GIII
#To respond to your last comment first, we're very careful to plan our businesses and develop our businesses in order not to cannibalize existing brands and businesses.
We've done that from the beginning of our licensing history in coats.
And we still do ---+ and north of 50% on the women's side of the coat department at Macy's, we have 60% of the men's coat department, all with a multitude of brands that all march to a different beat.
They look different, they are priced a little bit differently, and they read specific to the DNA of the brand that's being marketed.
So, we are cautious about the cannibalization piece of it.
We now have some of the best brands in the industry.
We have Tommy Hilfiger, we have Calvin Klein, we have Karl Lagerfeld, and soon to have Donna Karan.
I would say that we have the heroes of the industry.
What the department stores look for today is some level of discrimination in what they market and the brands that they market.
So, today, we're serving up two power brands that virtually don't exist in the United States.
These brands are huge.
There's nobody bigger than Karl Lagerfeld, and he had no presence in the United States.
We're bringing that brand here.
We will double our plan for the year.
We're doing extremely well.
The brand is retailing in pretty much all of the categories that we've shipped.
We're going to bring Donna Karan back to reality.
The brand is clearly one of the biggest American brands there is.
We've been after this brand for years.
We succeeded in acquiring it.
We're developing a plan that's appropriate for our Company and for the retailers, in collaboration with the retailers.
And we see $5 billion is a very attainable number.
These are absolute giants in the industry that we're going to further their presence and improve on the product mix that's been brought out.
It sounds like a staggering number.
I'm not accustomed to referring to G-III as a company that can handle $5 billion in sales, but we have the tools to do it, we have the people to do it, and I think we have the financial support to do it.
So, contrary to what we're presenting today, this is probably the best time for G-III.
We've got just great stuff that's planned on bringing to market and with great talent doing it.
<UNK>, surprisingly, our biggest concern in the outerwear segment of the Business was the off-price channel, and the fact that they had packaways and they had levels of inventory that they purchased at the end of last year opportunistically that would impact our Business.
The first reads that we got were from the off-price channel, the first reorders ---+ not the first ---+ Nordstrom's anniversary sale was very good to us.
They're out early.
They promote their anniversary and we get really good reads, good and bad.
The indicators were that it's a pretty good year for them.
The off-price channels came back and bought product that ---+ we had three reorders in the last week, significant reorders, from the off-price channel in commodities that I thought we might be troubled with for the remainder of the year.
So, it's good news in the off-price channel.
It shows that good product does retail.
The sales that we made to them were not liquidation sales.
I hope nobody is listening on the off-price side of it, but we made good margin on it.
So, we're off to what seems to be a fairly balanced year.
But as you read from our numbers, and as you've heard, we're watching it and we're playing it conservatively.
And, by the way, the reads from the department stores, it's a little bit too early to respond to that.
It takes a couple weeks to get it on the floor.
So, our bigger accounts at the department store level haven't provided us with the indicators that we need to really get excited.
I think the department stores today are doing the appropriate thing.
They are reviewing their strategy.
They are eliminating door count, and most of the doors that they're eliminating are pretty much the ones that are impossible to build scale in.
I believe you'll see areas of the country where there are vibrant sales available that department stores will again start to open.
They are doing what most prudent people are doing.
They are closing their non-performing stores.
That's a good strategy for us.
We help on margin assistance for these department stores.
The biggest leaders for us are the stores that they're closing.
So, from a margin point of view, a maintained margin point of view, we should see improvement.
From scale, all I can tell you, as some of these stores are closing, our Business is growing.
Our biggest account we're tracking at high-teens comp increase for the year.
We did the same last year.
So, it's really not linear, where, as the stores close we lose the same percentage of business.
That's not the way it works.
There are brands that are losing space; there are brands that are not performing.
And in Macy's world, as well as any department stores, they're very, very eager to have new collaborations and new brands, and that's where we fit in.
We're bringing the most powerful new brands into the industry.
So that has to bode well for us.
We know how to produce it, we know how to service it, and we can finance it.
And there's a comfort level from the department stores that are in need of newness to play with the providers that can do it, and we're getting that interest.
Our show rooms are jammed every day.
Developments in new initiatives are just, for me, they're unimaginable.
The desire for our participation at retail is great.
So, we believe that the department stores are trying to offer greater purpose to their customers, and we're here to help them.
Thank you for your question, <UNK>.
<UNK>, we can't hear you.
You're breaking up.
Yes.
Sure, <UNK>.
In really both the wholesale business as well as in our outlet and retail business, last year's Q4 was not strong.
We were under pressure.
Weather was a significant factor.
So, obviously we're up against some poor comps.
Those were negative comps in the retail space, as well as pressure on margins.
And the same thing is really true for our wholesale business.
The only dynamic that's changed for us a little bit is that in the wholesale business we are anticipating that the outerwear season will become much more robust later in the year as we get to a more normalized winter season.
And, again, in addition to that we're launching a number of new initiatives, both with Tommy in particular starting in the latter half of the year, but the Karl initiatives continue to grow later in the year, as well.
All of those factors are what gives us confidence that we'll see fourth-quarter improvement at both the retail side, sales and margin, as well as in the wholesale side of our Business.
In the fourth quarter, it will be ---+ I won't guide you on the numbers side of it for the moment.
But in classifications we will have dresses distributed, we will have suits, we will have performance apparel, and we will have the early stages of sportswear as PVH vacates some of the space.
That relates to Tommy.
If your question is broader than that, on Karl Lagerfeld, we're handbags, dresses, suits, sportswear, footwear, which is trending very strong.
We're fairly well exploiting all of the retail space in departments with Lagerfeld.
On the margin side, <UNK>, if we look at our current business and we run our wholesale business in the high single-digit operating margins, that's done without the benefit of a significant royalty income stream, which is pure profit.
And it's also significantly impacted by royalty expenses that we pay to our licensors.
The absence of those two things really is what gives us confidence that the operating margin for Donna Karan should be ---+ we're comfortable in the mid-double digits and then even north of there.
And in response to your marketing questions and how do we get there, we're developing a plan right now, as we speak.
As you know, we don't have the keys to the business yet.
Every day we're interviewing and understanding how they're marketing, advertising, and the existing staff has serviced the market that they are addressing.
We're clearly going to go down another path, so there's some sensitivity there.
But we've defined it; we've collaborated with our retailers.
The appetite is quite significant for this brand globally.
We're getting calls every day from existing partners and people that would like to partner with us for the future through licensing and through becoming customers of the brand if it's repositioned ---+ and it will be repositioned.
So, we're excited by it.
Do we have something that we can clearly announce as to who the participants and who the retail distribution will be.
It's a little bit early for us to announce that, but you can bet that it's going to be significant in scale.
We're planning for significant size, and not significant SG&A reductions off the existing base.
We'll be evaluating the way they run businesses, and obviously we'll bring them in line with what we do in general.
But our forecast is really based on top-line growth more than SG&A leverage, as far as the existing infrastructure.
In terms of CapEx, the beauty of our plan is we're really significantly growing the wholesale channel, and that's significantly less capital intensive than if we were to be rolling out stores.
So, there will be shop development that we do, similar to what we do, but nothing too dramatic in terms of the size that we think the business can get to.
Let me try to recap it this way for you, <UNK>.
The outerwear business we've talked about as a high single-digit decline; it was approximately a $700 million business last year.
Our core non-outerwear businesses are growing very nicely, high-single digits.
When you look at the balance with the new launches that we have, our growth rates are significant, up in the almost 20% level when you take the core business and the new businesses that we're launching.
I think in terms of where the operating margins go for next year, obviously we're thinking about it.
We've got a big season in front of us, and I think it's a little premature for us to be talking about exactly how that comes back.
Clearly, this year, we've had SG&A pressure both as a result of the outerwear decline and as a result of the new launches of the business.
We definitely expect that on the Karl and Tommy front, and GH Bass, as well, in terms of the additional SG&A spends we had, that we will start to leverage those much better next year.
Outerwear, we're hoping for a good end of the year, and it's a little premature to say what we will do and how that performance will be as we roll into next year.
In terms of retail performance for the full year, this is a challenging first half and we're hoping to bounce back pretty strongly at the back end.
Our total top-line performance for the full year on these change is, really, low- to mid-single-digit declines in terms of comps for the full year.
We're looking for improvement in the fourth quarter.
We expect, if we see that, I think we can feel much more comfortable about seeing it prospectively, as well.
But, again, a little bit early for us to be out there for next year's growth on the retail side, as well.
We are.
The interest ---+ as you know, DKNY is a collection business; it's shipped as a collection, it's produced as a collection, and the retail is a collection.
The pads that we've created in department store are collection pads.
We're very proud of approximately a 14,000 square foot pad that we occupy in Macy's.
What's very interesting and why this brand is appropriate for this time is that a lot of our competition, our two biggest competitors, are either giving up space or space is being taken away from them on similar pads.
So, we will be offered those pads to showcase our collection of Donna Karan.
And as time goes on, we will appropriately surround it by classifications.
There's a huge demand for footwear.
We're in the middle of developing it, as we speak.
And there's great opportunity to distribute footwear through the same cycle.
We pretty much out of the box at Lord & Taylor for Karl Lagerfeld became a very important footwear vendor to them.
And we believe we can duplicate that, and bring it to a different level and scale with DKNY.
And that will be brought to market.
The other piece is we have a built-in business globally with partners.
They've been underserved with appropriate product.
We're in the process of interviewing them and understanding what their needs are throughout the globe.
So, that should improve literally overnight.
And we're going to work on our online business and improve our outlet stores.
We think, if there is an outlet business, this is the best brand for us to pursue in the outlet centers.
Sure.
We have approximately 100 leases that are coming due in 2017 and 2018.
I think it breaks out ---+ there are 65 in 2017 and maybe another 35 in 2018.
So, we're reviewing those.
If we don't get deals from the developers that bring those stores to profitability, we have the opportunity to walk away.
That's 25% of our fleet of stores, so that changes the profile.
Our strategy with Bass is to ---+ I believe today's strategy ---+ if retail gets worse and I'm wrong, we have the ability within the next 18 months to change directions.
But my desire is to continue the growth of Bass.
The brand is getting great positioning in wholesale.
The footwear is doing extraordinarily well, both men's and ladies, in wholesale venues.
Genesco has done a great job of developing the product, pricing it appropriately, and bringing out the quality that we were hoping they would.
PVH is doing well on their men's piece of the business.
And the women's piece we're looking to improve.
We took that on and our first delivery was not what we thought it would be.
We've retooled on the design side and the pricing side, and we think it's a good business.
We've also added ---+ you can't really look at Bass as a stand-alone retail business.
It's wholesale, it's licensing, it's the globe.
And part of outlet is to help standardize and expand on the overall brand.
Wilsons is something that we look at a little closer.
I'm not sure how much the world would miss Wilsons today.
If we don't get better on the product side of it and find that the demand for outerwear is just beyond a four-month demand, we might consider transferring some of those pieces of real estate to Donna Karan.
I guess history might do that.
We've done it before.
We do it consistently.
We've launched Tommy Hilfiger in record time.
And the level of interest, the level of orders are sensational, and it comes because great product and great people are creating that great product.
So, we have them.
Karl Lagerfeld, very much the same way.
Retail ---+ as we add retail pieces, the staff is there to support it.
In these times ---+ we used to have a difficult time years ago in attracting talent, partly because of who we were, and partly with how the industry functioned and how successful some of our competitors were.
Today, I think we all have read the amount of people that have been laid off at Ralph Lauren and Michael Kors and Jones New York.
There's some great talent that's looking for a home.
We interview people all the time.
I've never seen the level of talent that's available, and they're eager to come to G-III and build businesses.
So, I'm not doing it alone.
The celebrity status that four or five of us have in running the Business, it's really not the Business.
The Business are these amazing people that take on a challenge and make it work.
It would be great if you came and saw what we did and how we've changed over time.
We're not the same Company we were years ago.
We've corrected everything we need to correct for sustainability in this industry.
At one point we were exclusively, as you know, <UNK>, a company that just had licenses.
Today, we're well balanced with great people.
And I'd say that if you polled the industry, the retailers in the industry, and asked them to line up their top resources, we hit the charts really high.
So, some of those elements make me comfortable that we can do this.
No, it is not.
<UNK>, we've put out the short-term targets in our deck this morning.
That's got us up with very strong top line, very strong operating margins.
In the short run, of course, there's some expenses to get this launch and get it accurate.
The value creation that we think we can add to what we paid is extreme, and will result in very good, positive returns to shareholders and a very strong IRR.
I can tell you that the first group that we looked at, and most sensitive, we have 23 that are not profitable for Wilsons.
We'll probably react to those very quickly.
They will either ---+ I gave you the lease expiration; there are others that we're going to try to negotiate our termination on.
The blend of those are about 23 that we'll respond to quickly.
Some we'll just have to take a write-off on.
They are just not productive stores that we believe we need to exit.
The rest of it ---+ it's approximately a 50/50 split between Bass and Wilsons, and door count expirations in the period of time that I gave you.
We are looking for new product to start to show us better improvement overall.
I would tell you that the start of the season is where we have planned, consistent with the start of the season, but we are looking for an acceleration as we get into back-to-school and set the floors and start to see more traffic.
We don't really classify ourselves as aspirational luxury.
We're a little bit more affordable.
Maybe we might call ourselves affordable luxury in some of our brands.
So, I think that what we will get is the customer that is shopping aspirational luxury that will step down a tier, and I think we get the benefit of the trade-down or the trade-off.
Thank you very much.
I hope our next call is a better call.
Thank you for paying attention, and have a great day.
