty retailers.
Is your traditional department store.
And Department store business is.
And.
Customer wise has shrunk and we.
We no longer do business with Lord and Taylor.
And no longer do.
Business with the accounts that have left us and Stein Mart and.
Some of the specialty chains.
But quite honestly the wholesale business overall.
And is growing for us.
Dominant wholesale provider we are not.
On a vertical retailer and.
We like that business, it's a profitable business for us and relationships are excellent and all of our partners store partners and what we we have to remember that brick and motor is not what it looks like.
Our largest customers Macy's and Macy's as Jeff and added stated there will be a $10 billion digital business and a couple of years.
Can't name very many $10 billion digital businesses.
So as they grow digitally so that we grow.
And our brick and mortar business.
And they closed stores, they're the poor performing stores, so we're not and impacted dramatically.
And as door counts shrinks.
And we focus on the better stores, we better penetrate those stores and.
And we're happy to support it.
It works.
<unk> worked for us historically and I have no reason to believe that the.
On the futures not consistent with part of the past.
The mix is a little bit different.
And clearly a digital focus that.
And we still believe brick and mortar needs to support.
So.
And I guess, maybe that's a long answer to what might have been a short question, but the stores that are less and we play a greater role and a percentage of their overall business I would tell you I can't think of a case, where we're not increasing and penetration.
And the remaining well balance department store business.
Great that's good to hear and thanks.
Thanks, so much.
Thank you Susan.
And our next question coming from the line of Paul Cheng with Barclays. Your line is open.
Hi, guys. Thanks for taking my question.
Just a quick one.
As you continue to shift to digital and and your wholesale partners Containership digital can you help us think about how we should.
And kind of model out or think about the change and profitability between your existing business and that shifts over the long term. Thanks.
So the.
And profitability.
And digital as we build our own sites.
We're retaining retail margin versus the wholesale margin that we ship into department stores. So clearly digital is should be accretive after we get past the hurdle of getting.
And the tweaks out of adder and out of our business. We are currently profitable.
So.
That's a good thing.
And.
As it relates to.
And the digital business for our customers part of Thats low problematic.
I prefer to ship the inventory for digital sales to department stores, and let them hold and distribute to there and to their unique customers.
But theres going to be a hybrid where we'll have to hold some of that inventory, which is not not my favorite position and the world, but for that we will be bonus and margin. So at the end of the day, there should be and margin enhancement on.
And on the unique ways that we're going to handle digital.
Great. Thank you.
And.
Thank you Brian last question coming from the line of Jay sole with UBS. Your line is open.
Jay are you with US did we lose Jay.
Can you hear me now.
Yeah, now we can hear great.
Great sorry about that.
So thanks for taking the question. My question is on the first quarter guidance.
It looks like the sales guidance implies share.
And the first quarter should be down about 27% versus the first quarter of accounts 2019 can you just walk us through some of the puts and takes some of the obviously there are some stores that have been closed and then there is some of the growth opportunities and then the power fiber and can you just give us an idea of like.
Were the biggest drivers of.
The guidance are for the first quarter compared to 2019.
Look we see the the business certainly in the first quarter was driven by the power brands.
It's us spring business and we see it across all of them.
Fairly evenly.
Got it and then is it possible to talk about you mentioned that swimmers on fire addresses not far behind on that was the comment that you got on the tax rate.
Could you just talk about sell through and general like what Youre seeing in terms of like the <unk>.
<unk> of the product, especially on the last weeks and stimulus started getting distributed across the country. What have you seen from yourselves through and when does that sort of tell you about what your what day.
Progression and the growth rate versus 2019 might look like as we go into <unk> and beyond.
So we're evaluating right now and clearly there's always a connection with the level of inventory and the sell throughs and so we're tracking a better turn on inventory than we did in 2019 quite honestly, but the inventory levels are lower than it needs to be.
So the adjustments need to take place to right size, the inventories and our retailers and we'd have a better analysis that.
And we could go through right now.
And we can look at the digital side of our business because nobody knows if there is.
One garmin and and the warehouse or 1000 garments, when they're buying it online when they walk into a brick and mortar location and they're looking for what the retailer and what the buyer of designers and thought was right and if it's displayed aggressively and there is a commitment firm.
From the retailer that this is what to buy and that's what you buy.
And that's not in place right now all of that is I believe.
I believe I know trading partners are working on right sizing the inventory as business opens up and we're in a position and.
And many categories too.
To provide for that not a lot of people R. R.
At that same level on the on the wholesale side. So we believe we will be one of the companies that can take advantage of that.
Understood. Thank you for your answer.
Thank you Jay.
Thank you all.
Wish you a good day and.
Hopefully.
There'll be a greater normality coming our way.
You.
Ladies and gentlemen that does some teleconference for today. Thank you for your participation you may now disconnect.
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