Q4 2024 G-III Apparel Group Ltd Earnings Call
Good day, and thank you for standing by and welcome to the G. III apparel group fourth quarter and full fiscal 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
There'll be a question and answer to.
To ask a question. During this session you will need to press star one wondering your telephone.
Didn't hear an automated message advising your hands raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today.
Speaker Change: And Chief Financial Officer. Please go ahead Sir.
Good morning, and thank you for joining us.
Before we begin I would like to remind participants that certain statements made on today's call and in the 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 or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC.
Speaker Change: The company undertakes no duty to update any forward looking statements.
Speaker Change: In addition, during the call we will refer to non-GAAP net income non-GAAP net income per diluted share and adjusted EBITDA, which are all non-GAAP financial measures. We've provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website.
I will now turn the call over to our chairman and Chief Executive Officer Morris Goldfarb.
Thank you Neil and thank you everyone for joining us.
Full year 2024 was an important year for G III.
Morris Goldfarb: I am proud of the strong results our team delivered.
We've accelerated our long term strategic priorities and developed new opportunities as we transition out of our Calvin Klein and Tommy Hilfiger businesses.
Morris Goldfarb: The strength relevance and recognition of our brand along with our powerful corporate foundation enables us to deliver a product that inspires and creates exciting brand experiences for consumers.
Morris Goldfarb: We successfully navigated through another year in a tough dynamic retail landscape.
We believe the consumer environment continues to remain under pressure as we enter the new year, but have a strong plan in place to drive our business.
We're investing for the future.
And I am excited about our path forward as a global leader in fashion.
Morris Goldfarb: Now I want to share a few significant highlights from the year.
In fiscal 2024, we grew the sales penetration of our businesses, excluding Calvin Klein and Tommy Hilfiger by 7%.
As a result, our go forward brands represented approximately 60% of our total company sales in fiscal 2024, and we anticipate this penetration to further grow closer to 70% increasing our top line by over 3% in fiscal 2025.
While we continue to scale down Calvin Klein and Tommy Hilfiger.
Morris Goldfarb: We successfully launched Donna Karan.
One of the most iconic American brands, which has just hit retail selling floors with a fantastic collection supported by the largest marketing campaign ever for G. III and a new fragrance launch the response from customers has been incredible.
This validates our belief that the brand has a significant runway ahead.
We solidified and went to market with three additional growth initiatives with nautica Halston and champion all of which are highly respected brands.
We're investing in talent for our future growth and higher Dana Perlman and the newly created role of Chief growth and operations officer as part of our executive leadership team.
Now, let's review, our full year and fourth quarter 2024 financial results.
Full year non-GAAP net income per diluted share increased 42% to $4 <unk>.
From $2 85 in the prior fiscal year, and 85% to 76 cents compared to <unk> 41 in last year's fourth quarter.
Both above our guidance.
Net sales for the full fiscal year were $3 $1 billion.
Compared to $3 $2 3 billion last year and $765 million for the fourth quarter compared to $854 million last year.
The fourth quarter top line relative to our plan was impacted by warm weather as well as the consumer environment, which remains challenging.
Gross margins expanded by over 600 basis points for the full year.
This was driven by disciplined inventory management moderation in freight a greater mix of our own brands and AUR improvements.
We believe current gross margin levels are sustainable into the future and we further strengthened our credit profile.
Ending the year in a net cash position compared to last year's net debt position of one six times.
This is after having paid down $125 million in outstanding debt and repurchasing $26 million of our own stock.
Currently we have over a $1 billion in liquidity.
Speaker Change: Now, let's review some of the key key results.
We're a partner of choice.
And have strong relationships with a diversified retail network.
And data driven approach not only prioritizes the consumer at the heart of everything we do.
But it also enables us to create collections and over 20 categories across our 30 plus brands with a broad range of fashion.
Categories that drove the quarter included outerwear dresses sportswear handbags and suit separates across our key brands.
The team Sports Division had a good quarter and year.
We again renewed our NFL Major league baseball licenses.
Nautica jeans, just launched this spring and over 200 doors and online with our retail partners and is off to a great start.
Speaker Change: In addition, we're also selling to.
To the brand's global distribution network, and we will expand into a broad range of additional categories over the next few years.
Speaker Change: We believe nordica can predominantly filled the void about current Tommy Hilfiger business.
Halston is coming to life, our designers extensively reviewed the archives, which helped develop our sophisticated modern take on the collection, which was very well received and for our market.
Speaker Change: As the master licensee, we can sublicense to expand into additional categories and sharing the revenue generating another income stream.
With full control of the business, we see the annual net sales potential of over $500 million.
Yes.
Our new champion outerwear had a good first quarter first market with deliveries available for fall of 2024.
For fiscal 2020 for our go forward brands, excluding Calvin Klein and Tommy Hilfiger registered high single digit growth, while our total sales declined 4% next.
Fiscal 2025, we're expanding into new lifestyle categories to extend their reach and see a true patent tremendous opportunity to capture market share.
Speaker Change: Particularly internationally.
Speaker Change: Specifically, we are working with new distribution partners to grow into new categories.
We believe the overall sales and profitability for the go forward brands have a runway for expansion and we are investing to deliver outsized growth.
Speaker Change: These go forward brands will account for almost 70% of our revenues in fiscal 2025.
One of our most important initiatives this year.
Was the development of Donna Karan, which just launched at retail in the U S.
Inspired by the archives, we've designed to collection centered on empowering women that captures the brand's ethos.
<unk>.
Timeless allergens and accessible luxury tailored to meet the full lifestyle needs of today's customer.
Speaker Change: We invested heavily to support the launch in several ways.
First with an incredible marketing campaign, featuring eight iconic models.
Speaker Change: Spanning several generations, all of whom have a connection to the brand.
I'm thrilled we have some of the biggest names in fashion, including Cindy Crawford Linda Evangelist.
Caroline Murphy Amber Valletta currently class along with renowned photographer any legal issues.
Second we enhanced the Donna Karan website with a new look and feel of where consumers can better experience the power of the brand.
Speaker Change: Third with our fragrance part to enter perfume.
We launched the cashmere collection to complement the brand's iconic cashmere missed fragrance, which will extend the brand's presence.
I am extremely pleased.
At the reaction to the new Donna Karan collection, and marketing campaign received major excitement and global attention with over $5 5 billion impressions in the United States and growing.
We're already seeing the results.
With the initial product and Donna Karan product commands higher AUR than most of our other brands and is resonating with consumers and then selling through and almost immediately.
Retailers have already increase their buys for the second half of the year.
Speaker Change: This launch is just the beginning of a new era of fashion for Donna Karan and we're committed to building a lasting brand equity.
Speaker Change: We plan to expand the brand globally, and now see a $1 billion annual sales opportunity over time.
DKNY is well established in the contemporary fashion space and is known for emerging moderns tailoring with sophisticated these.
Celebrating the aspirational on practical spirit of New York.
And North America, DKNY grew high single digits, and we saw strength across most of its core categories.
The total brand grew low single digits as we repositioned our international presence.
We pruned some of our non core accounts and product offerings.
In Europe, we're focused on elevating our wholesale presence through capsule collections and pop up experiences to expand the brand. In addition, we're also accelerating our digital footprint with the Lando and other key pure player partners.
We brought renewed energy to DKNY with new investments this spring by <unk>.
Design, a contemporary styles that are fashion forward for younger consumers that complement our core offerings of the collection.
We launched a new highly relevant spring marketing campaign with supermodel, an actor and actress KN Gerber.
Cindy Crawford's his daughter.
As the global face of the brand. This campaign taps into the younger PLL DKNY and generated over $626 million press and social media impressions.
Finally at the end of the month.
We're activating a new capsule collection heart of New York, with Coyote, which will create buzz and excitement around DKNY.
These initiatives will all drive global awareness and are focused on energizing the brand to connect with consumers.
Speaker Change: We see many untapped growth opportunities, particularly internationally and believe there is a $1 billion annual net sales potential for the brand over the next few years.
As a reference point when we launched the brand in 2017, it did virtually no sales in North American wholesale channel as a result of our team's execution.
<unk> sales approached $650 million and if you include our licensees and <unk>.
Speaker Change: <unk> retail sales to consumers where over $2 billion for fiscal 2024.
With a full year of bone and Karl Lagerfeld.
Speaker Change: We're pleased with the brand's performance.
Carl was an icon in the fashion industry International business experienced mid teen growth in fiscal 2024, as we expanded its reach in Europe through wholesale and retail store openings.
Speaker Change: And entry into new markets and categories.
Speaker Change: Here in North America, Karl Lagerfeld, Paris also performed well growing in high single digits with ample runway as we expand into additional categories.
Speaker Change: This year, we'll launch suit separates and expand sportswear and dresses into additional doors.
Speaker Change: Karl Lagerfeld as the theme of the met Gala received global recognition and exposure, which was complemented by capsule collections along the many global Activations.
Further we opened its first five star luxury hotel in Macau and have six projects in the works.
We're leveraging the power of Karl Lagerfeld, Karl Lagerfeld name and his vision two.
To extend the lifestyle appeal and global awareness of the brand while delivering incremental licensing revenue.
In fiscal 2020 for the brand approach $500 million.
And reported net sales, including our licensees global retail sales to consumers.
We're over $1 5 billion.
In fiscal year 2025, Karl Lagerfeld is expected to grow solid double digits.
We see greater than $1 billion in annual net sales opportunity for the brand.
Silver again.
Love jewelry brand inspired by the sea and central pay lifestyle experienced double digit increases in fiscal 2024, driven by growth into new markets through distribution partners and new stores.
The newly opened location in Paris through the lap, which offers a higher penetration of our luxury line enabled us to increase our store AUR is by double digits.
We will incorporate this luxury product into wider range of our stores and distribution channels.
We're very pleased with our first ever Beach club and restaurant <unk>.
Speaker Change: In con, bringing the brand to life on the water.
Speaker Change: We've quickly leverage the concept to additional initiatives in fiscal 2025, we have a newly opened beach club in Abu Dhabi and a few more in the works.
Speaker Change: Going forward, we're focused on expanding the lifestyle product assortment to extend our consumer reach and now believe there's an annual net sales potential north of $500 million over the long term.
As we transition from Calvin Klein and Tommy Hilfiger over the next few years, our brands Donna Karan DKNY, Karl Lagerfeld, Nautica, Austin, Anvil brick and will be our core brands.
They have significant opportunities across the board, including internationally, where they are underpenetrated.
Digital remains an important priority and we made significant investments to grow our capabilities. This year. We've put an increased focus on rapid expansion with the pure play channel, where we've added dedicated talent to support these platforms.
Pure play sales for the year increased 10% and our.
Speaker Change: Our Amazon business further outpaced this performance.
These efforts helped offset the moderation in traditional retail partners digital channels.
The speed at which pure play sales have grown.
Speaker Change: It's clear the market share opportunity, we have with this channel.
Our European brands have built successful digital businesses with <unk> and other third party digital marketplaces, and we are leveraging these capabilities across our portfolio to build the digital business of our other brands.
We're also accelerating our drop ship and partner programs to further provide tailored brands' assortments on a third party marketplaces.
And we're also upgrading our own digital websites to enhance consumer engagement conversion and site performance.
In our retail business segment, we were disappointed in the results.
We're already executing on plans that include management changes, reducing our store footprint.
And more importantly, re basing the merchandising strategy for the retail business presents a better brand experience to consumers.
We expect these changes will enable us to significantly reduce losses from fiscal 2024 levels.
Speaker Change: In conclusion, we ended our fourth quarter and full year of delivering non-GAAP earnings that beat our expectations.
We've laid out the foundation for our path forward.
Our team has versatility best in class design, and merchandising experience and retail relationships have allowed us to move quickly to develop our new initiatives and bring them to market.
Looking ahead, we are optimistic about fiscal <unk> fiscal year 2025, with our new launches and continued growth of our own brands.
As we build new brands. This year, we will invest in high impact global marketing to continue excitement storytelling and momentum for these fashion collections.
And we'll also invest in infrastructure and talent to expand our operational capabilities to deliver our long term strategies.
As we've entered fiscal 2025, we continue to believe that the consumer environment will remain under pressure, we expect net sales to be approximately $3 2 billion a growth of over 3% compared to this past year.
We expect non-GAAP earnings per share in the range of $3 50 to $3 60.
Which reflects the investments I just spoke about.
Our objectives are clear.
Leverage our unique culture and continue to grow on a global scale.
Focus our investments on key brands to drive long term growth as we transition out of Calvin Klein and Tommy Hilfiger.
Invest and involves how we operate by leveraging technology and data, while identifying efficiencies across our organization to support our global growth.
Implement and execute our retail business segment around the planet.
We believe our strong financial position provides us flexibility to invest in our growth.
Speaker Change: <unk> strategic transactions and Opportunistically return capital to our shareholders.
I am confident in <unk> future as a global leader in fashion.
I'll now pass the call to Neal for a discussion of our fourth quarter and full year financial results as well as our fiscal 2025 outlook.
Thank you Morris.
Net sales for the fourth quarter ended January 31, 2024 was $765 million compared to $854 million in the same period last year.
Unseasonably warm weather in a challenging consumer environment with significant headwinds to the quarter net.
Net sales of our wholesale segment were $729 million compared to $822 million in the previous year.
Net sales of our retail segment were $51 million for the fourth quarter compared to net sales of $49 million.
Our gross margin percentage was 37, 1% in the fourth quarter of fiscal 2024 compared to 33, 2% in the previous year's fourth quarter.
The gross margin percentage in the current year's period was positively impacted by improved sourcing costs, primarily from lower freight costs compared to the previous year.
In addition, the gross margin percentage in last year's fourth quarter was negatively impacted by the significant onetime demurrage charges of approximately $10 million.
Speaker Change: The gross margin percentage in our retail operations segment was 44, 2% compared to 45, 8% in the prior year.
non-GAAP SG&A expenses were $218 million compared to $236 million in last year's fourth quarter, we had strong warehousing efficiencies compared to our expectations and actually had lower warehousing cost compared to the prior year.
Our current warehouse capacity is now well aligned with our current and planned inventory levels.
As a percentage of sales SG&A deleveraged in the quarter as a result of the higher penetration of sales from the acquired Karl Lagerfeld business, which has a higher percentage of expenses to sales in the rest of the company.
non-GAAP net income for the fourth quarter was $36 million was <unk> 76 per diluted share compared to $20 million or <unk> 41 per diluted share in the previous year's fourth quarter, driven by improvements in gross margins and less interest expense.
Now, let's review results for the full fiscal year ended January 31 2024.
Net sales for the fiscal year 2024, with $3 1 billion, a decrease of 4% to $3 3 billion in fiscal 2023 <unk>.
Incremental sales from the acquired Karl Lagerfeld business for five additional months of this year added $95 million to net sales.
Net sales of our wholesale operations segment decreased to $3 1 billion were four 6% from $3 6 billion last year.
Sales of our retail operations segment for the year were $148 million compared to the previous years $137 million.
Full fiscal year 2024, gross margin percentage increased 600 basis points and was 41% compared to 34, 1% in the prior year.
The wholesale segment gross margin percentage was 39% compared to 32, 6% in the previous year.
The gross margin percentage in fiscal 2024 was positively impacted by improved sourcing costs, primarily from lower freight costs compared to fiscal 2023.
The gross margin percentage in the prior year was negatively impacted by the significant onetime demurrage charges of approximately $42 million.
Finally, the inclusion of the acquired Karl Lagerfeld business for a full 12 months positively impacted our gross margin percentage by approximately 100 basis points.
The gross margin percentage in our retail operation segment was 48, 1% compared to 49, 9% in the prior year.
Speaker Change: non-GAAP SG&A expenses for the year were $917 million compared to $843 million last year.
Full year non-GAAP SG&A as a percentage of sales was 29, 6% compared to 26, 1% last year.
SG&A expenses increased as a result of the inclusion of $72 million associated with the acquired Karl Lagerfeld business.
SG&A de Levered as a result of the added Karl Lagerfeld business and the inflationary pressures we incurred throughout the year.
Full year non-GAAP net income was $190 million of $4.04 per diluted share compared to $139 million or $2 85 per diluted share in the previous year.
The increase was driven by improvements in gross margins and interest expense our lower interest expense reflects interest income on the significant cash flow generated this year and reduced debt from the pay down of the seller notes related to the Donna Karan acquisition.
Turning to the balance sheet, we made good progress with respect to our inventory levels inventory decreased 27% to $520 million at the end of the quarter from last years $709 million, we made strong progress right sizing our inventory levels as we have appropriately adjusted our inventory purchases to account for that.
Higher than usual inventory, we carried over from the previous year.
Our inventory levels are now better aligned with future sales.
We ended the year with a net cash position of approximately $90 million compared to a net debt position of $428 million in the prior year.
This Wang from a net debt to a net cash position is primarily a result of cash flows from operations, which includes the large decrease in our inventory levels.
We had cash and availability under our revolving credit agreement of over $1 billion at the close of the year.
This is after the repayment of $125 million of debt outstanding under the seller's notes.
Speaker Change: We believe that our liquidity and financial position provide us the flexibility to invest in our future growth and take advantage of strategic opportunities in the marketplace.
As for our guidance.
For the full fiscal year 2025, we expect net sales of approximately $3 2 billion.
A growth of approximately 3% driven by our own brands and the launches of the new initiatives.
This growth is happening with sales of Calvin Klein and Tommy Hilfiger continue to decrease as we transition away from these brands.
In the upcoming fiscal year 2025, we anticipate sales of these two brands will represent approximately 30% of our total net sales down 10% from fiscal 2024, when they represented 40% of our net sales.
On a non-GAAP basis, we expect net income for fiscal 2025 of between 167 and $172 million or between $3 50, and $2 60 per diluted share.
This compares to non-GAAP net income of $190 million or $4 <unk> per diluted share for fiscal 2024.
Speaker Change: Full year fiscal 2025, adjusted EBITDA is expected to be between $290 and $295 million compared to adjusted EBITDA of $324 million in.
In fiscal 2024.
Our fiscal 2025 guidance includes approximately $60 million in incremental expenses, primarily associated with the launches of Donna Karan nautica and hosting.
Approximately 65% of these expenses are related to marketing initiatives to support the Donna Karan and DKNY brands the.
The remaining expenses are primarily related to technology and talent to expand operational capabilities.
For the first quarter of fiscal year 2025, we expect net sales of approximately $615 million compared to $607 million in the same period of fiscal 2024.
Speaker Change: We expect a non-GAAP net loss for the first quarter of fiscal 'twenty.
2025 to be between a $5 million loss and breakeven or between a negative 10 cents loss per share and zero cents per share.
Speaker Change: This compares to non-GAAP net income of $6 million or <unk> 13 per diluted share for the first quarter of fiscal 2024.
The first quarter as expected results include approximately $20 million of the incremental expenses.
Which is driving the decrease in net income in the quarter.
Speaker Change: Let me provide some additional context around modeling for sales we expect the first half of the year to be relatively flat to last year in the second half of the year, we will see outsized growth as we continued to expand and launch our new brand initiatives.
Speaker Change: As for the gross margin rate, we expect full fiscal year 2025 to be similar to fiscal year 2020 for gross margins in the first quarter are expected to be slightly higher rigs.
Regarding SG&A as I mentioned, we plan to make several investments to support the growth of our business for the long term.
On the quarterly cadence of the SG&A spend we expect marketing spend to be skewed towards the first and third quarters in line with the spring and fall marketing campaigns.
We expect interest expense to be approximately $23 million for the full year as compared to fiscal 2024, we expect a much larger benefit in the first half of the year, where we expect to continue to earn interest income on a significant cash balance we are carrying into fiscal 2025.
In the second half of the year in line with our increased seasonal working capital needs. We expect interest expense will still be better than last year, but closer to last year's levels.
We expect capital expenditures of approximately $50 million.
This is higher than our spend in previous years, principally driven by the build outs of shop in shops for our new brand launches and new technology to support our business.
We are estimating a tax rate of 28, 5% for fiscal 2025.
We are not anticipating any potential share repurchases in our guidance.
Speaker Change: That concludes my comments I will now turn the call back tomorrow for closing remarks.
Speaker Change: Sure.
Thank you Neil and thank you all for joining us today.
I'm proud of what the team has been able to achieve this past year and look forward to seeing the success that lies ahead.
I'd also like to thank the entire organization, our many partners and all our stakeholders for their continued support.
Speaker Change: Operator, we're now ready to take some questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster one moment for your first question. Please.
Speaker Change: Our first question comes from the line of Edward <unk> with Piper Sandler Your line is now open.
Hey, good morning, guys. Thanks for taking the question I think for me I guess first on outerwear industry inventory I would say no you ended up clean on your books I'm just kind of curious.
Edward: How much outerwear or do you think that pathway and how does this influence your upcoming fiscal year guide.
Edward: And then as a follow up thank you for the color on the performance or the projected performance our contribution of the <unk>.
Edward: Calvin and Tommy I guess, how do we think about the profitability of both businesses relative to your peer acquired brands.
That'll be for this fiscal year and how we should think about that changing of itself. Thank you.
Thanks for your questions.
Edward: Our code inventory is in really good shape.
Unfortunately, we had an unseasonable.
Edward: And we do have some carryover, but it's in core basics.
Not it's not high risk codes for this company has never been high risk.
We've been in the coat business for over 50 years, we know how to manage inventory and we know how to sell through inventory.
At.
A reasonable profit even in carryover product.
The.
Edward: The industry I really can't speak to.
Speaker Change: Not certain of how everybody else's, but my assumption is that there is.
An increased level of inventory sitting.
Either.
In pack away or sitting in warehouses that have yet to sell their product.
But again I have a high confidence level that our inventory is in good shape.
Speaker Change: We will provide profits of the company in the coming year.
As it relates to go ahead.
Moving to your second question, Ed as far as profitability of the owned brands versus Calvin and Tommy.
So to start with the Calvin and Tommy businesses have been strong drivers of our business in the past they've generated a high operating margin for us.
One of the beauties for us as we go through this transition is that we will be moving to brands that really don't pay a royalty or pay a reduced royalty and that significantly impact our operating margins go forward. In addition to that we've got licensing income that comes off those businesses is purely profitable business for us. So we see as these.
Portfolio is changing keep evolving towards a more owned brand we will have improvement in both gross margins as well as <unk>.
Operating margins in terms of the marketing spend that we might do for these businesses.
The way we look at that is we're really sort of comparable we would've been paying our marketing spend to the license or instead, we'll do our own marketing. So in some ways will have more control over that we'll be able to direct it of course, our own brands. We can distribute worldwide. So in addition to having a broader distribution base full control, we think the operating margins of the business will slowly improve.
As we shift to the owned brands, let me add a little bit to that Ed.
Our own brands are generally.
Higher AUR than our licensed brands, our margins are significantly better today with DKNY were buying better we're positioning it differently and our new launch of Donna Karan.
It is significantly higher.
Ours are significantly higher than Calvin Klein.
And Tommy Hilfiger at the early stage, we don't have a huge business plan for our first year out we're careful on distribution the sell throughs.
<unk>.
We have.
A high demand for more inventory.
I don't have the ability of servicing all of all of the demand for the first half of the year, we're working hard.
For the back end of the year.
To accommodate the demand that's there.
Again.
Much higher AUR as than we currently have.
Yes got it maybe one other follow up for me.
<unk> business has been problematic for many years I guess, how much of the sort.
Results in the quarter was kind of legacy outlet stores versus maybe costs associated with some of the own brand kind of them with home flagship, but kind of high street locations. Thank you.
Speaker Change: Real High Street locations most of our fleet of stores is outlet.
They're there.
They are being managed a little bit differently go forward. We believe we've trimmed the nonperforming stores, we still are burdened with.
Speaker Change: Corporate overhead that feeds into the stores, we're adjusting that and I think we'll see a significant difference this year end.
Maybe maybe for the first time next year.
We will see a profit in our retail fleet, there's always there's always been a.
A thought of retaining the retail business.
Speaker Change: <unk>.
There is a need for it.
<unk>.
Really.
Tells us that we need to get better at retail.
To sustain real estate to enable us to showcase and sell product.
Store counts, reducing department store sector.
We need a hedge.
So we need to get better at retail.
Speaker Change: Our universe of competition.
And I.
Speaker Change: I would guess you follow all of them.
Their business is much more vertical based in ours ours is skewed.
On wholesale so we fight hard.
To get better on our own retail distribution in.
With that as we expand our European footprint retail is better for US there we are profitable in our retail venues.
<unk> and DKNY.
We're exploring opportunities to expand those retail footprints.
Thank you.
Thank you Ed. Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Ashley Owens with Keybanc capital markets. Your line is now open.
Okay. Thanks, so much for taking my question.
Can you just update us on the order button kind of high.
Ashley Anne Owens: Are you feeling going into this next year about the wholesale environment and what's driving the confidence in the back half acceleration you alluded to in the guide and then secondly portfolio continues to go and you look to expand other categories of products, you're specifically looking to focus on with this initiative or why do you think the most opportunity lies.
Actually I didn't hear the backend of your second question the follow up what was that.
Europe was the question skewed towards Europe.
This new new categories or products, and where you think the most opportunity lies within those.
Okay. So our order book is strong.
And as I inferred a few minutes ago.
It's growing and Donna Karan.
We're working hard and trying to accommodate what the order book could look like if we were able to service the demand.
There is.
Our budgets.
Basically based on our order book.
Ashley Anne Owens: And the timing.
The timing is towards the back end of the year.
We believe we've got a strong business in place we have inventory.
<unk>.
We have sufficient inventory to.
Service part of our coat business, we're careful on how we are buying into it.
So we're looking at we're looking at a good year.
Ashley Anne Owens: The forecast is good.
Growing the unforeseen and unfortunately in the last few years, there's been a bunch of bankruptcies everything we can control.
Ashley Anne Owens: Really tells us that we are in the middle of a reasonably good year.
As far as the categories.
We're expanding.
Suit separates into into Karl Lagerfeld, which is an important category for us throughout the company and we anticipate that's going to turn out good everything we're doing in <unk>.
Ashley Anne Owens: Karl Lagerfeld, including the door count expansion.
Leads us to believe we're going to have a very good year with lagerfeld DKNY is stronger than it's ever been and the launch of Donna Karan has been great.
So.
Ashley Anne Owens: The.
Ashley Anne Owens: There aren't additional categories that we're exploiting we're expanding.
Ashley Anne Owens: The penetration of.
The handbag business the footwear business the suit separate business.
There is.
Ashley Anne Owens: I'd say the one.
One piece of it.
Thats a little bit outside of what we generally talk about our team license business is expanding in categories.
Have starter as a brand and starter is growing significantly we've added distribution.
Cooperation with our licensing partner, so that that appears to.
Have opportunities.
For the first time in a long time to expand.
Great. Thank you.
Thank you Ashley. Thank you one moment for our next question. Please.
Ashley Anne Owens: Our next question comes from the line of will Garner with Wells Fargo. Your line is now open.
Hi, Good morning, Morris Neal Thanks for taking my question.
So maybe you could just start by framing how big you are.
Will Garner: Owned brands are now as far as revenue goes.
Sure. Thank you essentially your question.
We're at about 1 billion five now on the on the owned business as well.
Is there any way to parse out by.
By brand before.
Those brands are now.
Speaker Change: We really don't we really don't do that yet.
Speaker Change: I can tell you we are just beginning to ship Donna Karan.
Speaker Change: Donna Karan.
In pure dollar revenue is not going to be the driver it'll be the growth stimulus for the future.
Speaker Change: We've never seen a launch this successful.
We're positioning it well wear the product I encourage you to.
Be conscious of the marketing and the product that's in the stores and I think you'll you'll understand the potential of the brand.
Speaker Change: The the DKNY business is growing strong double digits.
Speaker Change: Forecasted to do that this year.
Lagerfeld.
We'll grow even bigger as a percentage than DKNY.
So.
Speaker Change: We're very comfortable with what we have in place we see amazing growth.
Sure.
Speaker Change: We're shrinking the scale of Calvin and Tommy by design and by dilution of variability going forward of delivering categories.
But we're doing a sensational job of.
Speaker Change: Building out our own brands to accommodate the misses on Tommy and Calvin we've given up we've given up about a half a billion dollars of Tommy Calvin topline sales over the last two years.
Speaker Change: And we are forecasting a 3% growth going forward.
Speaker Change: I'd say thats, a major achievement in an environment that's difficult.
Yes.
Well, let me just I guess, let me add a little bit of framing for Ya.
We're at about $1 five today to about half the total business, we expect significant growth into next year strong double digit growth into next year, we could be as much as 55% of our own businesses.
Next year, but I think the thing to take away is if you look at the opportunities that we've talked about over the new initiatives, we see over $3 billion of opportunities between Donna Karan, we've called out as 1 billion DKNY. We've also called out as a $1 billion. Karl Lagerfeld, We think the total opportunity is a $1 billion.
We've got Holston in order to both at a half a billion dollars and let's let's for the moment not even get into the available con growth, which we think is also strong. So I think if you look at all those opportunities without giving you the specifics of where we're at on each specific brand today, we've got about $3 billion of potential opportunity we've got to replace.
About $1 billion of Calvin and Tommy business. So we've got plenty of runway to more than replace it and of course, we expect to do that in short order I think if anything we sort of showed the last year and our projection into this next year is that we're really able to replace significant chunks.
Speaker Change: A decline in Calvin and Tommy business really without without a bump and our hope is to be able to continue to do that.
Okay.
Speaker Change: Can't forget.
Speaker Change: Your question keys in on our own the brands, we do have several licenses that are important.
Our team licenses.
Are important we have a levi's license.
Speaker Change: Scale.
We have assets outside of our own that are going to participate in the growth of the company.
One might consider the opportunity that's out there of acquiring other assets signing other deals.
We've done we've done.
Great job integrating assets into our operating.
Our operating companies.
Our talent pool.
This is as good as it gets in our world.
And we're all being North America, and we're going to achieve the same in Europe in the coming years.
Speaker Change: We have a mission.
Our mission is to expand our footprint our capabilities globally.
<unk> is a big place.
There are opportunities that we never.
We never focused on we didnt have the ability to.
The licenses that we have today, we have the opportunities we have the desire we have the capital.
Speaker Change: There is.
Our recognition in Europe of who we are we've done a nice job of positioning and now it's time for the <unk>.
The growth period internationally.
And maybe just one more from me you touched on Europe Morris.
Any color there it sounds like you guys are performing pretty well.
What's the what's the retail or wholesale.
For you guys to be appetite for.
We've heard the slowdown there and just curious what youre seeing on your end there.
So slowdown usually.
And size companies.
<unk>.
Scale.
Speaker Change: We are not going to slow down and we're going to grow we're at the early stage.
Appetite for our product regardless of what economies looked like.
This is this is a fashion business.
Do is create fashion thats in Vogue.
We service it well there's no doubt in my mind that we're going to grow in spine.
The economic headwinds that might come our way.
Thank you I'll pass it off.
Thank you one moment our next question please.
Our next question comes from the line of Mauricio Serna with UBS. Your line is now open.
Great Good morning, and thanks for taking my question.
Just wanted to maybe reconcile.
Mauricio Serna Vega: I think you mentioned about the.
Mauricio Serna Vega: Calvin Klein and Tommy Hilfiger with profitably represent 30% of sales next year down from 40 last year I think that roughly implies.
Revenues are going to be down like almost $300 million.
And I just want to make sure like I think like this youre only losing 50 million from the.
Thank you for giving back the denim license. So I just wanted to first to check on that if I can go back with just like winding down.
And then maybe I know like you have like several initiatives going on.
Underway. This year, maybe if you could parse out like how much of the growth.
Coming from the line.
Organically from the brands that you already have and continue growing in Asia.
Yes.
And then just lastly, maybe if you could give us some puts and takes on the gross margin.
Mauricio Serna Vega: Flat year over year.
How are things kind of like the hard things like the Red Sea disruptor in freight promotion empowered and like what are the big drivers there.
Take us maybe to a flat gross margin.
Yes, so just to help you work out some of that Matt, Yes, I think that if you look at.
Well, we're forecasting from 24% to 25, we are looking at about $240 million, a falloff in the Calvin and Tommy business.
That's slightly less and fell off.
In the previous year. So obviously, we're going to be up about 100 million that means that the growth in the rest of the portfolio is about $340 million that growth is fairly evenly split between the new initiatives and growth on the current business that we are performing.
In terms of the flat gross margin percentage I think you hit it on the head we are a little bit concerned about the red Sea. It has not impacted us just yet outside.
Outside of our European distribution, which it has impacted already we do anticipate that that will be a little bit of a headwind for us hopefully it doesn't become too great.
Well gross margin plan it being flat.
We're pretty pleased with that kind of result in this current environment.
Great. Thanks, Ron Thanks for asking.
Thank you Mauricio. Thank you one moment for our next question. Please.
Our next question will come from the line of Janet Kloppenburg with.
J J K research <unk> Associates. Your line is now open.
Yes.
Hi, everybody.
And.
I got on a little bit late Morris tower climb.
Asking a question that's been asked I think you discussed I apologize.
But I'm wondering what you were thinking and and.
Embedded in your guidance for Macys planned store closings and what effect that may have on your business.
In the next three years.
Roughly 150 stores.
And with with respect to the.
The new launch of Donna Karan.
Which is beautiful by the way.
Speaker Change: Wondered if at one point or be a drag on earnings next year because of the marketing investments or if we should expect a contribution. Thank you.
Speaker Change: Thank you Janet.
Let me, let me deal with the <unk> question first.
Thanks for noticing that the campaign is.
Beautiful.
Thank you.
We've been celebrated for it.
There was just an event.
Time magazine on the West Coast that we got well recognize then.
We are.
Very excited by.
By the campaign.
Right.
I think.
Sure.
I'd like to call out the trade there for all the wonderful work is done.
I'll have to attribute.
Speaker Change: A lot of the success his talents.
No I don't know I'm, sorry, I didn't know it was tracking.
Yeah, Yeah yeah.
As we said.
We took the best that we could get.
The best that there is out there whether it was the models the photographer.
The brain Trust.
Trey and his team and our own team, which also should get recognition for.
What they've done.
So.
And it will be a drag because of everything I just described.
Speaker Change: Spending a disproportionate amount of money on the advertising campaign and the media purchases.
Positioning the brand for the future it will trade.
It will pay dividends next year.
We're not a one year show.
We're here we're here for over 15 years, and hopefully will be here for another 50 years. So.
We're comfortable with the investment in the future.
As.
Your question on Macy's.
We can only guess.
Sure.
Macy's has said the door count is.
Projected to be fairly aggressive, but the dollar value on the door count.
It was approximately 10% of their sales.
And.
There is nothing that says we can further penetrate the remaining good doors.
We're looking at a possibility of 5% to 10% dilution should.
The door count decrease.
But.
Thats overtime I don't believe they will shut 150 doors within within this fiscal year.
Speaker Change: And.
They are projecting.
Smaller.
Growth there is smaller doors are projected to grow and I believe we will play an important role in that as well our brands are important to Macy's, we represent a significant share of Macy's fashion business.
Not just for the brands for who we are and how we accommodate the needs of Macy's, we understand it better than anybody in the world I would be very fast to say, we understand the macys business cooperation is great.
Net.
Not a major concern for us.
So.
One more question, if I could squeeze it in.
On the contrary of that.
Next we tell us they are doing very well James will be taking market share and I Wonder how you view your opex.
Trinity there as we move through 2020 five.
Thank you.
Speaker Change: Okay.
We respect the off price channel.
And we are very important to them as they are to us.
We.
We choose the brands, we've collectively choose the brands that are appropriate for them.
And we.
We look to protect their.
Brands.
Two.
And distribution.
We know the significance of the off price channel.
We know its growth potential we've seen it we've been part of it.
And we.
We do we do.
Alex specific for them as well as they help us when needed and moving product they've been an essential piece of our business. We don't underplay. It we're not embarrassed by it.
It's being enabler for department stores to get service the way they do buy.
So we.
We like the off price business.
Thank you one moment for our next question. Please.
Our next question comes from the line of Paul Kearney with Barclays. Your line is now open.
Good morning, Thanks for taking my question.
As the licenses come off and with the need to grow the business for the next 50 years can you talk about some of the initiatives. The company has to improve the capabilities on those brands, whether it's operational changes building a digital platform, bringing in retail expertise or investing in marketing capabilities. Thanks.
Well two things.
It's not written that we have to grow.
Speaker Change: It's written that we have to be profitable and more profitable. So we we can run a smaller business with significantly better margins and accommodate the profitability concern that we have as paramount.
Speaker Change: So it's not.
The focus is going to be profitability.
The tools that we need we have we don't need any more tools, we have the best talent in the industry and maybe in the world operating in our company.
Most of those people will be transitioned from Tommy and Calvin into our own brands.
Is.
Which is absolutely wonderful we don't have to go out to the market.
Higher people train them.
Speaker Change: And integrate them into the G. III culture. They are here they are.
<unk> three.
<unk>.
There is there is an entire team here that carries a flag of G III not the individual the individual brands.
So.
Speaker Change: <unk>.
Speaker Change: We're working on enhancing.
Our data platforms technology is key we are going to optimize our.
Sure.
Logistics capabilities.
We have some weaknesses that we're shoring up and Thats part of the expense.
This year.
Speaker Change: We're investing in Europe.
We're investing in space and talent.
And.
Again, there'll be a media spend that will be targeted towards.
So in Europe in the coming months.
We've got it I think we have it all.
Not it's not a startup company.
It's not a company that.
Is it going from base zero projecting out what youre seeing there where there we don't need we don't need anything and we have the capital to sustain it and support it.
Paul Thank you for your question.
Paul: Thank you.
Thank you.
Final question.
Will come from the line of.
Rob.
Rosenhaus with.
Telsey Group your line is now open.
Yeah, Hey, guys. Thanks for thanks for taking my questions here at the end.
On the international business.
Rob. Rosenhaus: Times here, but maybe can you dive a little bit deeper into our into the go forward opportunity abroad, there, particularly with the increased focus on the owned brand penetration and maybe talk about what the profitability profile look like versus the domestic business and then just secondly, one last question.
Obviously, it's been a big part of the business in recent quarters in recent years and is there anything of interest right now in the current environment or are you guys kind of see your hands full with what you have in that.
Okay.
On the current portfolio for the time being.
So I guess I'll answer your last question first.
Yes.
There are opportunities that we like a lot in Europe, we have identified some.
We're working through it and we do our diligence we do it carefully.
<unk>.
Yes.
An acquisition opportunity.
Rob. Rosenhaus: An investment opportunity.
Ed.
Hopefully we get it accomplished soon.
As far as are there.
Rob. Rosenhaus: European European initiatives.
Rob. Rosenhaus: Again this is not new.
Lagerfeld started out as a European company.
We took on in.
Rob. Rosenhaus: Equity stake for North America.
<unk> bought the entire company so the.
Rob. Rosenhaus: Regions are European Heritage is European.
The operating company.
Really sits in Europe.
Rob. Rosenhaus: And they kind of steer the ship.
So what hasn't happened is there's never been a significant investment in the growth of the European business for Lagerfeld, where theyre getting our arms wrapped around what's needed and we're going to work.
Rob. Rosenhaus: Going to invest in the future of Lagerfeld.
Going down the road there is an extremely talented group thats spearheading it now no changes need to be made and management.
We have the time to get acquainted with them with our relationship with North America. So again, the transition and the acquisition related and complicated lives.
Rob. Rosenhaus: The international piece or the American piece.
Rob. Rosenhaus: And.
<unk>.
<unk> feature.
<unk> is a European brand.
And central pay.
Spearheaded by our group.
The Geneva in Paris.
Again for the first time in years, where we're making significant investment in the growth of the <unk>.
We have initiatives to open.
And.
Beach Club.
More on the franchise side the operating side I don't think we're that company, that's going to grow food and beverage, but there are many extremely talented companies that.
Want to use our brand to grow.
We're in the middle of signing deals and finding opportunities.
Well will impact the profitability of again.
Our brands not necessarily the top line because we.
We'd like the licensing side of life.
That doesn't always constitute topline growth that's bottom line.
You contributes to.
Rob. Rosenhaus: So.
I believe we've got.
Let me, let me touch on DKNY DKNY, when we bought it.
European and distribution more so than it was America.
We there is an appetite for the brand.
Serious appetite for the brand that we're going to try to fill.
There is a newcomer which is Donna Karan, which we haven't even broached that opportunity in Europe or anywhere else in the world.
We've had phone calls based on this campaign and the knowledge of the sell throughs at retail.
Sure.
For bringing that brand.
Two two life everywhere in the world.
So it's an exciting period of time for G. III.
It is.
We're redoing showrooms.
We are here to stay we're here to grow.
And I think we've.
We've proved out that we can.
We haven't seen that will so.
It's a good place to be we're feeling good about the times for G. III.
Speaker Change: Great. Thank you best of luck.
Thank you Rob Thanks for your question.
And this concludes our Q&A portion and I will turn the call back over to management for closing remarks.
Thank you all for your interest and we hope you enjoy the spring season, and we look forward to speaking to you in June Thank you.
Okay.
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Okay.
Okay.
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Speaker Change: Okay.
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Speaker Change: Okay.
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