Q1 2022 G-III Apparel Group Ltd Earnings Call
[music].
Good day, and thank you for standing by and welcome to the G Suite apparel group first quarter fiscal 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation.
And there'll be a question and answer session task of question during the session you'll need the press star 1 on your telephone. Please be advised that today's conference is being recorded and now.
And I would like to turn the conference over to your Speaker today, Neil Mcmahon Company's CFO. Please go ahead.
Thank you good morning, Thanks for joining us before we begin I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward looking statements within the meaning of the federal securities laws for.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward looking statements.
Important factors that could cause actual results of operations or the financial condition of the company. The differ are 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.
Good morning, and thank you for joining US also joining me today are Sammy Aaron our Vice Chairman and President.
Wayne Miller, our Chief operating Officer, Neal Nachman of Chief Financial Officer, Jeff Goldfarb, Executive Vice President and Priya Trivedi, Vice President of Investor Relations.
Yeah.
We are pleased to and the first quarter of fiscal 2022 of strong outperformance and our results, which gives us confidence and we and our industry are well on our way to recovery.
And reflecting upon last year and the very difficult challenges posed by the global pandemic.
It is impressive to see how effectively we navigated through this period.
More importantly, we have emerged a stronger and leaner company and a solid financial position, which affords us with the significant flexibility to invest and outgrowth.
Our past success financial strength and future growth of built upon for fundamental pillars.
The first is our incredible portfolio of globally recognized lifestyle brands anchored by DKNY, Donna Karan Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld.
And these brands have the proven record of longevity relevance and appeal to consumers throughout the world.
Our second pillar is our expertise and dominance and the diversified range of lifestyle categories, including sportswear.
Outerwear dresses athleisure genes.
<unk> handbags and footwear.
Our third pillar is that of diversified base of retail partners, who operate across a wide range of distribution channels and for many of whom we are key vendor.
Finally, our fourth pillar of success and maybe the most important is the world class team. We built here at G. III many of them with significant industry experience and expertise.
Leveraging these 4 pillars enables us to create product at the right price points and a broad range of categories, which are able to meet the needs of the wide demographic of consumers and their preferred channel of shopping.
The sales opportunity of just out of power brands day.
And why Donna Karan, Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld and taken together.
And have an annual net wholesale potential of $4 billion.
We have a long runway of organic growth ahead of us and the resources to invest and that growth.
This past year demonstrates the power and diversification of G III and <unk> business model to adapt and succeed and almost any environment.
We quickly reacted and adjusted to the consumers changing preferences. This enabled us to succeed and further elevated and position us as the supplier of choice.
This past quarter casual categories continued to drive our results.
With each passing week, we are encouraged by the increasing sales at retail for a broader lifestyle apparel as such as sportswear.
Where the work of tire and dresses.
These trends provide a good indication for the remainder of the year.
The court.
Our merchants are responding and diligently working with our vendor and retail partners to expand these product offerings into our line of Assortments for the upcoming seasons.
Our overall business in North America is really good and has been getting stronger over the last few months.
We are optimistic about the remainder of this fiscal year and excited about our future.
Now, let's review the first quarter of fiscal 2022 results.
Net sales for the first quarter were $520 million and the increase of 28% compared to last year's first quarter net sales of $405 million and above our guidance.
The increase and our first quarter net sales was driven by our wholesale segment, where net sales for the quarter were 512 million up 35% compared to $379 million and last year's first quarter and down 10% compared to.
The 571 million and the first quarter 2 years ago.
First quarter GAAP net income was 53 sales per diluted share compared to GAAP net loss of 82.
Per share and the first quarter last year and 24 for 'twenty for SaaS per diluted share and the first quarter 2 years ago.
This year's first quarter net income per share exceeded the high end of our provided guidance range of <unk> 15 per diluted share.
Before we get into the details of the quarter, let me spend a few moments discussing some inbound freight challenges that we're seeing and our business.
Like others in the industry, we too are experiencing and impact from rising shipping rates and availability of containers.
The long standing partnerships that we have with our steamship carriers benefit of our ability of the securities based on the vessels. We are working to offset cost increases while also getting our goods here in a timely manner.
We believe that the strength of that portfolio of global power brands will allow us to selectively raise prices to largely offset higher freight costs.
As for our inventories we continue to prudently manage our inventories which ended the first quarter down 31% from last year's first quarter and down 36% of 2 years ago.
Our inventories of our current and well positioned.
And now let's look at the wholesale business, which drove our sales and results for the quarter.
As expected casual trends, we're dominant in this business and.
Additionally, this quarter, we saw an acceleration and dress sales, which exceeded our expectations.
As I stated in my opening comments. We also saw a continued sales improvement and lifestyle apparel, including sportswear and wear to work of tire.
Demand for athleisure and casual sportswear across our power brands once again accelerated and continues to be strong.
For the second half of the year, we're incorporating widely functionality and fit to facilitate transition transitioning from home to a full lifestyle collection for.
For both athleisure and sportswear, we continue to see growth opportunities ahead.
We entered into the jeans category with Calvin Klein, Tommy Hilfiger, and DKNY and barely 2 years ago and on timing worked out really well.
In short order, we built in and effective organization drawing on some of the best denim expertise and the industry.
We've developed successful product lines and are becoming a dominant supplier.
And <unk> lines have been rapidly improving have seen rapidly improving sales is the result of the casual and comfortable apparel trend.
And now with consumers returning to a more normal way of life.
We're seeing a resurgence and denim.
G. III is well positioned to capture this growth and demand genes will become a meaningful contributor to our wholesale segment and the coming years.
Outerwear and had another good quarter.
The weather was cold and the first quarter of this year fueling broad based demand.
As spring set in the weather continues to remain Chilean and provided the right environment for our lighter seasonally function of lateral way of collections.
Clean inventory levels and the channels positions us well for fall 2021 season.
We believe consumers will maintain active outdoor lifestyle for the foreseeable future and we will continue to meet that demand and grow this business.
As for dresses this past quarter of the casual component drove the category and exceeded our expectations.
Currently with each passing week, we are seeing significant acceleration and demand for for day and occasion dresses as well as career, whereas such as suit separates.
We thoughtfully kept the design teams for these categories intact and are working diligently to meet this demand for our retail partners and consumers.
This was the particularly strong quarter for DKNY women's footwear on significantly less average inventory levels.
Based on this past year success of footwear, we expect to almost double our distribution by the end of next year to well over 300 Department store doors and the U S alone.
As for our overall handbag business for Calvin Klein and DKNY, a refreshed assortments are resonating and driving significant increases and AUR.
As we build substantial footwear and handbag businesses, we are becoming a sizeable supplier and both of these categories as well.
We are and the early stages here with significant growth expected for the future.
Based upon the success of our digital launch with Macys 6 months ago, We launched Karl Lagerfeld, Paris Women's sportswear. This past March and 75, new doors at Macy's.
The collection features of lifestyle assortment, including Blazers woven tops casual pants, and dresses elements of athleisure and T shirts and this.
This collection has far exceeded our expectations and is the result.
We will more than triple our distribution for <unk> 75 to 250 doors by the end of the year.
On our Karl Lagerfeld, footwear, and handbag businesses launched and of Hana and a handful of doors and is also off to a great start.
On the into our first season with Macy's, we expect to increase distribution for both categories to over 100 doors by this fall.
Okay.
The pandemic has further driven and increased consumers' digital shopping.
It has become intuitive and the change in behavior that is likely to be permanent.
We firmly recognize the importance of transforming into an omni channel organization and I am pleased to announce that we've hired Stacy bow to lead this effort.
<unk> is a veteran and the business with strong digital and merchandising expertise and nearly 30 years of experience at Macy's.
For the quarter of sales of our products through E Commerce continued to accelerate.
On our retail partner sites, we saw sales increases of over 60% from 2 years ago.
To further drive of our sales on a retail partner sites, we're dedicating additional resources, creating exclusive merchandising programs and supplementing it all with the refresh refresh digital marketing.
As for our own sites for DKNY and Karl Lagerfeld Paris.
Combined comparable sales also increased approximately 40% of last year.
For fall, we are on track to re platform of DKNY, and Karl Lagerfeld, Paris sites and build out the GH bass site.
The initial reads on our newly implemented CRM tool are really favorable results include a significant uptick uptake and repeat purchases of 30% as compared to pre implementation.
They'll broken and also saw a significant acceleration and the digital sales with comparable sales increases of 60% of last year.
On the vendor partner side sales penetration is continuing and continuing to accelerate as the weather gets warmer generating demand for resort swimwear.
Overall, we remain focused on capturing market share by amplifying, our digital business on a global basis, and enhancing our logistics capabilities to support it.
And the second half of the year, we will step up our marketing and media campaigns for the DKNY and Karl Lagerfeld brands.
These campaigns will focus digital content to support the fall launch of the redesigned sites created to reach broad audiences. They will keep DKNY and Karl Lagerfeld brands top of consumers' minds of across all distribution channels.
Onto the international front, which and the long term represents a higher margin growth opportunity our.
Our DKNY franchisees sales were up considerably even compared to the first quarter 2 years ago.
China saw another quarter of significant growth with continued outperformance and e-commerce.
Although small the China business is expected to be up 50% for the year and continue to grow rapidly the DKNY European business, which is also small and continued to be faced with widespread COVID-19 shutdowns.
Our status Swimwear brand Ville broken is celebrating its 50th anniversary this year and has an incredible slate of innovative product launches and collaborations planned.
For example, and May the brand teamed up with highest snob piety on and eliminated edition series inspired by L. As renounced scape culture.
And a few days ago, we launched the collaboration with Palm Angels, which infuses the brands urban style into the <unk> collection.
We recently opened a new store and the Aventura mall, 1 of the Premier shopping destinations in the country.
The store is significantly beating plan for for its first week of operation.
Now, let's move to our retail segment, which includes 36, DKNY and 13, Karl Lagerfeld Paris locations.
We feel great about our current store base. These brands are amongst some of the most recognized global fashion brands and the strategically important to our longer term goals of brand ownership and omni channel distribution.
Accordingly, we're looking to take advantage of the current availability of prime retail space at favorable lease terms to selectively add some locations with average lease terms of about 3 years.
This past quarter, we saw gradual improvement and traffic here in the U S. However, our European business and our European stores have been closed for much of the quarter due to the pandemic.
Overall, we were operating with clean inventories less promotional activity and fresh compelling product.
And elevating assortments and driving digital growth and leveraging virtual selling and techniques.
As a result, we're seeing higher shop of conversions and the AUR and year over year margin expansion.
Further we've scaled down our overhead structure and continue to right size and we expect to part of the losses per the losses and our retail segment.
This year and see a path to bring the retail business into profitability and the near future.
We remain optimistic about our business for the remainder of the year, we have 1 quarter behind us and a view into our order book for a substantial portion of the year.
Although some uncertainties remain we feel more confident and our ability to provide guidance for the full fiscal 2022.
We expect full fiscal year net sales to be approximately $2.5 $7 billion, which adjusted for the retail closures is 12% lower than our pre pandemic levels 2 years ago.
Neil will share more details shortly we are managing our business prudently and we believe we are well positioned with our vendor network and appropriately aligned with our retail partners to capitalize on consumer demand and this year progresses.
I will now pass the call to Neal for a discussion of our first quarter financial results as well as the guidance for our second quarter and fully.
Full year of fiscal 2022.
Thank you Morris.
Net sales for the first quarter ended April 32021 increased approximately 28% to $520 million from $405 million and the same period last year and above our guidance of $460 million net.
Net sales of our wholesale operation segment increased approximately 35% to $512 million.
Mm $379 million last year and decreased approximately 10% from $571 million 2 years ago.
Net sales of our retail operations segment for the quarter were $19 million, approximately 43% lower than last year's sales of $34 million.
The restructuring of our retail segment was completed last year. We have included the prior 2 years results for Wilsons leather and GH bass store operations in our press release issued this morning.
On gross margin percentage was 37, 6% and the first quarter of fiscal 2020, 2 as compared to 37% and the prior year's period.
This increase in gross margin was primarily driven by the gross margin percentage in our wholesale operation segment.
Was 36, 3% compared to 29, 6% in last year's quarter.
Wholesale gross margin percentages and this year benefited from clean inventories at retail, resulting in less promotional activity.
Further last year's gross margins were negatively impacted by the pandemic onset, which resulted in the recognition of certain fixed costs, primarily higher effective royalty rates over the reduced sales base.
The gross margin percentage and our retail operations segment was 53% compared to 35, 9% and the prior year's quarter.
We continue to reap the benefits of stringent cost controls SG&A expenses decreased by 8% to $141 million and this quarter compared to $155 million and the same period last year.
Cost reduction efforts undertaken in response to the pandemic and the reduction and our store base were offset partially by increased expenses associated with the increase in sales and profitability in the quarter.
Net income for the quarter was $26 million of 53 per diluted share. This compares to a loss of $39 million of 82 per share and the previous first quarter.
Last year's first quarter did reflect direct losses from Wilsons and bass store operations of 31 per share.
Looking at our balance sheet accounts receivable of $509 million up 21% as compared to $421 million at the end of the previous year.
Inventory decreased approximately 31% to $347 million from $500 million and the previous year.
We ended the year and and improved net debt position of $119 million compared to $284 million as of the prior year and.
We had cash and availability under our credit agreement of approximately $860 million or.
Quiddity and financial position is that and all time high and leave us well positioned to fund, our domestic and international growth and take advantage of potential acquisition opportunities.
As for our guidance as Morris indicated we feel more confident and of our ability to provide guidance for the full fiscal year 2022.
Our guidance does not contemplate any pandemic related impacts that we are not aware of already.
We have not anticipated new store closures or the impact of tighter government restrictions.
For the full fiscal year ended January 31, 2022, we expect net sales of approximately $2.5 $7 billion, which compares to $2.6 billion last year.
Last fiscal years 2021, net sales included $92 million for the Wilsons leather and G H bass stores.
This will leave us approximately 12% below our fiscal year 2019 sales, excluding $252 million of sales for the Wilsons and bass store operations.
Net income for this upcoming full fiscal year is expected to be between 125 and $135 million or between $2.60, and $2.70 per diluted share.
This compares to net income of $24 million or <unk> 48 per diluted share in fiscal year 2021.
Fiscal 2021 results last year included an operating loss per diluted share of $1.14 associated with the wilsons leather and GH bass store operations.
For the second quarter ended July 31, 2021, we expect net sales of approximately $460 million, which compares to $297 million and the same period of the previous year.
Net income for the second quarter of fiscal year 2022 is expected to be and the range of 3 and <unk> 13 per diluted share.
This compares to a net loss of 31 per share and last year's second quarter, which included and net loss per share of <unk> 53.
The associated with the Wilsons leather and GH bass store operations.
That concludes my comments I will now turn the call back to Morris for closing remarks.
Thank you Neil.
G. III is the stronger leaner and agile organization with the strong portfolio of global power brands DKNY, Donna Karan Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld.
As the World Reopens.
And our and our strong financial position, which we believe will allow us to fund our growth domestically and internationally and enable us to take advantage of opportunities that arise.
Our employees are the heart and soul of G III and I'm incredibly proud and grateful for their hard work.
The entrepreneurial culture, we've built over the decades continues to fuel and elevate our position in the marketplace before.
Before ending and.
On a highlight the progress we've made on our corporate social responsibility initiatives last year.
And I discuss the Bill Burke has extensive efforts last quarter and this.
And in addition to those we are laying the groundwork to formalize enhance and scale as social and environmental programs throughout our organization.
We continued our commitment to funding on our nonprofit partners and made strides and our focus on diversity.
We recently posted a.
The 2021 CSR letter to our IR website.
And I encourage you to take a look for more details on our efforts.
On behalf of the entire G. III the 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 will need the press star 1 on your telephone and again Thats Star 1 to ask a question.
Our first question comes from Edward <unk> with Keybanc. Your line is open.
Hey, good morning, guys. Congrats on the accelerating momentum I guess 2 questions for me and parse.
Morris and I know at this time last year, you really were able to work cooperatively.
With your vendor base.
And you kind of deferred some orders I guess, how is that position do you. This year in terms of being able to get access to factories and kind of and this re ramp process and Neil just a follow up.
And can you give us a little bit more color on SG&A going forward and how they've been a lot of moving pieces you guys for very aggressively on reducing SG&A last year.
And of what has to come back as the business continues to grow thank you.
Good morning, and thanks for your question.
<unk>.
I think we all recognize and interruptions and sometimes as an impediment to the future of your business.
We believe it or not never interrupted our commitment to our vendor base.
And we were very communicative and we let them know where we were at every step of the way we share the burden of losses and cancellations and at the end of the day, we kept them pretty much all intact.
And they were producing throughout the pandemic.
The wound up taking.
Debt net more than 90% of the orders that we place we paid.
Simply and Fortunately, we are and our financial position and be able to do that.
And the industry was.
Didn't operate and the like for them.
So the advantage of being obvious dominated and financially.
<unk> gave us the ability of garnering some manufacturing bases that we we didn't have before.
So we're in good shape on.
On our supply chain as I stated earlier, the wildcard is a little bit of the how we respond to the container shipments and even in that case. The fact that we cooperated with our vendor base, they're fighting for containers on on the production.
Side of the world alongside of US and we're succeeding we're doing well on the.
Getting everything that we need and the steamship companies as well because of the level of cooperation we gave to them.
Responsive to our needs.
No.
1 of those companies that recognizes that the vendor base is as important as your your.
Customers and the states.
Yeah, and as far as the SG&A, maybe it's a good time to give a little bit of a reminder of what happened to us last year.
Because that's really the baseline for what we're looking at this year.
In terms of last year of the most significant thing we did was with respect to our employees.
We had furloughs that started in April of last year. They ran until October of last year. We also had cuts in terms of wages to the.
The management team.
Ultimately, we had a reduction in force and when we brought people back so.
And so the reduction of enforces will be permanent and for US at this point, we do expect that as the business continues to grow we will probably bring people back on but I don't expect a strong impact.
<unk> of that for this year.
The second largest item that we cut was on the advertising front significantly cut that back last year, all discretionary spending and certainly the spending related to the contractual advertising and we do for our licensed stores.
So that'll come back.
Morris mentioned in his speech and the second half, we'll start to spend more on our discretionary advertising with DKNY and Karl Lagerfeld and of course, the contractual amounts will expand the sales increase.
Probably the single largest good Guy and then we've got coming into this year than last year. We did have bad debt expenses that were quite significant and of about $14 million throughout the year.
The biggest charge of that was in the first quarter of last year and so we're certainly thinking that thats behind US and then the last significant item in terms of the prior year's SG&A was the retail closures and where wilsons and bass and now closed so as we look at this year.
The first quarter's SG&A was strongly leverage I think as you go throughout the year, we will see more of a flattening. If you think about the full year in terms of SG&A leverage.
But we're very comfortable with where the SG&A structure ways, we really feel like we're quite of bit leaner at the moment and that should should bode well for us.
Thank you very much.
Thank you. Our next question comes from Erinn Murphy with Piper Sandler Your line is open.
Great. Thank you good morning, Morris a question for you on some of the Green shoots of you're seeing in categories like denim and dresses and sportswear.
How are you positioned in these categories into fall of this year and then with the retailers that you're working with are they moving into chase mode with some of these categories.
Good morning, and Erin and thank you for the question.
Where we're positioned.
Okay and on the inventory level and I wish we had far more inventory.
The market opened.
Faster than we had anticipated and some of the resource.
Countries that were engaged with our ltd and potential of a big piece of our production for denim is coming out of.
And of Jordan, and Jordan has seen some pandemic issues.
And.
And quite honestly, the impediment to growing the business more rapidly is getting supply.
The demand is high and supply is for the moment is limited we're working on it and it's.
It's a great opportunity for the future. So as I stated pretty much all our brands are producing denim apparel, it's not just denim, but it's all of the components that relate to the gene and.
And.
Sales of great, but the good part I don't want you to really focus on denim alone all of our businesses the opened up.
Our dress business is tracking at north of of pre pandemic.
<unk> for the last month or so so we're.
And we're chasing supply.
And we believe of the World is back people are going out and people are party and they're not and not just wearing the fleece leisure wear there the wearing.
Denim and they're wearing and.
Chance and the they're wearing stretch fabrics and they're wearing.
Sculpture.
The product so I would say we're in a mode, where we believe the world is really back on handbag businesses, showing diversity and demand and even our footwear business, it's not all canvas footwear any longer.
Great that's encouraging to hear and and then I guess 2 quick ones on the model Neal for you is.
Is there any timing shifts between Q1 and Q2 this year just related to some of the port challenges here of logistical challenges I think pre pandemic Q2 used to be higher than Q1 revenue. So just trying to understand the disconnect and the guidance you provided this morning, and then secondly on the model Q1 gross margin with the App versus the 19.
Is that sustainable to continue to see gross margin expansion over 2019. Thank you so much.
Yes Erin.
With respect to timing on Q1, and Q2 I think what we're seeing is of very strong Q1.
Probably pulling a little bit from our Q2, but still a very strong increases and this Q2 compared to last year of course last year was really the and.
The most significant decrease as a result of the pandemic. We're also factoring in for Q2. This year, what we anticipate will be some freight challenges we've done very well with those so far but we've certainly got our eye on that.
I think as it relates to gross margin compared to the prior year to the to the.
The 2 prior years ago. Our view is that we are going to see increases and the gross margin percentage, we expect to be less promotional and we mentioned taking of prices. So we are expecting that that will have a continuation I don't think it will it will be as robust as what you saw in the first quarter, but we will do.
And do expect increases and the gross margin percentage.
Great. Thank you.
Thank you. Our next question comes from Susan Anderson with B Riley Your line is open.
Hey, good morning, nice job on the quarter and it's great to see the acceleration and the business and.
And curious it sounds like you do wish that you had more inventory. So curious what youre hearing from your wholesale partners and <unk>.
In terms of the outlook for the rest of the year and.
For the fall or here are you seeing them increases the orders and if so I guess at this point in time and you fulfill more demand coming into the back half.
1 of the core confidence and thank you Susan 1 of our core competencies is really.
Having this unique ability of chasing product.
We have the.
<unk>.
Team of people living offshore of concentrating on the specifics of sourcing more better product.
And we're succeeding and some cases and other cases.
We're not.
And there is the inability of chasing product the.
And when factories of the close so we're bringing back some production to China.
We maintained the solid base in China, which work to our advantage and as areas like Vietnam has.
Limited capacity compared to China.
We're electing to bring back some of that production to China where were the.
And the ability of sourcing more product competitively exists.
The demand is high.
And we will succeed.
We believe we will succeed and bringing in sufficient product.
Our retailers are looking for more product than they had originally planned for.
But we're a company that.
Gambles.
And to some degree because of the nature of our brands.
On the level of inventories, so we were able to accommodate the needs and.
And.
The good scenario would be that we end up the year with far less inventory than last year and sell it into the channels that we service.
Great that's helpful and the.
And just in terms of the digital business for DKNY and Karl maybe if you can talk a little bit of about the performance there and the quarter I think day, where Paul revamped. So curious how those are performing versus your expectations and then where you are at within the estimate.
And those 2 digital businesses. Thanks.
So.
Not to distort the level of business that we do there there both the DKNY and lagerfeld are on.
On the early stage of development.
We're aggressive and they are spending both for talent and systems as well as the logistics. So there's nothing that I can tell you other than percentage increases that would excite you.
The basically the message would be come back towards the year from now and that would be something that the.
And that moves the charts on the earnings stream.
On on digital.
Contrast to our own.
The.
The retailers that we service all have matured.
Digital base and as much as our largest account has about a 40% penetration and digital and that business is great and that business.
Performing.
The.
The minimum of 30% comp for last year.
30% of comp to last year and.
And that that were laid on the digital side, but.
And the need to recognize that some of our brands.
The Calvin Klein and Tommy Hilfiger, specifically, we licensed those friends and we don't and we do not have the right to build their own digital sites.
So with the acquisition of DKNY, and Karl Lagerfeld, and the Bill broke and we finally have some massive opportunities on.
On on global brands that would create consumer interest and they are creating consumer interest and with that and place.
We chose to invest and the talent pool and the systems that I described.
So we're looking to some great stories in the coming years on the digital expansion.
Great, Okay that sounds great and thanks.
Thanks, so much and good luck the rest of year.
Thank you Susan.
And.
Thank you. Our next question comes from Jim Duffy with Stifel. Your line is open.
Thank you good morning, guys of goods.
Starts for the year congratulations on the <unk>.
Progress and Neil.
I wanted to follow up on the question on SG&A can you speak about the seasonality of SG&A.
And we think about it relative to the fiscal 'twenty and fiscal 19 patterns and how the closure of the retail force may impact that.
Yes sure.
No real change Jim if you think about the.
Well, we were just in terms of extracting out the retail you did have a seasonality there there was more fourth quarter base.
But as far as the SG&A on the wholesale side of the business I don't I don't see any change in the.
From the seasonality standpoint.
Okay.
Even as you are.
Seemingly kind of ramp back.
And as you talked about the.
The.
Leverage that you saw on the first quarter narrowing over the course of the year.
Look we'll definitely have increases as a result of.
Primarily the furloughed staff and we'll have we'll have some small increases as well as a result of advertising. So I think if you're going back the 2 well why the seasonality of the on the wholesale side of the business should should be fairly similar.
Got it and then with respect to incentive comp for getting a good look at that and the <unk>.
Reported I presume.
And so theres no cash.
Collation of of that over the course of the year.
Well no I think as it relates to the compared to the prior year Youll see escalations and that throughout the year again, if you go back to 2 well why you should be fairly consistent there.
Okay. Thanks for that and then last 1 for me I just wanted to ask about all of those categories, where you see more pricing power and opportunity and what types of price increases you were talking about.
Well the.
Thank you for your question Jim.
Quite honestly a first view is the.
The the.
On the pricing increases that we can.
And that we can attain and not affect retail performance, we're sensitive to our stores, primarily where we're out of business if they're out of business. So it's not it's not totally elastic it's got some mobility part of which is we produce great product we saw.
Sell it at a very fair price and we have great brands. So there's a little room to to offset the.
The the potential increases in containers and and.
And possible increases on some production costs.
But it's not monumental.
And we've tested it it works.
And we're getting.
The $5 of more retail, which is the big deal when you produce millions of units of product.
Our ability to do that as we dominate certain areas. The dress business is key and we're 1 of the largest producers of the dru.
<unk> and the country with all our brands.
The coat business is very much the same way so the opportunity is there to to move the price point, it's not unlimited and.
And again.
The primary concern is the retail ability of what we put out there it doesn't doesn't do us any good to sell into a very high retail and have the retailers suffer of markdown at the end of the season.
Got it.
Thank you.
Thank you Jim.
Thank you our last question comes from Jay sole with UBS. Your line is open.
Great great. Thank you so much.
So I have a question on revenue of just at the high level and thank you for the table on the Wilsons leather and GH bass and impact on 2019 calendar 2019, and the press release. This morning, but if you take out the sales from those 2 brands and it looks like your guidance implies sales for me, but down about 12% versus COVID-19 can you just talk through are there any.
Structural changes, maybe like store closures from some of your retail partners or some other aspect of the business that means that by getting back to 2019 levels would.
It would be hard to get all the way back there otherwise what do you think it will take to get back to that.
The $2.9 billion range that you did and.
The fiscal 'twenty ex Wilson leather and GH bass.
So.
Jay It's Morris.
It's very hard to replace stores that are out of business. You can't you can't bring them up to 2019 scale 1 of our largest customers was Lord and Taylor.
And basically gone and there's nothing we can do to.
Bringing their business back to 19 numbers the century 21, another 1 of theirs.
Most of the.
The Stein Mart, yet another 1.
And these numbers.
Reach couple of hundred million dollars and sales.
<unk>.
It doesn't happen overnight that you replace them, but we're creating other silos of business that should.
Surpass 2019 numbers and the short period of time.
We're aggressive.
And on doing private label development for some of the mass tier distributors.
And out there looking at acquisitions debt.
And that are likely to move the needle to some regard.
And we're producing better product and responding quicker and turning our inventory on the retailers' inventory faster and better so we might achieve another turn and and inventory to obtain top line.
And the classification of genes is likely to impact our growth as well. So there are elements, where kind of a unique company.
And we bifurcate brands by categories, and we produce most of them.
We're now.
Looking to maybe accomplish the same thing on the men's side of fashion. So it wouldn't be a surprise if we.
And it took the model that we created over decades, and womens and transpose it into.
And to the men's sector and that's an opportunity.
And I hesitate to give you the number but we are a growth company.
<unk>.
For our highs internally and management are about growth.
We're entrepreneurial and we're aggressive and were calculated.
You are likely to see some some changes in the future of that benefit our company and the B.
The playing out of the acquisition of Karl Lagerfeld.
As.
Another feature of relevance, we bought the brand to service some retailers that are no longer and business and we decided collaboratively with Macy's to enter into Macy's with the brand and both men's and ladies and that's going to be a big picture of big.
Picture development, the <unk> as well.
Got it so I can just follow up on that and that's very helpful. Thank you for for that information.
And you talked about a couple of hundred million that are maybe not in the the <unk>.
The structure because of Lord and Taylor and some of the other ways of the retail landscape has changed.
Is there a lot of de leverage on those sales and at the same time for.
For all of the initiatives that Youre talking about the sound very exciting or is there a lot of investment dollars going into them because if you add back to 65.
For most of the mother and GH bass and that was a negative and 2019. The company was on $3.84 and earnings and this year. The guidance is for 265 at the midpoint.
And what.
Is it just that there is the business has got all the smart because of the pandemic and its just kind of grow and there's sort of investments.
Involvement of sort of the next chapter or what's going to take to get back to that 2019 level of <unk>.
Earnings.
I think.
A lot of what I've described gets you there without an incredible amount of capex.
The thing that we need to remember.
On the top line.
Included retail, which no longer is and our portfolio. We added another couple of hundred million dollars of retail that went away as we re close wilsons and bass and wear now.
Very as I said before were calculated company.
We've got the.
The retail that will grow with the re venues <unk> Mccann DKNY and Karl Lagerfeld.
Lagerfeld is and the early stages of direct to consumer.
We only have I believe it's 11 stores with.
Leases outstanding for.
And we should be.
Reaching 25 to 30 stores within the next.
I'd say the next 18 months.
And DKNY as our business gets better and our product is.
The product is performing exceptionally well at wholesale were transposed the.
And the learnings into retail and that will grow to be of significant chain as well, we're not short of opportunities for growth I stated in my script.
And the brands that we have the power brands alone.
And contribute $4 billion of wholesale sales into our portfolio.
Jay This is Neil just a follow up in terms of leverage and margin keep in mind too we've done some permanent reductions in force. So that helps us in terms of the deleverage on the loss of sales.
From an operating margin standpoint, we believe that.
The fiscal 19, and while that was that was very strong for the wholesale there's actually still opportunity even on the wholesale side of our business and the DKNY business that day.
And is now part of that operation will be of higher operating margin business than the balance of our of our structure. So we actually do continue to see improvements and the operating margins and leverage despite what could be some short term challenges with the lost sales.
Okay.
Got it okay. Thank you very much.
Thank you Jay.
Operator, I believe that concludes our questions and I. Thank all our stakeholders and everybody on this call for taking the time and.
Continuing your interest and our company.
Have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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