G-III Apparel Group Ltd (GIII) 2004 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to your G-III Apparel Group second quarter fiscal 2004 results conference call. At this time, all lines have been placed on a listen-only mode and the floor will be opened for questions following the presentation. It is my pleasure to turn the floor over to Mr. James Polenski of Integrated Corporate Relations. Sir, you may begin.

Good afternoon, everybody. Before we get started, I just want to remind you of the company's safe harbor language. I'm sure you are all familiar with it. Some statements made today on the call are forward-looking statements as that term is defined under the federal securities law. Forward-looking statements are subject to risks, uncertainties and factors which include but are not limited to reliance on foreign manufacturers, the nature of the apparel industry, including changing customer demands and tastes, the lines on license products, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependance upon existing management, general economic conditions, as well as other risks detailed in the company's filings with the securities and exchange commission. The company assumes no obligation to update information in this call. With that out of the way, I'd like to turn the call over to Chief Executive Officer, Morris Goldfarb.

Good afternoon, thank you for joining us for the review of our second quarter, first half fiscal 2004 results. With me today is Wayne Miller, our Chief Financial Officer. We have strong results to talk with you about today and are optimistic with regard to our position for the second half. We are pleased to have entered the second quarter with increases in both the top and bottom line.

Here are the financial highlights for the quarter. Net sales increased by 13.2% to $45.3 million dollars. Gross profit improved 34.6% of net sales compared to 27% of net sales in the year ago quarter. Operating profit improved to 10.7% of net sales compared to 3.4% of net sales in the year ago quarter. Net income per share for the quarter came in at .37 cents per share compared to .8 cents per share in the year ago second quarter. Our sales and gross margin gains stem from the strength of our sports apparel business which continues to be our strongest growth area. The ongoing development of this area is one of our key strategies.

Our sports apparel product offering continues to drive both sales through increased penetration and existing doors and a significant broadening of our distribution. The young men's and junior sportswear component of our sport apparel business is now sold in first tier department stores and better specialty stores throughout the country. This portion of the retail market was not previously available to our sports licensed product and enabled us to achieve better levels of gross profit. We're continuing to expand our sports apparel product line into new categories. For example, we launched a line of ladies denim in Hardwood classics and Cooperstown collections for the current fall season. At the magic show last week, we launched a collection of Louisville Slugger active sports apparel. This line is inspired by the heritage of the Louisville Slugger brand and the legendary baseball greats such as Babe Ruth, Lou Gehrig and Jackie Robinson. The decision to further enhance our sports apparel with fashion design has really paid off. We expect to continue to look for opportunities to broaden distribution of sports apparel products.

The tone of our business for the fall season is encouraging. A current overall order book plus shipments for August is up approximately 10% compared to last year at this time. Despite a challenging market. This level would have been stronger but our non-sport business is lower than it was last year. Even so, there are some bright spots in the wider mix of our brands and businesses. Most notably in Sean John, Cole Hahn, and Siena Studio lines. We are also pleased with the progress of our new Black Ribbon brand, which as you know is company owned. While it will take sometime to properly develop, we believe that there's an opportunity to begin this lifestyle brand for the relatively young, hip fashion-conscious customer. At the beginning, we've launched a comprehensive Black Rivet outer-wear collection in approximately 750 stores throughout the country. We will continue to look for additional brands in order to further diversify our business and create additional avenues for growth.

Before I turn the call over to Wayne. I'd like to reiterate that the breadth of our distribution, which runs from mass market to department stores to specialty stores is expected to provide G-III with many opportunities over the long term. At present, we're pleased to be prominently displayed in Lady Foot Locker, Macy's, JCPenney, Bloomingdales, Sachs and Neiman-Marcus. We look forward to continuing to build strong relationships with our many customers. I'd now like to turn the call over to Wayne Miller, our Chief Financial Officer who will review the numbers.

Thank you, Morris, and good afternoon. For the second quarter fiscal 2004, we reported net sales of $45.3 million compared to $40 million last year and net income of $2.7 million or .37 cents per diluted share compared to net income of $576,000 dollars or .8 cents per diluted share in the same period last year. Net sales increased due to higher shipments of sports apparel offset somewhat by lower shipments of womens nonlicensed outer- wear as retailers continue to require shipments closer to selling floor needs. Gross margin increased due to the higher gross margin for our sports apparel product compared to our other divisions. Our SG & A expenses for the quarter were $10.8 million compared to $9.5 million in the prior year second quarter. The increase in SG & A is primarily due to increased investments in our sports apparel business.

For the six months of fiscal 2004, we reported net sales of $64 million compared to $52.7 million last year and net income of $91,000 or .1 cent per diluted share compared to a net loss of $3.6 million or .54 cents per diluted share last year. Gross margin increased as a result of the increased shipments of our higher margin sports apparel, and reduced clearance activity. Last year, gross margin was also negatively affected by losses in our Indonesian facility that we closed in December 2002. SG & A expenses for the six months were $19.6 million compared to $17 million for the same period last year. The higher expenses, again, are primarily attributable to the result of the expansion of our sports apparel business.

Some balance sheet highlights as of July 31 this year, our working capital's stood at $47 million -- $47.5 million. As of July 31 last year, we're at approximately $43 million. Our stockholders' equity at July 31 this year is at $55,874,000. Last year it was at $51,234,000 at July 31. Our book value per share is now $8.12. Last year, $7.63. And our inventories are relatively unchanged, slightly down from last year. It's $59.4 million versus $60.7 million last year. Finally, with respect to guidance for the full 2004 fiscal year, we expect diluted net income per share to be between $1.10 and $1.15 with net sales of approximately $220 million. Thank you for your attention and now I would like to turn the call back over to Morris.

Thank you, Wayne. Before we take some questions, I'd like to comment that we've made significant improvements in profitability during the first half of the year. We're excited about our prospects for the fall season given that our product lines have received great feedback and our order book is up. Sports apparel performed exceptionally well and continues to exceed the goals we set for its performance. We continue to see a variety of opportunities to drive growth in this division and for our other businesses. We feel good about the momentum in our business and we're excited, after a couple of very challenging years to be realizing our potential. Thank you for your attention and we'll open up the calls to some questions.

Thank you. The floor is now open for questions. If you do have a question, please press the numbers one followed by four on your Touch-Tone telephone. We do ask that if on a speaker phone to please utilize your hand set to provide optimum sound quality. Once again that is one followed by four on your Touch-Tone telephone to ask a question. We do have a question coming from Nelson Obis of Winfield Capital.

Morris?

Hi, Nelson.

Look, I understand the general trends in your business and why margins are what they are, but in going back and reviewing the press release from the first quarter, you projected approximately $44 million in revenues and earnings between .8 and .10 cents a share. The revenues, you know, you exceeded by a few percent, but the earnings were significantly better as a result of I suppose a surprise in gross margins. Can you tell us specifically what happened in the quarter that you were unable to anticipate at the time of putting the first quarter numbers out?

What happened in the first quarter on the positive note was the acceptance of our sports licensed apparel. The ability of shipping it early and the fact that it, you know, we all know it's less seasonal than our traditional outer-wear business. Those margins have been very, very good. On the downside, in our coat business, the receipts from our retailers were pushed back several weeks and had they been -- had product in the outer-wear sector of our business been shipped according to plan, our numbers would have even been better than they are today. Additionally, we had budgeted for the benefit, actually. We had budgeted for some markdowns that we might incur because of our distribution in department stores and sportswear area and we came out better than anticipated. So all told, I think we've done a very, very good job in the environment that we're in.

Nelson, just to add between the estimate that we put out I believe was .10 to .12 cents a share not .8 to .10.

Okay.

Just to follow-up with what Morris was saying. It really was a margin mix change where we shift a higher level of the sports apparel product that we had planned to ship in the second quarter, and Morris was commenting that the receipts for our shipments of outer-wear was lower than we had planned. So it was a margin mix, and we do expect to ship over the plan this year for sports apparel. That momentum does continue for us.

Plus, the markdown estimates that you thought you'd incur in the second quarter were less than expected because of sell through with better margins or how were you surprised there?

The sell throughs were good. And we budget as a percentage of sales. And the mix was pretty much heavily concentrated on better specialty stores where the markdowns are significantly less than they are at the department store level. We got the benefit of that. We opened up literally, Nelson, 1500 millicounts in the specialty store sector, which is very, very healthy. And we were able to service it. So the risk on markdown, if you are managing your business well is less than we had anticipated.

All right. Well congratulations for certainly a great gross margin quarter and we'll expect to see the top line lift as things go on.

Thank you, Nelson. Thanks for continuing to be with us.

Thank you. Once again, if you do have a question, please press the numbers one followed by four on your Touch-Tone telephone. We appear to have no further questions.

Okay. Thank you all for being with us, and have a good afternoon.

Thank you all for your participation. That does conclude your teleconference. You may disconnect your lines at this time. Have a great evening.