G-III Apparel Group Ltd (GIII) 2004 Q3 法說會逐字稿

Good afternoon ladies and gentleman and welcome to the G-III Apparel Group Ltd. 3rd quarter fiscal 2004 results conference call.

At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to teleforward to your host, Mr. James Posenski (ph) of Integrated Corporate Relations. Sir, the floor is yours.

Good afternoon everybody. Before we get started I just want to remind you of the company's safe harbor language. I'm sure you're all familiar with it.

Some statements made today on the call are forward-looking statements as that term is defined under Federal Securities laws. Forward-looking statements are subject to risks, uncertainties, and factors which include, but are not limited to, reliance on foreign manufactures, the nature of the apparel industry including changing customer demands and tastes, reliance on license product, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependence 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 would like to turn the call over to Chef Executive Officer, Morris Goldfarb.

Good morning. Good afternoon, rather, I'm sorry. And thank you for joining us for review of our third quarter results.

With me today are Jeanette Nostra-Katz, our President, and Wayne Miller, our Chief Financial Officer. The pace of our shipments during the third quarter was strong, and we are pleased with the increases over last year for both our sales and earnings during the period. Sales increased nearly 23% to $126 million. Net income per diluted share increased over 29% to $1.50 a share. Our net sales and net income for the nine-month period were also up sharply from last year.

Our strongest contributors during the quarter were our classics and core sports business. We saw good performances from Sean John, Cole Haan, and Kenneth Cole businesses, and we're also pleased with the progress of our Black Rivet label and the James Dean brand.

Looking at our business by channel, the mass and mid-tier continue to be an excellent source of growth. We continue to see good growth in our NFL core sports business.

As we expected, we were also successful in expanding our presence into the specialty retail channel with our Hardwood classics and Cooperstown Collection business. We now sell this product to over 1,000 accounts.

I am pleased that our infrastructure has developed to the point where we have the ability to manufacture a wide variety of products for an increasingly diverse consumer base. Not only are we among the world's best manufacturers of outerwear, but our designs, sales, and sourcing teams have demonstrated expertise and success in segments such as luxury with Cole Haan, urban, with Sean John, and junior sportswear with Hardwood Classics and Cooperstown and Black Rivet. In addition, woven products have become a major component of nearly all of our labels. As a result of this broader base of expertise, we are able to pursue a wider variety of opportunities for both fashion and sports-related businesses.

Increasing our breadth of product categories, brands, and especially fashion-driven businesses is a strategic priority for us, so that we can more -- we can be more responsive to change in consumer trends. We continue to build a forward-thinking design team to help anticipate these changes and position our own merchandise offerings. We're pleased with the level of talent we've attracted.

We've also developed into a more efficient company from a working capital perspective. Our outstanding borrowings as of October 31st, 2003 was $6.3 million lower than a year ago. This is primarily the result of a transition to more third-party sourcing due to the close of our plant in Indonesia in the fourth quarter of last year, as well as efforts to produce and receive goods closer to scheduled shipment.

We are excited about a number of potential opportunities for new customers and businesses, as well as for the prospect of our existing businesses. While we continue to view the market cautiously we continue to be comfortable that we will achieve our plan for the year.

I'd like to now turn the call over to now Chief Financial Officer, Wayne Miller who review our numbers.

Thank you, Morris. Good afternoon.

For the third quarter of fiscal 2004 we reported net sales of $125.5 million and net income of $11.4 million, or $1.50 per diluted share, compared to net sales of $102.3 million and net income of 48.5 million, or $1.16 per diluted share in last year's third quarter. Our gross margin percentage increased from 27.3% to 29.7% due primarily to increased shipments of higher margin sports apparel.

SG&A expenses for the third quarter were $16.8 million compared to $13.2 million in the prior year's quarter. The increase in SG&A expense is both in absolute terms and as a percentage of net sales is primarily attributable to increased expenses in connection with the expansion of our sports apparel business.

For the first nine months of fiscal 2004 the company reported net sales of $189.6 million and net income of $11.5 million, or $1.54 per diluted share, compared to net sales of $155 million and net income of $4.9 million, or 67 cents per diluted share in last year's nine-month period. Again, gross margin percentage, which increased from 25.6% to 30.3%, was favorably impacted as a result of increased shipments of higher margin sports apparel.

SG&A expenses for the nine month were $36.4 million compared to $30.1 million in the same period last year. Similar to the three-month period, the increase in SG&A expenses was primarily attributable to increased expenses in our sports apparel business.

And now for some balance sheet highlights. Our working capital at October 31,'03, was $59.1 million, compared to $51.9 million at October 31 last year. Our stockholders equity was at $67.4 million this year compared to $60 million last year October 31. Our book value per share now stands at $9.73 versus $8.77 last year October 31, and our inventories are down to $40.5 million from $47.2 million last year. In addition, our inventory turn has improved from 2.9 to 3.8 on an annual basis.

Finally, with respect to guidance, we continue to believe we will achieve our previously announced forecast for the fiscal year ending January 31, 2004, of net sales of approximately $220 million, and diluted net income per share between $1.10 and $1.15. Thank you are for your attention, and now I would like to turn call back over to Morris.

Thank you, Wayne.

Before we take your questions, I'd just like to comment that this has been an exciting year of change for G-III as we've now established a sports wear business to compliment our outerwear businesses. We've had a strong nine months, and as we move forward we will continue to strive for greater success. Thank you for your continued support. Operator, we're now ready for any questions.

Thank you. The floor is now open for questions. If you do have a question, you may press 1, followed by 4, on your touch-tone phones.

If you are on a speaker phone, we do ask that you please pick up your handset to minimize any background noise. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Once again if you do have a question you may press 1, followed by 4 on your touch-tone phones at this time. Thank you.

Our first question is coming from Nelson Obits (ph) of Winfield Capital.

Hi, guys. Great execution.

I had a question about the seasonality of the business. I sort of was under the impression that, with the new array of products, there might be some reduced seasonality in the fourth quarter, because obviously, you know, you've shown three-quarters of the picture now, and when you back out the fourth quarter, the revenue number you're showing would be, you know, about the lowest revenue line we've seen in four years, and I'm -- I don't quite -- maybe could you help me a little bit.

I'll help you to the best of my ability, Nelson. What has happened is, our outerwear business in October showed signs of slowing down, so in an effort to mitigate over inventory and then necessitating marked-down product, we've canceled off a fair amount of product in October and early November. So we end up clean for the year, and provide our shareholders with the numbers that we've promised.

Okay. So that's basically a judgment that you made based on what the sell-through was and sports licensing is not going to be enough to make that up once you make that decision. I assume you made that decision across the board, or mostly in your legacy brands?

We've pretty much made the decision across the board. Inventory, as we all know, many times is a liability, and we did not want the chance, and with the inventory level, we're having a good year, and we plan on keeping it that way.

Okay. And so that is one of the reasons why the inventory number, even at the end of the quarter, is so -- is so spectacular in relationship to last year.

Yes.

Okay. All right, thanks.

Thank you. Our next question is coming from Tim Griffin of Griffin Portfolio Management.

You know, on that point, can you give some sense of what you expect your sports apparel revenue -- or sports apparel as a percent of revenue to be in the fourth quarter?

It would be a little bit early to tell you that. We have certain situations that may necessitate bringing in product by air for our customers, and others that require delay, so the balance today, I would be -- I would be guessing in an area that I really care not to do right now.

That's okay. Let me ask a different question, then.

With respect to the fourth quarter, I mean, as a previous caller pointed out, that would be your lowest level of revenue for a fourth quarter, or about the lowest, as low as the lowest of the past four years.

Tim, no. This is Wayne Miller. Two years ago we did $30 million in the fourth quarter.

Yeah, your guidance would imply about $32 mill.

Last year we did $47 million, the year before, $30 million.

The fourth quarter for us is never a profitable quarter. Or it's rarely a profitable quarter. So the focus for fourth quarter has never been top-line growth. It's been, you know, preservation of the year.

Oh, I understand that. I can tell that by looking at your history. I'm a little bit new to G-III, but I know what's going on, I think. I guess my point is that if you look at the -- your -- what's implied from your guidance, you're talking about a fourth quarter loss of about 40 cents?

Fourth quarter loss of approximately $3 million, anywhere between 2.8 to 3.2.

Okay. Ballpark. And on that basis, I think last year you had a net loss of about 16 cents on an operating basis.

When you extract out everything, we had a loss of a little under a million dollars, yes.

What's the likelihood that you guys might see enough demand to exceed, you know, something in the $32 million range, you know, from strong apparel sales?

It could happen. The -- we're looking at a loss that also is created by building pretty much a brand-new division. So the headcount has increased somewhat dramatically over last year to provide for design and management of a new business. So maybe, you know, we're failing to site that for our investors, but it's fairly clear in the numbers, that our SG&A has gone up, and it's relative to growth in some of our businesses.

Well, I hadn't really focused on that too much, but that's a good point. So the increased headcount, is in your sports apparel business, how much is headcount gone up, approximately, just ballpark?

Personnel costs through nine months, we're up about $2 million.

$2 million.

Total personnel cost, about $2 million.

I gotcha. Okay.

You know, I also was under the impression, as the prior caller was that, the apparel would have helped reduce the seasonality, especially as it relates to the fourth quarter. Would you expect -- again, you know, I don't have -- I have to think through this, but what I'm wondering is to what extent your sports apparel business, you know, will grow?

Obviously it had to grow nicely compared to last year's fourth quarter. And it would almost imply that you're, as you say, you -- you cancel your orders for leather, or outer wear, just wondering how much of the fourth quarter mix is really apparel?

The -- the top line for fourth quarter in apparel would still be the majority of the sales if the question is are we going to do most of our fourth quarter in sports licensing, the answer is no.

Okay.

Predominantly in the coat area.

It will be.

Yeah, to a very large extent.

And at this point, Tim, you know, the sports business, I mean, this is our second year in it. The sports apparel before was the largest season. Holiday is a short season, and spring is possibly the second largest season, but holiday would be the shortest of the seasons, volumewise.

Sounds to me like you're building some momentum for a good start to next year.

We believe we are.

Okay. Good. Thanks.

Thank you for your questions, Tim.

Thank you. As a reminder if you do have a question you may press 1, followed by 4 on your touch-tone phones at this time.

There appear to be no further questions or comments at this time.

Thank you all, and have a good afternoon.

Thank you. And thank you, callers. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.