Q2 2025 G-III Apparel Group Ltd Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the G3 Apparel Group Second Quarter fiscal 2025 earnings call. At this time, participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Neal Nackman, CFO, please go ahead.
Neal Nackman: Good morning, and thank you for joining us.
Neal Nackman: 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 Security's laws.
Speaker Change: Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statements.
Speaker Change: Important factors that could cause actual results of operations or the financial condition of the company to differ or discuss in a document filed by the company with the SEC.
Speaker Change: The company undertakes no duties to update any forward-looking statements.
Speaker Change: In addition, during the call we will refer to non-gap, net income, non-gap net income for diluted share and adjusted EBITDA, which are all non-gap financial measures.
Morris Goldfarb: We have provided reconciliation of these non-gap financial measures to gap 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.
Morris Goldfarb: Thank you Neal, and thank you everyone for joining us.
Morris Goldfarb: We're pleased with our second quarter results, which exceeded our bottom line guidance and we feel confident in our raised outlook as we enter the second half of the year with momentum.
Speaker Change: With a diverse portfolio of more than 30 globally recognized brands, we have long been a partner of choice because of our best-in-class ability to build businesses at scale.
Speaker Change: Having the most desirable brands is central to our strategy and over the past year.
Speaker Change: Our plans to better control our destiny with our own powerful brands along with some great new license opportunities of working.
Speaker Change: Creating an incredibly dynamic portfolio for our future.
Speaker Change: will continue to drive the growth of our Gulf Forward portfolio in two key ways.
Speaker Change: First, and most significantly, the organic growth of our own brands, Donna Karen, DKNY, Carl Agafeld, and Velbracan, across North America and internationally.
Speaker Change: Second, a group of new licensed opportunities secured with highly recognized brands.
Speaker Change: Including Halston, Nautica, Chabian Outaware, BCBG, and this morning was exciting announcement of our license with conversing which I will discuss shortly.
Speaker Change: Taking Together.
Speaker Change: We're confident in our plan. We have created a strong Gulf War portfolio that further diversifies our business model.
Speaker Change: This enables us to broaden our reach across product categories, distribution channels, and geographies as we deliver wherever the consumer shops.
Speaker Change: As we evolved out portfolio, we're actively managing and supporting a current business with Calvin Klein and Tommy Hill figure through the transition of those licenses.
Speaker Change: A proven track record demonstrates key threes ability to drive growth and is supported by our powerful corporate foundation which includes
Speaker Change: Experience Senior Leadership.
Speaker Change: A strong, long-tenured merchant and product development talent with expertise across a broad range of categories.
Speaker Change: and Weld developed sourcing and supply chain.
Speaker Change: Our newly established infrastructure to support global growth, and our long-standing relationship with a diversified distribution network of retail partners.
Speaker Change: Now, let's review our financial results.
Speaker Change: Net sales for the quarter were $645 million in line with our expectations.
Speaker Change: Gross margin rate expanded 90 basis points driven by strong south roofs across businesses and the greater penetration of our higher margin on brands.
Speaker Change: Non-Gap earnings per diluted share with 52 cents and well ahead of our expectations.
Speaker Change: Our inventory remains in good position, down approximately 24% from last year's second quarter. And we ended the quarter in the strong financial position.
Speaker Change: I'm pleased to announce a new global agreement for conversing for men's and women's apparel launching in Fall of 2025.
Speaker Change: Converse is an iconic American-new lifestyle brand owned by Nike Inc.
Speaker Change: with international recognition that meets the every shifting demands of the younger consumer.
Speaker Change: With a long-standing legacy for us multiple sport and creative communities, Congress is known for its cultural relevance and unique collaborations.
Speaker Change: This license represents a significant opportunity for G3 because it enables us to expand the active lifestyle business which includes that team sports division.
Speaker Change: We will integrate commerce by leveraging our existing session talent to build out this business.
Speaker Change: It also provides us with exposure to a differentiated consumer, and we've both benefited from expanding our distribution networks.
Speaker Change: Additionally, we increased our investment in AWWG, bringing a total ownership state to just under 20% up from our initial 12% announced in June.
Speaker Change: Generating over $650 million in revenues across 3,500 points of sale, and more than 86 countries, AWWG is a global fashion group and premier platform for international brands.
Speaker Change: They also are the owners of Hackett, Pepe G's, Fatsenab, and Managed the Iberian Business for PVA.
Speaker Change: They will serve as our partner to drive DKNY, Donna Karen, and Carl Agafeld across Spain, and Portugal, furthering our European reach.
Speaker Change: We believe these businesses can incrementally add more than $200 million in sales across the Adrienne market over the next three to five years.
Speaker Change: We've already begun working to reintroduce Pepe jeans and hack it into the North American market.
Speaker Change: This partnership will expand our business globally.
Speaker Change: We're extremely pleased with another quarter of outside sales growth of our own grants, Donna Karen, DKNY, Carl Agafel, and Bill Bricken.
Speaker Change: which combined grew mid-teens to last year's quarter and a gaining market share, especially in North America.
Speaker Change: Growing and investing in these businesses globally, the long-term is central to our growth and a key strategic priority.
Speaker Change: With full control of these brands from design, production, global distribution and marketing, they represent an important and sustainable profit driver, generating higher operating margins and providing licensing income for G3.
Speaker Change: Data Karen's North American launch is exceeding expectations of year-to-date. The brand is resonating with consumers with strong AURs and South Ruz resulting in higher retail margins.
Speaker Change: We continue to fuel this momentum with a focus on storytelling and the Donna Karen's purpose and rich history of empowering women as seen in our successful spring campaign.
Speaker Change: which rose in women we trust.
Speaker Change: For Fall, we launched another powerful campaign, Reflections on Women, featuring a new group of 8 iconic models, including Christy Turlington, Aman Khan.
Speaker Change: Amber Valetta and Karen Elson.
Speaker Change: All with a strong connection to the brand.
Speaker Change: We're seeing the impact of the campaign and the fashion industry is taking note.
Speaker Change: Tomorrow, the Daily Front Row, a fashion trade magazine, is honoring our work with its prestigious best ad campaign of the year award. So congrats to our entire team on this well deserved recognition.
Speaker Change: and nice capstone to Donna Karen's highly successful relaunch.
Speaker Change: We launched with roughly 200 North American doors in spring and retailers have expanded door count and floor space in response to the brand success.
Speaker Change: Looking ahead in North America this fall, we will expand to 500 doors across 1200 points of sale with additional expansion plan for spring.
Speaker Change: There is high interest internationally and we expect to support this expansion beginning in fall 2025.
Speaker Change: Donna Karen has a billion dollar net sales opportunity globally.
D.K.M.I.: D.K.M.I. delivered another quarter of high single digit sales increase.
D.K.M.I.: Led by North America as the brand continues to take market share.
D.K.M.I.: We're also making progress in the transformation of our own DKNY North American retail stores and our pleas with a double digit comp sales lift with seeing since recently implementing the management footprint, merchandising and brand experience changes we had previously discussed.
D.K.M.I.: Building upon the success of Kaya Gerba as the face of the brand-discring we're partnering with her again for our fall campaign in title of New York Stories.
D.K.M.I.: Celebrating the richest of New York City, and Kai is booklob and her love of reading, the campaign will further bolster decamely repeal among younger customers.
D.K.M.I.: It launched on social media last month and will come to life in a series of activations across New York City, London and Milan.
D.K.M.I.: Aligning with each city's fashion week in September and engaging consumers via activations, robust influence of programs and social content.
Speaker Change: BKMI's relevance is growing globally with increased demand that affords us the opportunity to continue its reach, especially with AWW's support in Iberia.
Speaker Change: The brand is performing better across Asia as we redefine that distribution in that market.
Speaker Change: We're expanding our core categories, and for the fall season have added an initial 600 points of sale accelerating of growth in North America.
Speaker Change: This past quarter, a fragrance partner, unveiled a new DKM Y Blackbuster fragrance called DKM Y 247 that launched in select markets and will be distributed full scale next month.
Speaker Change: We're also switching our watch license to TMS, a reputable partner to many fashion brands.
Speaker Change: We believe they will help reinvigorate this lifestyle category.
Speaker Change: We see over a billion dollars in net sales potential for decam white globally in the near-term.
Speaker Change: Carl Langefeld had another quarter of impressive growth, which sales increasing mid-teens the last year, especially in North America, where we further built out its lifestyle connection.
Speaker Change: Collector.
Speaker Change: This resulted in the addition of approximately 500 new points of sale this year, bringing us to a total of over 2,900 points of sale.
Speaker Change: Additionally, retail stores in North America are performing well with double-digit sales increases to last year.
Speaker Change: The brand is performing well internationally, especially in digital channel, despite the challenging European macroeconomic environment.
Speaker Change: In September, Carl Lagerfeld will launch a new collection that reinforces and modernizes the brand's heritage.
Speaker Change: The Marketing Campaign will feature up-and-coming European fashion models, and we will create pop-ups and key luxury department stores across Europe.
Speaker Change: Additionally, the teen's collection is introducing a new collaboration that blends vintage and modern elements.
Speaker Change: We're expanding Carl Lagerfeld's presence globally through store openings, entrance into new geographies and the addition of new lifestyle categories.
Speaker Change: Today, Morris, the grand opening of our Regent Street flagship store in London, and our hand-work store is set to open shortly, providing a presence in Carl's hometown.
Speaker Change: A partnership with AWG to expand in the Iberian market with Will further penetrate into Europe.
Speaker Change: Additionally, we're expanding into Latin America with an established distribution partner who plans to open four stores by the end of 2024.
Speaker Change: A fragrance partner unveiled the new premium fragrance duo and we entered into a new licensing agreement for fashion jewelry and watches for men and women.
Speaker Change: We see over a billion dollars in net sales potential for Carl Ligerfeld globally.
Speaker Change: Bill Bracan faced pressures in Europe this quarter, the consumer environment remains soft and cooler weather conditions in late June and early July negatively impacted beach wear sales heading into summer.
Speaker Change: France, Velbroke's largest market was negatively impacted by the restricted access to Paris during the Olympics.
Speaker Change: During the quarter, Velbracan opened the brand's first flagship store in Con, which is quickly become the highest grossing store in our fleet, and we planned to help in five new stores in the second half of the year.
Speaker Change: In addition, the company operated Reach Club in Khan continues to have performed.
Speaker Change: We have seven partner operated beach club concepts in various stages of development.
Speaker Change: We continue to see global expansion for the business in the long term.
Speaker Change: Our licensed business remains an important part of our portfolio, complementing the growth of our own branch.
Speaker Change: Some of the most well-known brands and fashion that come to us to build their businesses because of our experienced talent, significant expertise in developing product, our infrastructure, and our status as a supplier of choice for retailers.
Speaker Change: Our ability to fuel the growth of these grants provides significant opportunities for both of our businesses.
Speaker Change: [inaudible]
Speaker Change: As a reminder.
Speaker Change: We've built Calvin Klein and Tommy Hilfiger into a $1.5 billion business at its peak.
Speaker Change: Since the unexpected announcement of the upcoming explorations of those licenses.
Speaker Change: We've done an amazing job expanding our business and have made a lot of progress developing new relationships.
Operator: . Good day and thank you for standing by. Welcome to the G-III Apparel Group's second quarter fiscal 2025 earnings call.
Speaker Change: We're pleased with our execution today.
Speaker Change: We're actively managing Calvin Klein and Tommy Hilfiger with adedicated teams and are working with all our retail partners to continue their support to these grants.
Operator: At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: Balancing our resources to support all these current businesses, as well as future ones, and created slightly elevated SG&A levels.
Operator: Please be advised, but today's conference is being recorded.
Speaker Change: with all the 70 years of experience.
Operator: I would now like to hand the conference over to your speaker today.
Speaker Change: We are the pre-eminent resource for women's apparel in North America.
Neal Nackman: Neal Nackman, CFO, please go ahead. 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 might differ materially from those expressed or implied in forward-looking statements. Important factors they 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. The company undertakes no duties to update any forward-looking statements. In addition, during the call, we will refer to non-gap net income, non-gap net income for diluted share, and adjusted EBITDA, which are all non-gap financial measures.
Speaker Change: We've developed long-standing relationships with retail partners.
Speaker Change: who have confidence in our ability and are actively working with us to support our new brand opportunities.
Speaker Change: This year we launched a lot of good genes, easily replacing the Tommy genes business as the license was given back at the end of last year.
Speaker Change: Champion Out of Wear and Holston.
Speaker Change: which will extend our lifestyle product offerings and drive incremental growth, but just hitting retail floors, additionally BCBG and Commerce will launch next fall.
Neal Nackman: We have provided recommendations of these non-gap financial measures to gap measures in our press release, which is also available on our website.
Speaker Change: Inclusion.
Speaker Change: We've delivered a strong first half of the year and are executing against our strategic goals.
Speaker Change: We've done a great job improving what we own, building upon our infrastructure and adding what we need for the future of our business.
Morris Goldford: I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldford. Thank you, Neil, and thank you everyone for joining us. We're pleased with our second quarter results, which exceeded our bottom-line guidance, and we feel confident in our raised outlook as we enter the second half of the year with momentum. With our diverse portfolio of more than 30 globally recognized brands, we have long been a partner of choice because of our best-in-class ability to build businesses at scale.
Speaker Change: Looking at the remainder of the year, we're controlling the controllables and we remain cautiously optimistic.
Speaker Change: We're closely monitoring the supply chain dynamics and affected and have factored that impact into our updated look outlook.
Speaker Change: Give me an asset.
Speaker Change: and supported by a forward order book.
Speaker Change: We're reaffirming a tap line, while once again raising our full year earnings for diluted chair guidance to be in the range of $3.95 to $4.5.
Morris Goldford: Having the most desirable brands is central to our strategy, and over the past year, our plans to better control our destiny with our own powerful brands, along with some great new license opportunities of working, creating an incredibly dynamic portfolio for our future.
Speaker Change: A proven track record of success and a strong balance sheet gives us ample flexibility to invest in long-term opportunities to expand our business and make strategic investments.
Speaker Change: The plans we laid out over the past two years of working.
Speaker Change: We're seeing results as we continue to allow our business model for the future.
Morris Goldford: We'll continue to drive the growth of our Gulf Forward portfolio in two key ways. First, and most significantly, the organic growth of our own brands, Donna Karen, DKY, Karl Lagerfeld, and Wilbrican across North America and internationally. Second, a group of new licensed opportunities secured with highly recognized brands, including Halston, Nordica, Champion Outoware, BCBG, and this morning's exciting announcement of our license with Conversing, which I will discuss shortly. Taken together, we're confident in our plan, we have created a strong go-forward portfolio that further diversifies our business model.
Speaker Change: The new G3 is already stronger and better than ever before.
Speaker Change: I'm now passed the call to Neal for a discussion of a second quarter as well as a fiscal 2025 outlook.
Neal Nackman: Thank you, Morris. Net sales for the second quarter ended July 31, 2024, with $645 million compared to $660 million in the same period last year, and in line with our expectations.
Neal Nackman: Net sales of our wholesale segment were $620 million, driven by strong growth of our own brand in North America, or separated the climate, calvin, climate and economy, health figure businesses.
Neal Nackman: is compared to $639 million in the previous year.
Neal Nackman: Net sales of our retail segment with $37 million for the quarter compared to net sales of $34 million in the previous year's second quarter despite the closing of nine doors.
Morris Goldford: This enables us to broaden our reach across product categories, distribution channels, and geographies as we deliver wherever the consumer shops. As we evolve our portfolio, we're actively managing and supporting our current business with Calvin Klein and Tommy Hilfiger through the transition of those licenses.
Neal Nackman: A gross margin percentage was 42.8% in the second quarter of fiscal 2025 compared to 41.9% in the previous year's second quarter.
Neal Nackman: The wholesale segment's gross margin percentage was 41.2% compared to 40.6% in last year's comparable quarter. We continue to drive gross margins to a combination of growth of our higher margin and go forward brands and product mix.
Morris Goldford: A proven track record demonstrates G-III's ability to drive growth and is supported by our powerful corporate foundation, which includes experienced senior leadership as strong, long-tenured merchants and product development talent with expertise across a broad range of categories. Our well-developed sourcing and supply chain are newly established infrastructure to support global growth and our long-standing relationship with a diversified distribution network of retail partners.
Neal Nackman: The gross margin percentage in our retail operation segment was 54.4% compared to 50.5% in the prior years period, driven by lower promotions over the implementation of our merchandising changes.
Neal Nackman: 9GAPS DNA expenses were $229 million compared to $237 million in the previous year's second quarter. The decrease in SGA was partially due to favorable warehousing expenses, resulting from lower than anticipated inventory receipts, as well as better than expected warehouse operations.
Morris Goldford: Now let's review our financial results. Net in line with our expectations. Gross margin rate expanded 90 basis points driven by strong south-roofs across businesses and the greater penetration of our higher margin-owned brands. Non-gap earnings per diluted share with 52 cents and well ahead of our expectations. Our inventory remains in good position, down approximately 24% from last year's second quarter, and we ended the quarter in the strong financial position.
Neal Nackman: In addition, certain advertising expenses shifted into the third quarter.
Neal Nackman: We also continue to experience decreases in royalty advertising expenses associated with lower net sales of licensed brands.
Neal Nackman: Non-gap metting from the second floor was 23.8 million or 52 cents per diluted share compared to 18.6 million or 40 cents per diluted share in the previous year's second quarter. These results were significantly better than our expectations.
Neal Nackman: Turning to the balance sheet, we continue to make good progress with respect for our inventory levels. Inventory decreased 24% to 610 million at the end of the quarter from last year's $805 billion. Our inventory levels are well aligned with future sales.
Morris Goldford: I'm pleased to announce our new global agreement for conversing for men's and women's apparel launching in fall of 2025. Converse is an iconic American youth lifestyle brand owned by Nike Inc, with international recognition that meets the ever-shifting demands of the younger consumer. With a long-standing legacy across multiple sport and creative communities, Converse is known for its cultural relevance and unique collaborations.
Neal Nackman: We ended the quarter with no debt compared to a net debt of $2 and $68 million in the previous year's second quarter.
Neal Nackman: The swing is primarily a result of cash flow from operations which includes the large decrease in our inventory levels.
Speaker Change: or CPI R&DS-18WG for $83 million.
Morris Goldford: This license represents a significant opportunity for G3 because it enables us to expand the active lifestyle business, which includes our team sports division. We will integrate Converse by leveraging our existing fashion talent to build out this business. It also provides us with exposure to a differentiated consumer, and we both benefit from expanding our distribution networks. Additionally, we increased our investment in AWWG, bringing our total ownership state to just under 20% up from our initial 12% announced in June.
Speaker Change: 60 million dollars in stock buybacks and the repayment of 50 million dollars of a seller note that was due in December of 2023.
Speaker Change: Subsequent to the quarter, we retired our $42025 senior secured notes.
Speaker Change: After this repayment, the only outstanding debt is seasonal borrowings under our revolving credit facility.
Speaker Change: As a reminder, we announced last quarter that we had upsized and extended our revolving credit facility to $700 million.
Speaker Change: We have a strong financial and liquidity position which provides us with the flexibility to make investments to drive our business as well as return capital to shareholders.
Speaker Change: Furthermore, we have a solid credit profile which provides this ample optionality to make additional investments by accessing the capital markets.
Morris Goldford: Generating over $650 million in revenues across 3500 points of sale in more than 86 countries, AWWG is a global fashion group and premier platform for international brands. They also, the owners of Hackett, Pepe Gs, Fatsunab, and Manage the Iberian Business for PVH. They will serve as our partner to drive DKY, Donna Karen, and Karl Lagerfeld across Spain and Portugal, furthering our European reach. We believe these businesses can incrementally add more than $200 million in sales across the Iberian market over the next three to five years. We've already begun working to reintroduce Pepe Gs and Hackett into the North American market.
Speaker Change: As for our outlook, we are pleased with our second quarter results and remain cautiously optimistic about the remainder of the fiscal year.
Speaker Change: For the full fiscal year 2025, we are reaffirming our net sales guidance of $3.2 billion, a growth of approximately 3% compared to the previous year's net sales, driven by our own brands and the launches of the new initiatives.
Speaker Change: Importantly, this growth is happening as we transition out of Calvin Klein and Tommy Hilfiger licenses.
Speaker Change: For fiscal 2025, we continue to anticipate sales of our GoFord portfolio to approach approximately 70% of our total net sales in line with what we experienced thus far.
Speaker Change: On a non-gap basis, we are raising our outlook, and now we're expecting netting from for fiscal 2025 to be between $180 and $185 million, or between $3.95 in $4.5 for diluted share.
Morris Goldford: This partnership will expand our business globally. We're extremely pleased with another quarter of outside sales growth of our own brands, Donna Karen, DKY, Karl Lagerfeld, and Wilburkin, which combined grew mid-teens to last year's quarter and a gaining market share, especially in North America. Growing and investing in these businesses globally for long term is central to our growth and a key strategic priority. With full control of these brands from design, production, global distribution, and marketing, they represent an important and sustainable profit driver, generating higher operating margins and providing licensing income for G3.
Speaker Change: This compares to non-gapinating com of $199 million or $4.4 for the little share for fiscal 2024.
Speaker Change: The increase for fiscal 2025 reflects our outperformance in the second quarter. The anticipated interest expense savings associated with the paid out of our senior secured notes and the reduced share count associated with our year-to-date stock buybacks.
Speaker Change: This school's 2025, a just-it-event-I, is expected to be between $335 and $310 million, compared to a just-it-event-I of $324 million, in fiscal 2024.
Speaker Change: is previously mentioned. We continue to expect incremental expenses of approximately $60 million, primarily related to marketing expenses to support the launch of Donna Karen and further drive branding engagement for DKNY as well as investments in technology and talent to expand our operational capabilities.
Morris Goldford: Donna Karen's North American launch is exceeding expectations year-to-date. The brand is resonating with consumers with strong AURs and SouthRus resulting in higher retail margins. We continue to fuel this momentum with a focus on storytelling under Donna Karen's purpose and rich history of empowering women as seen in our successful spring campaign. Which was in women we trust. For fall, we launched another powerful campaign, Reflections on Women featuring a new group of eight iconic models, including Christy Turlington, Aman Han, Amber Valetta, and Karen Elson, all with a strong connection to the brand. We're seeing the impact of the campaign and the fashion industry is taking note.
Speaker Change: For the third quarter of fiscal 2025, we expect net sales of approximately $1.1 billion compared to $1.07 billion in the previous period of fiscal 2024.
Speaker Change: We expect non-dapinating compared to Louis Xear for the third quarter to be between 98 and $139,000, or between $2,20 and $2,30 for the Louis Xear.
Speaker Change: This compares to non-gap net income of $130 million or $2.78 per diluted share in fiscal 2024.
Speaker Change: Let me provide some additional context around modeling, as we have mentioned in the last two quarters, the gross margin rate for the third quarter is expected to be down as compared to last year's third quarter. Due to a mix of programs, including a greater concentration of sales of our licensed brands.
Morris Goldford: Tomorrow, the Daily Front Row, a fashion trade magazine, is honoring our work with its prestigious Best Add campaign of the Year award. So congrats to our entire team on this well-deserved recognition. A nice capstone to Donna Karen's highly successful relaunch. We launched with roughly 200 North American doors in spring and retailers have expanded door count and floor space in response to the brand's success. Looking ahead in North America this fall, we will expand to 500 doors across 1200 points of sale with additional expansion plan for spring.
Speaker Change: The fourth quarter goes margins will be up, in line with the increased weak experience in the second quarter.
Speaker Change: So, taking together, we continue to expect for the full fiscal 2025 gross margin rate to be similar to fiscal 2024.
Speaker Change: Regarding SGA as previously mentioned and in line with our plan, we can make several investments to support the growth of our business for the long term with marketing spend in a second half expected to be skewed higher in the third quarter in line with the full marketing campaign and related activations.
Morris Goldford: There is high interest internationally and we expect to support this expansion beginning in fall 2025. Donna Karen has a billion-dollar net sales opportunity globally. DKY delivered another quarter of high-single-digit sales increase, led by North America as the brand continues to take market share. We're also making progress in the transformation of our own DKY North American retail stores, and are pleased with the double-digit COMP sales lift we're seeing since recently implementing the management footprint, merchandising, and brand experience changes we had previously discussed.
Speaker Change: Non-gap interest expense is expected to be approximately $22 million for the full year and reflects the paydown of the $400 million senior secured notes.
Speaker Change: We continue to expect capital expenditures of approximately $50 million. This is higher than our spending previous years, principally driven by the build out of shop and shops for our new brand launches and new technology to support our business.
Speaker Change: Year estimating a tax rate of 28.5% for fiscal 2025. We have not anticipated any future potential share repurchases in our guidance.
Speaker Change: That concludes my comment. I will now turn the claw back to Morris for closing remarks.
Morris Goldfarb: Thank you Neal, and thank you all for joining us today.
Morris Goldfarb: I'm proud of our team's work this quarter and I'm confident in G3's future as a global leader in fashion.
Morris Goldford: Building upon the success of Kaia Gerber, as the face of the brand is spring, we're partnering with her again for our fall campaigned in Title of New York Stories. Celebrating the richness of New York City and Kaia's book club and her love of reading, the campaign will further bolster DKY's appeal among younger customers. It launched on social media last month and will come to life in a series of activations across New York City, London, and Milan, aligning with each city's fashion week in September, and engaging consumers via activations, robust influence of programs and social content.
Morris Goldfarb: and also like to thank our entire organization, our many partners and all our stakeholders for their support.
Speaker Change: Operator, we're now ready to take some questions.
Speaker Change: Certainly as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by, will we compile the Q&A roster?
Speaker Change: and our first question will be coming from Paul Careney of Barkley for your line as open Paul.
Paul Careney: Hi everyone, thanks for taking my questions.
Paul Careney: 2 quick ones. So can you further elaborate on the opportunity you see for the Congress license and how should we think about future license additions from here versus the current cross or cross serbents?
Morris Goldford: DKY's relevance is growing globally with increased demand that affords us the opportunity to continue its reach, especially with AWs support in Iberia. The brand is performing better across Asia as we redefined our distribution in that market. We're expanding our core categories, and for the fall season have added an additional 600 points of sale accelerating growth in North America. This past quarter, a fragrance partner unveiled a new DKY Blackbuster fragrance called DKY247 that launched in select markets and will be distributed full scale next month. We're also switching our watch licensee to TMS, a reputable partner to many fashion brands. We believe they will help reinvigorate this lifestyle category.
Speaker Change: The second inventory for the quarter remain incredibly clean, can you talk about the composition of that for all inverses license and how should we think about inventory through the back half. Thank you.
Speaker Change: Thank you for all. Thank you for your question.
Speaker Change: Comvers is a huge opportunity for us. It's perfectly fixed in an area of business that we can implement the utilize the talent that we have.
Speaker Change: It's not an area of business that we need to scout for an amazing talent, we have the talent.
Speaker Change: and what's better than a partnership with Nike. Converses a brand that we believe, I would have to say that Nike believes we can contribute to globally.
Speaker Change: Not often that you get the global distribution to a mega brand usually it's confined to a geographic region. We pretty much have most regions of the world and it's...
Morris Goldford: We see over a billion dollars in net sales potential for DKY globally in the near term. Karl Lagerfeld had another quarter of impressive growth with sales increasing mid teens to last year, especially in North America, where we further built out its lifestyle connection. This resulted in the addition of approximately 500 new points of sale this year, bringing us to a total of over 2,900 points of sale. Additionally, retail stores in North America are performing well with double-digit sales increases to last year.
Speaker Change: It's an opportunity for us to expand their brand and our talent and our sourcing into a area of business that we know. We've been in the business before, we've had partnerships with 94.
Morris Goldford: The brand is performing well internationally, especially in digital channel, despite the challenging European macroeconomic In September, Karl Lagerfeld will launch a new collection that reinforces and modernizes the brand's heritage. The marketing campaign will feature up-and-coming European fashion models, and we will create pop-ups and key luxury departments towards across Europe. Additionally, the Gene's collection is introducing a new collaboration that blends vintage and modern elements. We're expanding Karl Lagerfeld's presence globally through store openings, entrants into new geographies, and the addition of new lifestyle categories.
In terms of the go forward position for Q3, and Q4, we are going to come up against lower inventory levels from the previous year. So I don't expect this kind of false like <unk> seen we've experienced in the first quarter in the second quarter and in fact I would tell you that we expect in Q3 and Q4 inventories to be slightly up more aligned with future sales growth.
Morris Goldford: Today, more grand opening of our Regent Street flagship store in London, and our hamburger of store is set to open shortly, providing a presence in Karl's hometown. A partnership with AWG to expand in the Iberian market will further penetrate into Europe. Additionally, we're expanding into Latin America with an established distribution partner who plans to open four stores by the end of 2024. A fragrance partner unveiled a new premium fragrance, Duo, and we entered into a new licensing agreement for fashion jewelry and watches for men and women.
Speaker Change: Thank you very much best of luck.
Paul Careney: Thank you Paul.
Speaker Change: One moment for our next question.
Speaker Change: And our next question will be coming from Ashley Ellen <unk> of Keybanc capital markets. Ashley Your line is open.
Speaker Change: Hi, everyone. Thanks for taking my question sorry. This is John <unk> on for Ashley So take in results and guide for <unk>.
Speaker Change: Step up that's expected in the fourth can you just wanted to see if you could speak more around what's driving the confidence I think I mean, you've mentioned champion and halston have hit the floors are about connected position taking in further that also if you could call out any categories that are outperforming that would be very helpful. Thank you.
Morris Goldford: We see over a billion dollars in net sales potential for Karl Lagerfeld globally.
Morris Goldford: Velverkan faced pressures in Europe this quarter. The consumer environment remains soft and cooler weather conditions in late June and in early July negatively impacted beach wear sales heading into summer. France, Velverkan's largest market was negatively impacted by the restricted access to Paris during the Olympics. During the quarter, Velverkan opened the brand's first flagship store in Kahn, which is quickly become the highest grossing store in our fleet, and we plan to open five new stores in the second half of the year.
Speaker Change: Yes so.
Speaker Change: Very comfortable with the fourth quarter, we've still got work to do as is normal for US. This time of year, where just came off the spring market week.
Speaker Change: A couple of things to keep in mind. When you look at the compares as far as the previous year, we're really up against the lowest the weakest quarter of the prior year. So we feel comfortable with some outsized growth relative to that quarter and adventure. In addition, we're really continuing with the rollout of what you've seen so far which is the launch of the new initiatives.
Speaker Change: And the continued strong growth from our own brands.
Speaker Change: The outsized growth in some of our assets.
Morris Goldford: In addition, the company operated Beach Club in Kahn continues to have performed. We have seven partner operated Beach Club concepts in various stages of development. We continue to see global expansion for the business in the long term.
And Donna Karan.
Speaker Change: Obviously, we've launched with.
Speaker Change: With a great level of success the marketing campaign was amazing the product that was developed.
Speaker Change: Through the archives.
Speaker Change: It's just unimaginable if you looked at it today, you would think of as Donna Karan over the past at a very high luxury level.
Morris Goldford: Our licensed business remains an important part of our portfolio, complementing the growth of our own brands. Some of the most well-known brands in fashion have come to us to build their businesses because of our experience talent, significant expertise in developing product, our infrastructure, and our status as a supplier of choice for retailers. Our ability to fuel the growth of these brands provides significant opportunities for both of our businesses. As a reminder, we built Calvin Klein and Tommy Hilfiger into a $1.5 billion business at its peak, since the unexpected announcements of the upcoming explorations of those license We've done an amazing job expanding our business and have made a lot of progress developing new relationships.
Speaker Change: And it was produced at an affordable price point.
Speaker Change: And the.
Speaker Change: The results.
Speaker Change: We're incredibly happy the retailer's happy I spoke to the door count in the door count expansion.
Speaker Change: And the classification expansion and penetration so we're excited by the brand.
Speaker Change: We previewed with.
Speaker Change: Two European Department stores last week, and they are excited by the opportunity of bringing Donna karan onto their floors. So we believe Donna Karan.
Speaker Change: <unk> takes off globally very shortly.
Speaker Change: The.
Speaker Change: The fact that we've manage to build that business our owned brands.
Morris Goldford: We're pleased with our execution today. We're actively managing Calvin Klein and Tommy Hilfiger with our dedicated teams and are working with all our retail partners to continue their support for these brands. Balancing our resources to support all these current businesses, as well as future ones, has created slightly elevated S-G-N-A levels.
Speaker Change: High single digits to low double digit growth is amazing in this environment with all the headwinds that have come at us and at the same time managed to sustain a reasonable business for.
Speaker Change: Our license store PVH as we exited the brand and exiting the brand and maintaining assemblies.
Morris Goldford: With over 70 years of experience, we are the preeminent resource for Women's Apparel in North America. We've developed long-standing relationships with retail partners who have confidence in our ability and are actively working with us to support our new brand opportunities. This year, we launched Nordic and Jeans, easily replacing the Tommy Jeans business as the license was given back at the end of last year. Champion Outoware and Halston, which will extend our lifestyle product offerings and drive incremental growth or just hitting retail floors. Additionally, BCBG and Covers will launch next fall.
Speaker Change: The piece in effort between the two partners as well as the retailer is no easy feat we've done it well.
Speaker Change: Product is retailing at a very high level.
Speaker Change: And we fight to maintain some semblance of.
Speaker Change: Size with the retailers as as we exited the brand.
Speaker Change: Thank you I appreciate it.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: And our next question will come from will Gartner of Wells Fargo. Your line is open web.
Will Gartner: Hey, guys. Thanks, Thanks for taking my question.
Will Gartner: So it looks like SG&A down into Q4.
Morris Goldford: In conclusion, we've delivered a strong first half of the year and are executing against our strategic goals. We've done a great job improving what we own, building upon our infrastructure and adding what we need for the future of our business. Looking at the remainder of the year, we're controlling the controllables and we remain cautiously optimistic. We're closely monitoring the supply chain dynamics and have factored and have factored that impact into our updated outlook.
Speaker Change: From a growth perspective.
Speaker Change: How do we think about SG&A spend into the second half of the year.
And then how to think about this sort of heavy investment cycle that you're that you're undergoing here to invest in the owned brands and the marketing campaigns. How do you think about that into next year as that can continue and how long will go for.
Speaker Change: Yes.
Speaker Change: The third quarter is going to have a significant increase in the SG&A. We did have a couple of pieces from the second quarter in terms of advertising and then warehouse expenses related to the inventory receipts, that's falling into the third quarter.
Neal Nackman: Given our sector and supported by a forward-order book, we're reaffirming a top line while, once again, raising our full-year earnings per diluted share guidance to be in the range of $3.95 to $4.05. Our proven track record of success and our strong balance sheet gives us ample flexibility to invest in long-term opportunities to expand our business and make strategic investments. The plans we laid out over the past two years of working. We're seeing results as we continue to evolve our business model for the future.
Speaker Change: When you think about that $60 million SG&A spend that we talk about it's incremental for us. This year that is significantly going to be the second half based so you've got both of those two factors weighing in on the second half.
Speaker Change: In terms of the investment spend go forward with.
Speaker Change: Growing the Donna Karan business quickly, but we're also going to probably still probably has a slightly outsized SG&A advertising spend as it relates to that brand until it scales up to a greater level.
Neil: Yes, Neil Neil is exactly right.
Neil Neil: The marketing spend is huge as a percentage of the <unk>.
Morris Goldford: The new G3 is already stronger and better than never before.
Speaker Change: This means that we ship.
Neal Nackman: I'll now pass the call to Neil for a discussion of our second quarter as well as our fiscal 2025 outlook. Thank you, Morse. Net sales for the second quarter ended July 31, 2024, with $645 million compared to $660 million in the same period last year and in line with our expectations. Net sales of our wholesale segment were $620 million, driven by strong growth of our own brands in North America, what's set by our decline in the Calvin Klein and Tommy Hilfiger businesses.
Speaker Change: In its first stage, we're barely in the business for nine months.
Neil Neil: We've achieved.
Neil Neil: Broken our internal plans.
Neil Neil: Mega dollars.
Speaker Change: Yes, the percentages.
Speaker Change: Marketing spend.
Speaker Change: We implemented.
Speaker Change: Just was huge for the first for the first year as we scale this business it levels off in the percentage of SG&A.
Speaker Change: <unk> down the dollars won't change, but as the top line changes.
Neal Nackman: This compares to $639 million in the previous year. Net sales of our retail segment were $37 million for the quarter, compared to net sales of $34 million in the previous year's second quarter, despite the closing of nine doors. A gross margin percentage was 42.8% in the second quarter of fiscal 2025, compared to 41.9% in the previous year's second quarter. The wholesale segments gross margin percentage was 41.2%, compared to 40.6% in last year's second quarter.
Speaker Change: You will see a dramatic difference the big spend well worth it.
Speaker Change: And.
Speaker Change: Again.
Speaker Change: Sure.
Speaker Change: We're marketing to the globe today.
Speaker Change: These expenses didn't exist before is predominantly a license fee the marketing was the expenses.
Speaker Change: The license or so today there is an added element of expense that we control and is working.
Speaker Change: What could be better than stating that it's working.
Neal Nackman: We continue to drive gross margins through a combination of growth of our higher margin go-forward brands and product mix. The gross margin percentage in our retail operation segment was 54.4%, compared to 50.5% in the prior year's period, driven by lower promotions over the implementation of our merchandising changes. Nine Gap SGNA expenses were $229 million compared to $237 million in the previous year's second quarter. The decrease in SGNA was partially due to favorable warehousing expenses, resulting from lower than anticipated inventory receipts, as well as better than expected warehouse operations.
Speaker Change: Sure.
Speaker Change: Thank you well thank you for your question.
Speaker Change: Can I squeeze in one more just just on the visibility into your into your order book.
Speaker Change: U S versus Europe can you, maybe just frame up what youre seeing in both regions in how the order book is shaping up.
Speaker Change: So.
Speaker Change: Our auto book is much more elastic than North America.
Speaker Change: European business as we grow it.
Speaker Change: <unk> is built on.
Speaker Change: Two deliveries.
North American business is built on an everyday delivery cycle.
Speaker Change: Inventory product.
Neal Nackman: In addition, certain advertising expenses shifted into the third quarter. We also continue to experience decreases in royalty advertising expenses associated with lower net sales of licensed brands. Nine Gap net income for the second quarter was $23.8 million or $52 cents per diluted share, compared to $18.6 million or $0.40 cents per diluted share in the previous year's second quarter. These results were significantly better than our expectations.
Speaker Change: We we plan for.
Speaker Change: Were supportive Reorders and in Europe for the moment, we run tight on inventory.
Speaker Change: We know how to move inventory in North America.
Speaker Change: We're not as proficient in Europe, or southeast Asia, but the partnership with AWS WG affords us that ability and down the road.
<unk>.
Speaker Change: Our order book composition will change with the comfort of having supply to support growth quick growth.
Neal Nackman: Turning to the balance sheet, we continue to make good progress with respect to our inventory levels. Inventory decreased 24% to 610 million at the end of the quarter from last year's $805 million. Our inventory levels are well aligned with future sales. We ended the quarter with no debt compared to a net debt of $268 million in the previous year's second quarter. This swing is primarily a result of cash flow some operations, which includes the large decrease in our inventory levels, offset by our investment in AWG for $83 million, $60 million in stock buybacks, and the repayment of $50 million of a seller note that was due in December of 2023.
Speaker Change: Through through Europe, we're not there yet.
Speaker Change: So the order book is.
Speaker Change: Significantly more important to the company in North America than it is in Europe.
Understood. Thank you I'll pass it on.
Bill Bracan: Thank you Bill.
Speaker Change: And one moment for our next question.
Speaker Change: Our next question will be coming from Mauricio Serna of UBS. Your line is open.
Mauricio Serna: Great. Good morning, and thanks for taking my questions. A couple of questions to start maybe on can you give us an idea of like.
Mauricio Serna: Given the success that you've seen with Donna Karan so far like how should we think about that size of our business now expected for this year and just to make sure I understood. This.
Neal Nackman: Subsequent to the quarter, we retired our $400 million 2025 senior secured notes. After this repayment, the only outstanding debt is seasonal borrowings under our revolving credit facility. As a reminder, we announced last quarter that we had upsized and extended our revolving credit facility to $700 million. We have a strong financial and liquidity position which provides us with the flexibility to make investments, to drive our business, as well as return capital to shareholders. Furthermore, we have a solid credit profile which provides us ample optionality to make additional investments by accessing the capital markets.
Mauricio Serna: Guidance update on the EPS.
Speaker Change: It seems you beat the quarter Q2 by 'twenty five.
Speaker Change: Youre rating by 37 at the midpoint of that 12, just to understand is that just mostly lower interest expense at <unk>.
Speaker Change: The impact of the buyback or is there any changes in terms of the margin outlook that we should be considering.
Speaker Change: So I'll take the first question Neil will respond to you in the EPS.
Speaker Change: So.
Speaker Change: Donna Karan all I can tell you is it's the best launch this company has ever had.
Speaker Change: It's the best Press this company has ever had.
Neal Nackman: As for our outlook, we are pleased with our second quarter results and remain cautiously optimistic about the remainder of the fiscal year. For the full fiscal year 2025, we are reaffirming our net sales guidance of $3.2 billion, a growth of approximately 3% compared to the previous year's net sales driven by our own brands and the launches of the new initiatives. In line with what we experienced thus far. On a non-gap basis, we are raising our outlook and now expect net income for fiscal 2025 to be between $180 and $185 million, or between $3.95 in $4.05 for diluted share.
Speaker Change: And I think I said earlier it has.
<unk> potential and I believe it is a conservative number doing $1 billion in sales, which does not include licensing opportunities. It does not include.
Speaker Change: Elements of the business as Donna Karan.
<unk> currently has a Karl lagerfeld.
Speaker Change: But where we're fine tuned at this.
Speaker Change: This point to go to grow globally.
Speaker Change: <unk>.
I hate to say, but.
Speaker Change: Sky's the limit.
Speaker Change: But I don't want to put a number down I don't want it to be too low.
Speaker Change: I don't want to put a.
Speaker Change: $5 million $1 billion number out there.
Speaker Change: We put out.
Speaker Change: Very conservative number and my eyes, which is the $1 billion numbers.
Speaker Change: We're not far from achieving that with Karl Lagerfeld and pretty much record time.
Neal Nackman: This compares the non-gap net income of $190 million, or $4.04 for diluted share for fiscal 2024. The increase for fiscal 2025 reflects our outperformance in the second quarter. The anticipated interest-expense savings is associated with the paydown of our senior secured notes and the reduced share count associated with our year-to-date stock buybacks. Fiscal 2025 adjusted EBITDA is expected to be between $305 and $310 million compared to adjusted EBITDA of $324 million in fiscal 2024.
Speaker Change: Karl Lagerfeld, when we took it on.
Speaker Change: Had zero distribution in North America.
Speaker Change: And then a much smaller business in Europe.
Speaker Change: With our efforts jointly with that.
Speaker Change: Acquired partners, we've grown it.
Speaker Change: We've just said double digits this year high double digits.
Speaker Change: High double digits high teens I would assume.
Speaker Change: In a market environment that one I would say is soft.
And we.
Speaker Change: Everyday there's door expansion in.
Neal Nackman: As previously mentioned, we continue to expect incremental expenses of approximately $60 million primarily related to marketing expenses to support the launch of Donna Karen and further drive brand engagement for DKNY, as well as investments in technology and talent to expand our operational capabilities. For the third quarter of fiscal 2025, we expect net sales of approximately $1.1 billion compared to $1.07 billion in the previous period of fiscal 2024. We expect non-gap net income per diluted share for the third quarter to be between $98 and $103 million over between $2.20 and $2.30 per diluted share. This compares the non-gap net income of $130 million or $2.78 per diluted share in fiscal 2024.
Speaker Change: Modules in areas that were.
Speaker Change: Sure.
Speaker Change: Perfecting to improve on that business same thing with DKNY, when we acquired DKNY from Lv MH.
Speaker Change: Had virtually no distribution in North America, and a tiny business in Europe and today, it's one of the most most distributed brands on the women's side of the business.
Speaker Change: North America, So we achieved that in.
Speaker Change: Record time.
Speaker Change: You can go back to Calvin Klein Calvin Klein had virtually no no women's distribution in North America or anywhere in the globe.
Speaker Change: <unk>.
Speaker Change: Understood.
Speaker Change: <unk> guidance and guardianship.
Neal Nackman: Let me provide some additional context around modeling. As we have mentioned in the last two quarters, the gross margin rate for the third quarter is expected to be down as compared to last year's third quarter, due to a mix of programs including a greater concentration of sales of our licensed brands. The fourth quarter gross margins will be up in line with the increase we experienced in the second quarter. So taken together, we continue to expect for the full fiscal 2025 gross margin rate to be similar to fiscal 2024.
Speaker Change: We built it to possibly the largest women's brand in the world.
Speaker Change: I'm not sure that.
Speaker Change: Well recognized.
Speaker Change: But between the two.
Speaker Change: Calvin Klein and Tommy.
Speaker Change: Tommy Hilfiger, which were underachievers in other hands on on the womens side of the business.
Speaker Change: We contributed three $5 billion to $4 billion.
Speaker Change: Retail sales for those brands, so now having the.
Speaker Change: The ability of focusing that talent pool in those relationships.
Neal Nackman: Regarding SGNA, as previously mentioned and in line with our plan, we can make several investments to support the growth of our business for the long term with marketing spend in the second half expected to be skewed higher in the third quarter. In line with the full marketing campaign and related activations. Non-gap interest expense is expected to be approximately $22 million for the full year and reflects the pay down of the $400 million senior secured note.
Speaker Change: Maybe sky is the limit.
Speaker Change: But ratio as far as the EPS roll you are absolutely correct.
Speaker Change: Other two pieces aside from the beat or the interest savings as well as the share repurchases.
Speaker Change: The key will be getting filed shortly but we purchased about $1 1 million shares back in the second quarter.
Speaker Change: And then our interest savings if you were to compare that to the previous forecast was up about $3 million was down about $3 million.
Neal Nackman: We continue to expect capital expenditures of approximately $50 million. This is higher than our spending previous years, principally driven by the build out of shop and 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 have not anticipated any future potential share we purchases in our guidance.
Speaker Change: I think the guidance is $22 million for interest expense for the year is that right.
Speaker Change: Correct.
Speaker Change: Great and then just one last one.
Speaker Change: If I can squeeze this in.
Speaker Change: Maybe you could just give us like a samsung of how to Dimensionalize comverse rollout Mac over time.
In terms of like the distribution.
Neal Nackman: That concludes my comments.
Morris Goldford: I will now turn the call back to Morris for closing remarks.
Speaker Change: From <unk>.
Speaker Change: On the retail partners that you would be.
Morris Goldford: Thank you, Neal, and thank you all for joining us today. I'm proud of our team's work this quarter, and I'm confident in G-III's future as a global leader in fashion. I'd also like to thank our entire organization, our many partners, and all our stakeholders for their support.
Speaker Change: Distributing the brand to them again in a way like what kind of size do you think that business could reach in the long run.
Speaker Change: Yeah.
Speaker Change: We believe in a reasonable time im not sure its a long run in the long term.
Speaker Change: We can reach $200 million in sales as I said earlier.
Operator: Operator, we're now ready to take some questions. Certainly, as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by. Will we compile the Q&A roster?
Speaker Change: Global distribution.
Speaker Change: As.
Speaker Change: Department stores, its sporting goods shops.
Speaker Change: Its distributors.
Speaker Change: We'll engage to help us distribute throughout the world or areas.
Speaker Change: <unk> designated for US, which is a good part of the world.
Paul Kearney: And our first question will be coming from Paul Kearney of Barclays. Your line is open, Paul. Hi, everyone. Thanks for taking my questions. Just two quick ones. So can you further elaborate on the opportunity you see for the Congress license? And how should we think about future license additions from here versus the current roster of brands? Then second, inventories for the quarter remain incredibly clean. Can you talk about the composition of that for all of versus license? And how should we think about inventories through the back half? Thank you. Thank you, Paul. Thanks for your question.
Speaker Change: And we are in we're in good position to grow that business.
Speaker Change: The entire team is excited by the initiative.
Speaker Change: Great. Thanks, so much and congratulations on the results.
Mary: Thank you Mary.
Mary: And our last question will be coming from Dana Telsey.
Speaker Change: Of Telsey Advisory Group. Your line is now open Dana.
Dana Telsey: Thank you good morning, everyone and nice to see the progress Morris if you look at the opportunities for the license brands certainly the success of Donna Karan with more to come and now Congress. How do you think about the distribution expansion, where the growth comes from categories distribution channels.
Morris Goldford: Converse is a huge opportunity for us. It perfectly fits in an area of business that we can implement the utilize the talent that we have. It's not an area of business that we need to scout for amazing talent. We have the talent. And what's better than a partnership with Nike? Converse is a brand that we believe, I would have to say, that Nike believes we can contribute to globally. It's not often that you get global distribution to a mega brand.
Speaker Change: Regional international versus the U S is there anything of each of the brands that would be more of the standout as we go through the rest of 'twenty and into 'twenty five and then Neil anything to mention on freight costs and what youre seeing in terms of supply chain and lead times. Thank you.
Neil Neil: Thank you Dana.
Neil Neil: So we haven't touched on a couple of assets.
Neil Neil: The AWD WG.
Morris Goldford: Usually it's confined to a geographic region. We pretty much have most regions of the world. And it's it's an opportunity for us to expand their brand and our talent and our sourcing into an area of business that we know. We've been in the business before. We've had partnerships with Nike before. And it's a challenge. Nike factories are unique. They have to be Nike approved, which is a rigid approval process. Nike is comfortable that we could achieve it.
Neil Neil: Partnership.
Speaker Change: It gives us the ability or will give us the ability of distributing distributing pep a which is.
Speaker Change: An important brand in Europe, and in India, we're going to distribute it to North America.
Speaker Change: With the guidance of the AWD WG leadership team.
Speaker Change: And there is.
Speaker Change: It's kind of a unique element for us that integrates into some of their businesses as well.
Speaker Change: Which is red Bull as.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: License.
Speaker Change: Four.
Speaker Change: For <unk>, so it's a co brand.
Morris Goldford: And we have. We've got factories approved already. Sample making and limited production is being tested as we speak. We're good to go. We're excited about the initiative. We have trading partners standing at the wing, basically ready to ride orders. So it's exciting for us.
And that should.
Speaker Change: We know it has great interest in the appeal for the North American market.
Speaker Change: So we're going to take that on and then we're working aggressively on positioning Hackett appropriately in men's apparel and hopefully we establish a foothold in women's as we get more immersed in the partnership.
Neal Nackman: As it relates to, okay, Neal, you can go to the inventory?
Speaker Change: And then again there is another another brand called <unk> that had a huge presence in North America that we're going to undertake and helped develop for distribution here on top of that.
Neal Nackman: Yeah, on inventory. Look, our inventory is in great shape, not only are there a decent size, but our agents are on much better than they've been historically. As far as the balance between licensed and non-licensed, we really don't see any out of bound situations.
Speaker Change: There are.
Speaker Change: Brands.
<unk> private label initiatives.
Neal Nackman: In terms of the go-forward positions for Q-3 and Q-4, we are going to come up against lower inventory levels from the previous year, so I don't expect this kind of fall-offs like we've experienced in the first quarter and the second quarter, and in fact, I would tell you that we're expecting Q-3 and Q-4 mentors to be slightly up, more aligned with future sales growth. Thank you very much. Best of luck. Thank you, Paul. One moment for our next question.
Speaker Change: Our unique to retailers that we're developing as well so there is.
Speaker Change: And an entire fortress is amazing assets to build from.
Speaker Change: <unk> targeted for unique distribution.
Speaker Change: Good.
Speaker Change: It's.
I'd have to say this is well rounded as is.
Speaker Change: One could imagine and with our capabilities of producing pretty much every classification.
Ashley Owens: And our next question will be coming from Ashley Owens of Keybank Capital Markets. Ashley, your line has opened. Hi, everyone. Thanks for taking my question. Today, this is Jonathan Maducco on for Ashley. So, taking in results and guide through Q-3, there's a step up that's expected in the 4Q. Just wanting to see if you could speak more around what's driving the confidence. I think, I mean, you've mentioned champion and also if it's the floors or to book in a good position, digging in further there. Also, if you could call any categories that have outperformed, that would be a very helpful. Thank you.
Speaker Change: <unk> footwear and handbags and accessories.
Speaker Change: We.
Speaker Change: We seem to have control of it.
Speaker Change: And.
Speaker Change: It's all logical parts of the production and design.
Speaker Change: Now allocated to different parts of the world.
Speaker Change: We have a design team that.
Speaker Change: Sits in China.
Speaker Change: The.
Speaker Change: Creates products, specifically for unique retailers as well as some of our team sport initiatives.
Morris Goldford: Yeah, so we're very comfortable with the fourth quarter. We've still got work to do as is normal for us this time of year. We just came off the spring market week. A couple of things to keep in mind. When you look at the compares as far as the previous year, we're really up against the lowest the weakest quarter of the prior year, so we feel comfortable with some outsized growth relative to that quarter.
Speaker Change: We are allocating responsibilities and functions.
Speaker Change: To a broader spectrum of.
Speaker Change: Talent that we have that we now have.
Speaker Change: So.
Speaker Change: I think we have really great control and a great future.
Morris Goldford: In addition, we're really continuing with the rollout of what you've seen so far, which is the launch of the newer initiatives and the continued strong growth from our own brands. The outsized growth in some of our assets, as in Donna Karen, is really obvious. We've launched with a great level of success. The marketing campaign was amazing. The product that was developed through the archives was just unimaginable. If you looked at it today, you would think it was Donna Karen of the past at a very high-legere level.
Speaker Change: Today as I said earlier I.
Speaker Change: I don't think G III has ever been in better shape than it is today.
Speaker Change: And Dana with respect to your question is on freight cost and lead times. The majority of what we bring in is under contract.
Dana Telsey: However, there is some there is not and certainly to the extent that it is not we are seeing and expecting and had built that into our third quarter guidance some higher level freight costs.
Dana Telsey: We expect certainly in the third quarter, probably continue a bit into the fourth as.
Dana Telsey: As far as lead times I did mention that we had inventory that was not received we are seeing a small amount of delay overall on average it is not that significant but certainly on the on the fine tune margins at the end of a quarter. It can impact us a little bit and again, we feel like we've built that into <unk>.
Morris Goldford: It was produced at an affordable price point. The results are great. We're incredibly happy. The retailers are happy. I spoke to the door count and the door count expansion and the classification expansion and penetration. We're excited by the brand. We previewed with two European department stores, lastly, and they're excited by the opportunity of bringing Donna Karen onto their floors. We believe Donna Karen takes off globally very shortly. The fact that we've managed to build our business, our own brands, at high single digits and to low double digits growth is amazing in this environment with all the headwinds that have come out of it, and at the same time, managed to sustain a reasonable business for our licensed SOAR PDH as we exit the brand.
Dana Telsey: Prospective guidance as well.
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Dana Telsey: Thank you Dana.
Speaker Change: Okay. So thank you all for your interest today.
Speaker Change: Have a great fall season, and we look forward to speaking to you in December.
Speaker Change: Thank you.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
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Morris Goldford: And exiting the brand and maintaining a semblance of peace and effort between the two partners as well as the retailer is no easy feat. We've done it well. You know, the product is retailing at a very high level and we fight to maintain some semblance of size with the retailers as we exit the brand. Thank you, I appreciate it. Thank you. One moment for our next question.
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Will Gartner: And our next question will come from Will Gartner of Wells Fargo. Your line is open, Will. Hey, hey guys, thanks. Thanks for taking my question. So looks like SGNA down into Q from a growth perspective. How do we think about SGNA spending to the second half of the year? And then how to think about this sort of heavy investment cycle that you're, you know, that you're undergoing here to invest in, you know, the own brands and the marketing campaigns. How to think about that into next year. Is that going to continue and how long will it go for?
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Morris Goldford: Yes, so Will, the third quarter is going to have a significant increase in the SGNA. We did have a couple of pieces from the second quarter in terms of advertising and then warehouse expenses related to the inventory receipts that's falling into the third quarter. When you think about that $60 million SGNA spend that we talk about that's incremental force this year, that is significantly going to be the second half based. So you've got both of those two factors weighing in on the second half.
Morris Goldford: I think in terms of the investment spend go forward. We're growing the Donna Karen business quickly, but we're also going to probably still probably have a slightly outsized SGNA advertising spend as it relates to that brand until it scales up to a greater level. Yeah, Neil is exactly right. And the marketing spend is huge as a percentage of the business that we've shipped. And it's, you know, first stage, we're barely in the business for nine months.
Morris Goldford: We've achieved, you know, we've broken our internal plans by mega dollars yet the percentage of marketing spend that we re-implemented just was huge for the first for the first year. As we scale this business, it levels off and the percentage of SGNA, you know, comes down. The dollars won't change, but as the top line changes, you'll see a dramatic difference. The big spend, well worth it. And, you know, again, we're, we're marketing to, you know, to the globe today.
Morris Goldford: These expenses didn't exist before as predominantly a licensee. The marketing was the expense of the license, and so on. So today there was an added element of expense that we control and is working. You know, what could be better than, you know, stating that it's working.
Morris Goldford: So thank you, Will, thank you for your question. Just can I squeeze in one more? Just just on the visibility into your, into your order book, US versus Europe. Can you maybe just frame up what you're seeing in both regions and how the order book is shaping up? So our order book is much more elastic in North America. Our European business, as we grow it, is built on two deliveries. North American business is built on an every day delivery cycle.
Morris Goldford: We inventory product. We plan for, you know, for support of re-orders. And in Europe for the moment, you know, we run tight on inventory. We, you know, we know how to move inventory in North America. We're not as proficient in Europe or Southeast Asia, but the partnership with AWG affords us that ability. And down the road, you know, our order book composition will change with the comfort of having supply to support, you know, growth, quick growth through Europe. We're not there yet. So, you know, the order book is significantly more important to the company in North America than it is in Europe.
Will Gartner: Understood. Thank you all, pass it on.
Operator: Thank you, Will.
Mauricio Serena: In one moment for our next question. Howard, next question will be coming from Mauricio Serena of UBS. Your line is okay. Great. Good morning, and thanks for taking my questions. A couple of questions to start.
Morris Goldford: Maybe, did you give us an idea of, like, you know, given the success that you've seen with Donna Karen so far, like, how should we think about like that size of a business, you know, expected for this year, and just to make sure I understand this on the guidance update on the EPS, you know, it seems to beat the quarter Q2 by 25 cents and you're raising by 37 at the midpoint. So that 12 cents just to understand is just mostly, you know, lower interest expenses and, you know, the impact of the buybacks or is there any changes in terms of the margin outlook that we should be considering?
Morris Goldford: So I'll take the first question. Neil will respond to you on the EPS. So Donna Karen, all I can tell you is it's the best launch this company has ever had. It's the best press I believe it's a conservative number of doing a billion dollars in sales, which does not include licensing opportunities. It does not include elements of the business that Donna Karen had, oh, a DKNY currently has or a car logo fell.
Morris Goldford: But, you know, we're fine tuned at this point to gluten to grow globally. And I hate to say but the sky's the limit. But I don't want to put a number down. I don't want it to be too low and I don't want to put a $5 billion dollar number out there. We put out a very conservative number in my eyes, which is the billion dollars. We're not far from achieving that with Karl Lagerfeld in pretty much record time.
Morris Goldford: Karl Lagerfeld, when we took it on, had zero distribution in North America, and a much smaller business in Europe, and with our efforts jointly with our acquired partners, we've grown it. We've just said double digits this year, high double digits, not high double digits, high teens, I would have said. And in a market environment that one might say is soft. And we, you know, every day there's door expansion and modules and areas that we're perfecting to improve on that business.
Morris Goldford: Same thing with DKNY, when we acquired DKNY from LVMH, it had virtually no distribution in North America and a tiny business in Europe. And today it's one of the most distributed brands on the women's side of the business in North America. So we achieved that in record time. You can go back to Calvin Klein. Calvin Klein had virtually no women's distribution in North America or anywhere in the globe. And under G-III's guidance and guardianship, we built it to possibly the largest women's brand in the world.
Morris Goldford: You know, I'm not sure that it's well recognized, but between Calvin Klein and Tommy Healthigr, which were under achievers in other hands on the women's side of the business, we contributed $3.5 to $4 billion of retail sales for those brands. So now, you know, having the ability of focusing that talent pool and those relationships, maybe Sky is a limit. Mauricio, as far as the EPS role, you are absolutely correct. The other two pieces aside from the bead are the interest savings as well as the share we purchased.
Morris Goldford: The queue will be getting filed shortly, but we purchased about 1.1 million shares back in the second quarter. And then our interest savings, if you were to compare that to the previous forecast, it was up about $3 million. It was down about $3 million. God, I think the guidance is $22 million or interest expenses for the year. Is that right? That's correct. Great.
Morris Goldford: And then just one last one, if I can squeeze this in, maybe could just give us like a sense of how did I mentionalize, you know, commerce, roll out like over time, in terms of the distribution, from retail partners that you would be distributing the brand to and again, in a way, what kind of size do you think that business could reach in the long run? We believe in a reasonable time, I'm not sure it's a long run, long term.
Morris Goldford: We can reach $200 million in sales. As I said earlier, its global distribution, its department stores, its sporting good shops, its distributors that will engage to help us distribute throughout the world or areas that are designated for us, which is a good part of the world, and we're in a good position to grow that business and the entire team is excited by the initiative.
Mauricio Serena: Great, thanks so much and congratulations on the results. Thank you, Mauricio.
Dana Telsey: And our last question will be coming from Dana Telsey. Of Telsy Advisore Group, your line is open Dana. Thank you.
Morris Goldford: Good morning everyone and nice to see the progress. Morris, as you look at the opportunities for the license brand, certainly the success of Dana Karen with more to come. And now Converse, how do you think about the distribution expansion where the growth comes from? The categories, distribution channels, regional, international versus the US. Is there anything of each of the brands that would be more the standout as we go through the rest of 24 and into 25? And then Neal, anything to mention on freight costs and what you're seeing in terms of supply chain and lead times. Thank you. Thank you, Dana.
Neal Nackman: So we haven't touched on a couple of assets. The AWG partnership gives us the ability or will give us the ability of distributing Pepe, which is an important brand in Europe and in India. We're going to distribute it to North America, with the guidance of the AWG leadership team. In there is kind of a unique element for us that integrates into some of our businesses as well, which is Red Bull as the A1 license for Pepe.
Neal Nackman: So it's a co-brand and that should we know it has great interest and appeal for the North American market. So we're going to take that on and then we're working aggressively on positioning, hack it appropriately in men's apparel. And hopefully we establish a foothold in women's as we get more immersed in the partnership. And then again, there's another brand called Fast and Adelaide that had a huge presence in North America that we're going to undertake and health developed for distribution here.
Neal Nackman: On top of that, there are brands that are specific to private label initiatives that are unique to retailers that we're developing as well. So there's an entire fortress of amazing assets to build from, all targeted for unique distribution. So I'd have to say it's as well rounded as one could imagine. And with our capabilities of producing pretty much every classification, including footwear and handbags, accessories, we go. We seem to have control of it and it's all logical.
Neal Nackman: Parts of the production and design are now allocated to different parts of the world. We have a design team that sits in China that creates products specifically for unique retailers as well as some of our team sport initiatives. We're allocating responsibilities and functions into a broader spectrum of talent that we now have. I think we have really great control and a great future today, as I said earlier. I don't think G-III has ever been in better shape than it is today.
Neal Nackman: And Dana, with respect to your questions on the freight course and lead times, the majority of what we bring in is under contract. However, there is some that is not and certainly to the extent that it is not we are seeing and expecting and have built that into what third quarter guidance, some higher level freight course that we expect. Certainly in the third quarter probably continue a bit into the fourth. As far as lead times, I did mention that we had inventory that we was not received.
Neal Nackman: We are seeing a small amount of delay overall on average. It's not that significant, but certainly on the fine tune margins at the end of a quarter, it can impact us a little bit. And again, we feel like we've built that into our perspective guidance as well. Thank you. Thank you, Dana.
Operator: Okay, so thank you all for your interest today. Have a great fall season and we look forward to speaking to you in December. Thank you.
Operator: And that concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.