Q4 2022 G-III Apparel Group Ltd Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the G III apparel group.
Fourth quarter and full fiscal year 2022 earnings call.
At this time all participants are in a listen only.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone please be advised that today's conference is being appointed.
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I would now like to hand, the conference over to your Speaker, Mr. Neal Nachman Chief Financial Officer. Please go ahead Sir.
Okay.
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 Q&A session.
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.
In addition, during the call we will refer to adjusted EBITDA, which is a non-GAAP financial measure we have provided reconciliations of these non-GAAP financial measure to GAAP measures in our press release, which is also available on our website.
Important factors that could cause actual results of operations or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC.
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 is Neal Nachman, our Chief Financial Officer.
Fiscal year 2022 is a testament to the power of G. III, having gained market share and delivered significant growth in earnings for our shareholders.
We saw strong demand across our power brands DKNY, Donna Karan Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld, Paris, and we narrow the losses in our retail operations, we delivered the highest annual EBITDA and net income per diluted share in our company's history exceeding pre.
<unk> damaged fiscal 2020 results.
We bought back $17 million of our stock and our board authorized total shares available for repurchase up to $10 million.
We ended the year in a strong financial position with a $1 billion in liquidity compared to $800 million last year.
This affords us the flexibility to continue to invest in our future growth and further elevate our position as a leader in fashion.
Now, let's review the full year and fourth quarter of fiscal 2022 results.
Net sales for the full fiscal year with 2 billion 770 billion to.
$2 billion $770 million in.
An increase of 35% to 2.6 billion last year.
Importantly.
The wholesale segment net sales for the fiscal year reached $2 7 billion, an increase of 41% compared to net sales of $1 9 billion last year and almost back to pre pandemic levels in fiscal 2020.
For the full fiscal year 2022, we generated $350 million of EBITDA as compared to $285 million in pre pandemic fiscal 2020.
Full fiscal year GAAP net income per diluted share was $4 <unk>.
The highest in our company's history and exceeding our guidance.
This compares to GAAP net income per diluted share a 48.
Last year and exceeded pre pandemic fiscal 2020 of $2.94 by 38%.
GAAP net income per diluted share for the fourth quarter was 98.
Compared to <unk> 30 in last year's comparable quarter.
We had strong growth across all of our key categories that outpaced our expectations.
In addition to the continued growth of our casual businesses, which benefited from the consumer behavior shifts during the pandemic, our broader lifestyle categories, including dresses and wear to work sportswear continued to build momentum.
And we successfully incorporated core fashion collections into each of our brands during the past year.
Our team had the foresight to anticipate trends.
Capture market share and deliver and demand product to our retail partners despite significant supply chain challenges.
We're seeing continued momentum and are well positioned for another strong year ahead in fiscal 2023.
At leisure jeans, and casual sportswear continued to do well across our company.
Customers.
Responded to an assortment of layering pieces that offered additional functionality heading into the cooler season.
These completed pieces like ZIP front hoodies lightweight Jack is puffer vest and sweaters have expanded the opportunities for classification businesses.
With the first full year of being in the jeans business behind us.
Quickly built into the into one of the fastest growing categories.
Further entry into this category without power brands has enabled us to capture market share.
Jeans has now become a meaningful contributor to our overall business.
Outerwear in the fourth quarter was led by casual product, we saw a solid sell throughs late into the season and are encouraged by the transition to spring driven by styles that continue to support an active outdoor lifestyle.
Our newly launched burst.
Outdoor brand capitalizes on this secular shift and is off to a strong start with.
We began selling to consumers late last year and 150 Macy's stores.
Nordstrom anthropology, Macy's dot com and <unk> com.
Further we're developing a footwear line, which will round out our offering.
This brand puts us in a whole new category and the team has quickly develop the expertise to create an authentic and functional outdoor line.
We believe there is a significant runway ahead in this business and are excited to expand the distribution.
The momentum in footwear for DKNY, and Karl Lagerfeld, Paris, and handbags for DKNY, Calvin Klein and Karl Lagerfeld, Paris are rapidly developing into a sizeable business.
As we've seen across our other categories as demand for Dressier and occasion based products is accelerating and our collections reflect this trend.
In dresses in Korea, where we experienced strong sell throughs across our power brands.
Momentum has picked up in both dresses in Korea, where as pandemic related restrictions were lifted.
And customers resume their professional and social activities.
Our teams have done an excellent job of pivoting to fulfill the robust demand and have positioned us to capture what will likely be a strong dress in Korea, where a year.
This past year, our Karl Lagerfeld, Paris business outpaced our expectations, which included a successful launch at Macy's.
Total brand wholesale and retail sales in North America totaled approximately $175 million.
Surpassing pre pandemic levels by almost 30%.
We added nine new retail stores this past year, ending with a total of 22 stores along with the digital side all of which are increasing our consumer base and are performing well.
Karl Lagerfeld was a larger than life legend, whose name is globally recognized as one of the most influential and iconic designers and fashion.
The Karl Lagerfeld brand embodies the spirit of the designer with a perusing Parisian.
Seek flair.
<unk> in a modern way.
And appeals to a global consumer across a broad range of categories for men and women.
In keeping with Karl's legacy sustainability is a core value of the business with a focus on building a better future for people and the environment.
We're in the beginning stages of tapping into the potential of this brand and believe the brand has a $500 million of annual net sales opportunity in North America alone.
Turning towards our key priorities across all our businesses, we continue to accelerate the growth of digital as we strive to become a best in class Omni channel organization.
Compared to two years ago digital sales for the quarter on our partners sites increased 35%.
And then our own DKNY and Karl Lagerfeld, Paris sites increased.
Increased over 60%.
In China digital sales are now larger than store sales.
<unk> digital sales were also up by strong double digits compared to last year.
We remain focused on several digital priorities.
We continue to improve our technological and operational capabilities. This past year, we put significant resources into building, our digital business, including investing in talent.
With new leadership, we have built a strong digital division and laid the foundation for a global digital strategy across sales channels.
By increasing our partnership with retailers.
They are now helping us better understand the customers to collectively drive our businesses.
Additionally, progress is being made to further integrate our product and marketing on their sites.
As we enhance our direct to consumer distribution capabilities, we continue to broaden our offerings to consumers.
Sizable strides have been made this year to increase our presence on pure play global retailer sites, including Amazon Zappos, the Lando and fanatics.
Our newly created Amazon team is dedicated to building and mutually growing the partnership.
We're unlocking data in a more effective way than ever before to move.
Than ever before to optimize marketing efforts acquiring new customers.
Drive incremental conversion at foster a more seamless shopping experience for our brands.
This work has resulted in strong performance in that digital business.
Our improved DKNY and Karl Lagerfeld, Paris sites.
Boosted by a new look and feel recently launched loyalty programs and enhanced CRM capabilities.
These are powerful consumer engagement tools that are resulting in strong increases in traffic and new customer acquisition as well as strong double digit increases in sales from repeat customers, who are driving average order value.
With further investments site enhancements will continue to evolve this year.
Marketing investments have allowed us to engage with new audiences and drive qualified young customers to our brands.
This has resulted in greater than a 50% increase in new to brand customers.
For fall.
The DKNY campaign featured diverse and related influences with exciting product stories, delivering our strongest social audience growth.
This spring the campaign is designed to reinforce consumers' desire for self expression of value intrinsic to the DKNY brands brand ethos.
And for Karl Lagerfeld, Paris.
Highlighted the new address ski collection and delivered exceptional results.
We saw significant engagement with both repeat and new customers, who are discovering the brand.
This coming fall with Karl Lagerfeld brands collaboration with with with carrier <unk> is expected to create significant global awareness.
The collection launches here in New York City during fashion week in September .
Trends across the metrics in our retail operations, including traffic conversion and dollars per transaction continue to improve despite the lack of tourism.
We added nine new Karl Lagerfeld, Paris stores, all of which are off to a really good start and ended the year with an aggregate of 60, DKNY and Karl Lagerfeld Paris stores.
The team is driving omnichannel growth by leveraging our retail store base to service digital sales as well as in store virtual selling programs that continue to gain momentum.
This coming year, we expect to add approximately 10, new stores the losses from our retail operations significantly decrease this past year and we will.
I'll leave we can expand our omni channel footprint and further leverage our expense base.
Our international business for DKNY, and BELBUCA and exceeded pre pandemic levels for the quarter.
For DKNY, our European business, although small grew through retail wholesale partner expansion and pure plays sites.
China, which is even less penetrated sales grew significantly driven by digital sales.
The Middle East has had significant significant expansion, where our partners already operate 44 freestanding DKNY stores.
Plan to open seven additional stores in the coming year.
Our distributors operate 240 freestanding stores and concessions globally for the DKNY brand.
They'll broken our luxury swimwear brand saw good momentum across the business with strong sales increases across channels, which exceeded pre pandemic levels.
We opened additional stores and warm vacation destinations like Florida, where we now have seven stores, which have quickly become some of the best performing stores in the fleet.
As we think about our future we see significant opportunities outside of North America. We're excited to continue to expand DKNY and build Britain and relaunch our recently acquired southern Iraqi L brands.
This is the beginning of creating a new platform for growth.
Licensing continues to enable our brands to grow awareness and their consumer base by expanding into additional lifestyle categories and international markets.
Our dedicated team has created a solid licensing royalty income base in a capital light way that is highly accretive.
We have best in class partners supporting these opportunities in categories like fragrance home kids optical as well as jewelry and watches.
The strengthen awareness of our brands has enabled us to create a strong and growing licensing business unit.
In conclusion.
This past fiscal year 2022, we continued to build upon our strong foundation and delivered our best earnings ever.
Before moving to our guidance, let me address the ongoing conflict between Russia and Ukraine.
All of us have watched in dismay, the events unfolding abroad.
Our Hearts go out to the people of the Ukraine, We immediately put together his support package for the Ukraine humanitarian crisis with financial contributions in coat donations.
From a business perspective, we have no directly operated stores in either Russia, or Ukraine and have halted all shipments to the regions.
Looking ahead to the upcoming fiscal year, we've carefully considered the many factors as the company is facing in the world.
We remain optimistic about the momentum of our business and the many opportunities for growth.
As consumers continue to return to a more normal way of living reentering. The office traveling intending social functions G. III is well positioned to capitalize on this shift.
We anticipate full fiscal year 2023, net sales to be approximately $3 billion with net income per diluted share in the range of $4 20 and $4.30 per diluted share.
I'll now pass the call to Neal for a more detailed financial discussion of our fourth quarter results as well as our guidance for our first quarter and full fiscal year 2023.
Thank you Morris.
Net sales for the fourth quarter ended January 31, 2022 increased approximately 42% to $748 million from $526 million in the same period last year.
Net sales of our wholesale operation segment increased approximately 47% to $719 million from $488 million last year.
And was up 13% to pre pandemic levels of $635 million in fiscal year 2020.
Net sales of our retail operations segment were $45 million for the fourth quarter and relatively flat compared to last year's net sales of $44 million.
Last year was impacted by the pandemic and the restructuring of our retail segment.
Sales at our DKNY and Karl Lagerfeld, Paris businesses were both up over 50% compared to the prior year, which were impacted by the pandemic.
Our gross margin percentage was 33, 7% in the fourth quarter of fiscal 2022 compared to 35, 6% in the previous year's fourth quarter.
Last year's gross margins included benefits from Covid related adjustments.
Gross margins were 33, 3% two years ago.
The current year's increase compared to two years ago benefited from the reduction in the promotional environment, which was partially offset by the significant increases in freight costs, we incurred in the quarter.
Wholesale operations segment gross margin percentage was 31, 9% compared to 35, 5% in fiscal 2021.
Comparable quarter, and 30% two years ago.
Wholesale gross margin percentage in the percentages in this year benefited from clean inventories at retail, resulting in less promotional activity combined with selective price increases these.
These improvements were partially offset by the significant increase in freight costs, which we had anticipated would have more of an impact on gross margins in the second half of last year.
Last year's gross margins included substantial onetime benefits from reversals of previously accrued higher royalties, resulting from favorable negotiations with our licensed stores.
The gross margin percentage in our retail operation segment was 51, 3% compared to 32, 2% in the prior year's quarter and 45, 9% two years ago.
Last year's percentage was negatively impacted by the restructuring of our retail operations segment, which resulted in the liquidation of inventory in connection with closing stores.
SG&A expenses were $177 million in this quarter compared to $151 million in last year's fourth quarter and $187 million pre COVID-19 in fiscal year 2020.
Current quarter's SG&A as a percentage of sales was 23, 7% compared to 24, 8% pre COVID-19 .
This year's SG&A rate benefited from the restructuring of our retail operations last year.
Net income for the fourth quarter was $48 million or 98 per diluted share compared to $15 million or <unk> 30 per diluted share in last year's fourth quarter and included direct losses from Wilsons, Wilsons and bass store operations of $9 million or <unk> 17 per share.
Net income for the fourth quarter, two years ago was $25 million or <unk> 52 per share and included direct losses from Wilsons and bass store operations of $16 million with 33 per share.
Now, let US review results for full fiscal year ended January 31, 2022 in which we delivered the company's highest earnings ever.
Net sales for the full fiscal year were $2 $77 billion up from $2 6 billion in the same period last year and $3 6 billion two years ago net.
Net sales of our wholesale operations segment increased to $2 7 billion or 41% from $1 9 billion last year, and we're almost back to pre pandemic levels of $2 9 billion.
Net sales of our retail operations segment for the year were $118 million lower than last year's net sales of $170 million, which included $92 million of sales from wilsons leather and bass stores, which will close by the end of the year.
Full fiscal year 2022, gross margin percentage was 35, 7% compared to 36, 2% in the prior year and 35, 4% two years ago.
This increase in gross margin percentage compared to two years ago was primarily driven by the gross margin percentage in our wholesale operation segment, which was 34, 2%. This year 35, 9% last year and 32, 7% two years ago.
Last year's wholesale gross margin percentage was positively impacted by the pandemic related items, including the reversal of previously anticipated markdown accruals due to the law.
Reduced wholesale sales volumes.
Two years ago gross margins benefited from a lower promotional environment combined with selective price increases and was partially offset by the significant increases in freight costs.
The gross margin percentage in our retail operation segment was 59% compared to 33, 6% in the prior year, which included the results from store liquidations for Wilsons leather and G H bass stores.
This year's gross margins of greater than 50% are a good indication of the ongoing retail operations with a globally recognized brands DKNY and Karl Lagerfeld, Paris will provide higher margins in the retail segment.
SG&A expenses for the year was $648 million compared to $605 million last year and $832 million in pre COVID-19 fiscal year 2020.
The full year's SG&A as a percentage of sales was 23, 4% compared to 26, 3% pre COVID-19 .
This year's SG&A rate. This year is SG&A rate benefited from the restructuring of our retail operations last year.
As for net income we reported our strongest earnings in our company's history full.
Full year, net income was $201 million or $4.05 per diluted share compared to $24 million or <unk> 48 per diluted share last year and $144 million with $2 94 per diluted share two years ago.
Net income per diluted share included a four wall loss for Wilsons and bass store operations $1 14 last year and 65 two years ago.
Looking at our balance sheet, we ended the quarter in a lower net debt position of $54 million compared to $160 million in the prior year.
We have cash and availability under our credit agreement of over $1 billion.
We believe that our liquidity and financial position provide us the flexibility to take advantage of acquisition opportunities and invest in our future growth.
As Mark mentioned also we repurchased $17 3 million or 656000 shares of our own stock in the past quarter.
Additionally, our board of directors approved the share repurchase program up to 10 million shares.
Accounts receivable were $606 million compared to $493 million at the end of the fourth quarter of the previous year.
Inventory increased to $512 million from $417 million at the end of the fourth quarter of the previous year.
As for our guidance as Martin indicated based on the strong demand for our product and our order book, we feel good about our business, giving us the confidence in our outlook for the year.
For the full fiscal year ending January 31, 2023, we expect net sales of approximately $3 billion.
Compared to $2 $77 billion this past year.
Adjusted adjusting for the closed Wilsons and bass store sales of $252 million in fiscal 2020, the current guidance exceeds pre pandemic sales levels in fiscal 2020 by approximately 4%.
We expect net income for the full fiscal year 2023 to be between 205 and $215 million or between $4 20, and $4 30 per diluted share.
This compares to net income of $201 million or $4.05 per diluted share this past year.
$144 million with $2 94 per diluted share in pre pandemic fiscal year 2020.
For the first quarter of fiscal year 2023, we expect net sales of approximately $600 million and net income in the range of 25 and $30 million or $50 million 60.
Per diluted share.
This compares to net sales of $520 million and net income of $26 million or <unk> 53 per diluted share in last year's first quarter.
Let me add some details for purposes of modeling we expected full we expected full fiscal 2023 gross margins to be flat to slightly up this past year's gross margins.
We expect our price increases to lift gross margins, which will be partially offset by higher freight costs that were more significant in the second half of this last year.
So putting that together, we expect gross margins in the first two quarters of fiscal 2023 to be lower than fiscal 2022.
Then as we anniversary the increases in freight in the back half of the year, we expect gross margins to be higher than in fiscal 2022.
As for SG&A, we expect to slightly Delever based on inflationary pressures increased head count and warehousing costs.
We are estimating a tax rate of 27%.
For your reference disclosed in our press release issued this morning as the impact by quarter for the fiscal year 2021, and 2020 of the Wilsons and bass store operations.
That concludes my comments I will now turn the call back to Morris for closing remarks.
Thank you Neil.
Thank you all for joining us today.
<unk> had its best earnings year in our company's history.
Be more proud or thankful for what our team has accomplished we're more agile and flexible today than we've ever been anchored by a globally recognized power brands and our dominance in a diversified range of lifestyle categories.
<unk> remains a vendor of choice in our industry.
More broadly as we look ahead, our strategic priorities to deliver continued long term profitable growth will include.
Driving our power brands across categories further expanding our portfolio through ownership of brands and their licensing opportunities extending our reach by developing our European based brand portfolio.
Maximizing our omnichannel opportunities and leveraging data and continuing to innovate to stay relevant for our customers.
We're confident in our ability to deliver on these priorities because of the strong foundation, we've created which include a high performing forward thinking team and experienced senior leadership.
Merchant expertise in product development.
Dominance of credit across a broad range of product categories.
Our specifically developed an agile sourcing and supply chain infrastructure.
A diversified distribution network to reach.
<unk>.
Our ability to unlock the potential of brands has enabled <unk> to become a leader in fashion.
We're financially strong and can use our balance sheet talent expertise and capabilities.
To further expand our global reach and capitalize on opportunities.
We are well positioned to gain market share over time and increase shareholder value.
I'd like to thank our entire G reorganization and 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.
Star one on your telephone to withdraw your question press the powerful.
Please stand by while we compile the Q&A roster.
Our first question will come from Paul Cheng with Barclays. Please go ahead.
Hi, everybody. Thanks for taking my question.
On the price increases can you talk about what has already been implemented and can you quantify what you are expecting this year and the cadence of those price increases and then are they on all brands and categories and any more color on that thanks.
Yes, well thank you.
We selectively increased prices last year.
And what is what.
What occurred was last year's freight and freight increases really escalated as the year rolled out. So this year, we've got much clearer vision of what those are going to be we've got a good feel for our input costs, which are also had some increases and we will be raising prices essentially across all categories and for the most part across.
Many many products certainly not every product can take it so we're somewhat judicious as far as where we lift price, but we expect that'll happen who all of the programs throughout this year.
Hello.
As an enhancement to our I'm sorry, this is Morris.
As an enhancement to our margins as we grow our company owned brands, we don't pay a royalty for the use of those brands.
And as they grow as a percentage of our overall volume.
See an improvement in margin that comes with it.
DKNY as a good example of it Karl Lagerfeld and.
GH bass.
As well as a growing brand that we've had for years.
Mark New York, So those brands are.
They are margin accretive.
<unk>, two where we've been in the past.
Alright, thank you.
Just thought.
Secondly, can you talk about the marketing investments that you're making.
Are you, making any shifts.
Where you are spending and how you're spending that money and what's what are you doing differently today than you've had in the past.
What kind of returns are you seeing so far from those marketing campaigns.
The bulk of our marketing campaigns.
Targeted towards the digital and social media, where we're deriving great benefit it's showing up in there.
Their traffic on our own sites as well as our customers' sites.
Our retailers are retailers such as Macy's.
Dillard's nordstrom's as.
Well as pure play.
Amazon was spending a fair amount of money collaborating and marketing on the Amazon site.
And Macy's as well as driving traffic to our own earned campaigns that we're doing.
Very frequently and we have a fairly aggressive plan on now that we've got a strong foundation on Karl Lagerfeld.
There'll be.
Would be a good spend on lagerfeld, which gets its.
Everyday marketing through the recognition of Carl This iconic man then.
Ed.
Skill set that is.
Uh huh.
Is was and will always be unique to the world.
He is the pre eminent.
Icon in fashion, so there's not a day that is not editorial free press.
That relates to call and Thats it.
It's a global.
It's a global brand that gets global recognition every day.
We're spending a fair amount of money as we're positioning.
Bass in the lane that we've chosen and the market the market is accepted.
As well as DKNY, so theres, a little bit of a distortion on a spend when we.
When we licensed brands, such as Calvin Klein and Tommy Hilfiger.
The marketing spend is included in our royalty base now that.
And they do a wonderful job I might add of marketing they've made it possible for us to.
To grow both brands.
In a.
Very rapid time in categories that never existed before.
So we respect their marketing piece, but that's not really included in our own spend which is focused on company owned brands.
Thank you best of luck.
Thank you.
Thank you. Our next question will come from Paul <unk> with UBS. Please go ahead.
Great. Thank you so much I have sort of a three part question. The first part is that maybe.
Just talk about some of the building blocks for the plan for 2023, you can give us a little bit more detail around that.
Secondly, within that can you maybe talk about.
Your guidance, how much does it assume inventory restocking versus incremental strong demand driving the sales growth that you expect and then lastly can you just give us a little bit of an update on China, given the lockdowns that are there that are there.
Because.
Covid cases have popped up what have you seen so far do you anticipate any kind of disruption.
How should we think about your factories in China, given COVID-19 over there. Thank you.
The answer to your question Jay.
The building blocks for our.
Growth in 2023 funds.
Fundamentally the same and further expanding in penetrating the brands that we operate in categories that we operate.
The the projections the inventory all of it kind of speaks.
I guess the the answer the question.
It probably relates into our order book.
Auto book is.
Is larger than ever.
We do carry inventory to support growth.
And fulfill reorders in.
Generally.
That retailer that <unk>.
Respond quickly either through supply chain performance or residual inventory that we carry to support the customers that we have so it's not it's not a guess it's factual.
Our order book is.
The.
I hesitate to give you the percentage of growth because what we've got in there is.
Supply chain issue that relates to your third question.
<unk>.
We're pretty certain that we are well covered in the guidance that we've given.
And we factor in.
Non deliveries we factor in cancellations.
We don't factor in the news a.
A new event.
Tsunami occurs or volcano or a war on another front.
But everything that's logical is factored in.
So we're comfortable that our guidance is appropriate.
In.
Your question.
Hmm.
Maybe I'm, just restocking versus incremental demand.
Restocking is basically what I addressed.
And the order book.
We do we do provide inventory for restocking that's what we do.
We plan it.
Through just an amazing team of planners.
To not to be overstock.
There is demand for our product.
That comes into play later in the season, that's not committed for and we take advantage of that at full price.
No.
We're really good at.
Projecting at that business. This is.
This is history as far as G. III is concerned we've done it for.
For over 50 years planning.
Planning appropriately for the needs of the consumer in later months as far as supply chain in China, that's a little bit of an unknown.
There is a COVID-19 issue.
There is.
There are factory closures.
There are difficulties in transporting product to the peers to load onto containers.
Hopefully that.
Not.
It's not going to last long.
If it does.
<unk>.
Uh huh.
I would say that we have we have a problem as the world does.
We're not solely China as we were.
About four years ago.
China comes in second to Vietnam today.
And we're we're pretty much.
Globally source, it's not.
By all means it's not just China.
And where we are hedging our bet on.
Third and fourth quarter opportunities that.
Become available on production.
Got it and then maybe more so I can ask you one more just a little bit about margins and your expectations for margins. This year, obviously last year was a unusual year for supply chain cost I mean do you expect.
A reduction in that part of the P&L. This year or do you think it's going to remain elevated or you can go higher year over year and put more pressure on margins. Thank you.
Carsten certainly going up.
Anything that that you touch is gone and the elements of an increase in it.
You know, whether it's selling charge.
Raw material charge freight charges.
Gasoline surcharges for inland freight.
All of that.
Likely.
Two to continue to rise container costs.
Not going to be $30000 of container they've leveled off we've contracted.
With them.
Without providers that are very fair rate that does.
Does it move us around very much an increase in prices, but yes, there are increases.
We've tested price points through throughout the calendar 'twenty one.
They've work, there's an acceptance by.
By the consumer.
Two two.
Our fashion to our brands.
And we are a fashion business.
No we're not.
We're not gasoline were not a designated was and we're not a loaf of bread.
Fashion.
The elements that you get paid for it is.
Okay.
And our formats, it's an art.
If your heart is in demand and woman wants it in her closet she'll tell you a little bit more for it.
Got it okay. Thank you so much.
Thank you as a reminder, if you would like to ask a question. Please press star one.
Next question will come from Susan Anderson with B Riley. Please go ahead.
Hi, nice job on the quarter.
I was wondering if maybe you could talk about the retail business now the DKNY and Karl stores I guess, how are those trending versus pre pandemic levels and then.
If you could talk about the profitability of those stores.
When do you expect to get to breakeven.
Thanks.
Thank you Susan Thanks for your question.
DKNY.
And we've.
We've right sized the fleet, we've closed several nonperforming stores.
Product is significantly better than it was pre pandemic, it's a broader assortment it's much more educated assortment.
As we get acclimated to the brand and today, we're pretty much close to full maturity.
We have a brand codes, we have our brand message and.
The the consumers respecting it we see a big difference at wholesale.
Retail is doing significantly better.
<unk>.
Our digital site is doing better.
Very difficult to do business.
In brick and mortar when your stores are closed we have an aggressive retail team that has begun to do not begun throughout the year. They did virtual sales that helped enhance.
Our business.
And our profits.
But when you're faced with European.
Test stores.
Which for US are our European outlet stores. When they are closed they are closed there's nobody at the register there is.
As great as the product is as competitive as it is in high demand.
No traffic permitted in those centers youre not doing business. So we were faced with a good deal of that.
DKNY Karl Lagerfeld.
A little bit different.
Not.
We're not in Europe , and our piece of that business.
North American base, North American licensed and partnered.
And.
That helped us a little bit.
The marketing that is done globally as I described before to Jay.
As.
Really helping us we have virtual sales that had done at store levels that are just amazing.
The dollars per square foot that have been generated and Karl lagerfeld.
Significantly better than than they were before and better than DKNY, There's no price resistance to call. It all we do capsule groups that.
Believe it or not in our outlet stores.
We do capsule groups that are higher retails than department store.
So we take advantage of the brand relevance of the brand demand.
Where we were more aggressive on opening Karl Lagerfeld stores today than we are at DKNY.
So we believe that we believe.
We believe.
Fiscal 2024, we will be profitable this year. The plan is to significantly reduce our losses in 2024, the goal is to be profitable.
With that operator.
Thank you Sterling.
Speakers I'm showing no further questions at this time.
Alright, Thank you all.
Have a great St Patrick's day, and thanks for listening to our story.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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