G-III Apparel Group Ltd (GIII) 2005 Q4 法說會逐字稿

Good day, everyone, and welcome to the G-III Apparel Group fourth-quarter 2005 earnings results conference. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Bill Zima of Integrated Corporate Relations. Please go ahead, sir.

Good afternoon, everybody, and thank you for joining us. Before we get started, I would just like to read the Company's Safe Harbor language. Statements concerning the Company's business outlook or future economic performance, anticipated revenues, expenses or other financial items, product introductions and plans and objectives related thereto statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters are forward-looking statements as that term is defined under the federal securities law. Forward-looking statements are subject to risks, uncertainties, factors including but not limited to reliance on foreign manufactures; the nature of the apparel industry, including changing customer demand and pace; reliance on licensed products; seasonality; customer acceptance of new products; the impact of competitive products and pricing; dependence on 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 the information in this conference call.

Thank you very much, and with that out of the way, I would like to now turn the floor over to Morris Goldfarb, our Chief Executive Officer and Chairman of G-III Apparel Group.

Good afternoon and thank you for joining us for a review of our fourth-quarter and full-year results. With me today are Jeanette Nostra, our President, and Wayne Miller, our Chief Operating and Financial Officer.

I think it is obvious that our results for this past year were disappointing. As you are aware, there was a sharp swift decline in the popularity of fashion and sports apparel which generated excellent results during fiscal 2004, which shows primarily off-price value and losses during the fiscal 2005.

In addition, promotional efforts started sooner than normal during the outerwear season as retailers look to rebound from lackluster early sales. As a consequence, our results of operations were negatively impacted due to higher off-price sales and higher levels of allowances than we previously anticipated.

While we are clearly not satisfied with our results for the year, they do not tell the whole story. We made good strategic and operational progress over the course of the year. Our main initiative was to make our Company more competitive and efficient. We took a hard look at our business from a number of standpoints and are addressing our business mix, our staffing structure, our sourcing and our distribution infrastructure. We believe we have positioned our business advantageously for fiscal 2006 and into the future.

In terms of business mix, we have pushed hard to sign new programs. We have made excellent progress in this regard. First, we are very excited to have recently signed an outerwear license with Izod for both men and women. This line will be inspired by a culture of sport and leisure and will be targeted at a 25 to 45-year-old customer with a modern relaxed attitude toward dressing.

This brand is a good complementary fit with respect to our other licensed business. Our Cece Cord luxury handbag line has sold well, and we're looking to expand the distribution of these luxury handbags, as well as to expand the product that is offered under this brand. We remain confident that we have an opportunity to build a wider luxury collection with Cece Cord in a number of categories.

Most recently, we have announced a new license with House of Dereon, a brand by Beyonce. We are excited about her plans for the brand. Beyonce has great style and clear vision for the line, and we are looking forward to a holiday launch of this young contemporary outerwear line, whose target customer is 18 to 28-years-old.

Sean John, our young man's business aimed at a similar demographic, continues to perform well, and we expect good growth from this line in the current fiscal year.

As you may know, this past November we also signed a new agreement that added Kenneth Cole men's outerwear to our business and extended our Kenneth Cole women's license.

We are pleased with our company-owned Black Rivet women's line, and we've launch the men's counterpart under this label for the upcoming fall season.

Cole Haan has been a great line for us. Our margins are strong, and we continue to expect good growth in this line going forward.

Our Jones wool business consistently generates good profits, and we believe we will have another good year. We are working on reinvigorating our Nine West and Siena Studio businesses by reevaluating product, price points and marketing. Our private-label women's business in both mass and midtier level distribution channels is off to a good start this year.

Finally, we are pleased with our core sports business. Our newly promoted senior management is showing excellent results. The business is performing very well with bookings up better than 20 percent versus last year.

In implementing our growth strategy, we will continue to look for other licensed properties and will further diversify our business and add to our profit potential. We also continue to evaluate strategic acquisition candidates in order to augment our growth, further diversify our business and enhance shareholder value.

Growing the revenue base is important, but we have also pushed for efficiency. We rationalized our staffing, cutting about 5 percent of our total headcount. We have accelerated the expansion of our two offices in China and the closedown of our offices in Korea, both of which should benefit our margins this year and forward. This move will put us in much closer touch with our vendor base in China. China's quality has come up substantially, and the pricing is clearly highly competitive.

This year we will be expanding our internal warehousing capacity to over 200,000 square feet, and we believe this expansion will help us ship better and more efficiently.

As I said at the beginning of my comments, this past year our results clearly do not tell the story. We have renewed focus on how we allocate our resources, more efficient sourcing and distribution operations, and some strong new properties. We begin the current fiscal year from a much stronger position. As a result, we expect to produce improved results for our shareholders.

Thank you. I would now like to turn the call over to Wayne Miller, our Chief Operating and Financial Officer, who will review the numbers for the quarter and for the full year.

Thank you, Morris, and good afternoon. For the full fiscal year 2005 that ended January 31, 2005, we reported net sales of 214.3 million compared to 225.1 million last year and net income of 703,000 or 9 cents per diluted share compared to 8.4 million or $1.14 per diluted share last year. Gross margin for the year was 24.6 percent compared to 27.9 percent in the prior year, due primarily to lower full-price sales of fashion sports apparel and lower commission fee income.

For the fourth quarter fiscal 2005, we reported net sales of 38.4 million compared to 34.7 million in last year's fourth quarter and a net loss of 2.7 million or 37 cents per share compared to a net loss of 3.1 million or 44 cents per share in last year's fourth quarter.

Gross margin during the fourth quarter increased to 16.5 percent from 13.5 percent in the fourth quarter of last year due to lower off-price sales in this year's quarter as compared to last year.

Our cash position as of January 31 this year was 16.5 million compared to 16.1 million a year ago.

The balance sheet highlights -- at January 31, '05, our working capital stood at 59.9 million compared to 57.4 million last year. Our stockholders equity stood at 66.9 million compared to 65.3. Our book value per share stood -- is now at $9.20. Our inventory is at 24.1 million, down from 28.4 million last year.

Thank you for your attention, and now I would like to turn the call back over to Morris for some closing comments.

Thank you, Wayne. Before we take some questions, I would like to say that with the addition of our new lines, the rationalization of our personnel and changes that we have made both here and overseas to our operating structure, I am optimistic about the year ahead. I would like to thank you for your continued support and patience this past year.

Operator, we are now ready to take any questions.

(OPERATOR INSTRUCTIONS). Nelson Ovis (ph), Winfield Capital.

It is a little hard for outside shareholders to gauge the potential upside from some of these new programs. Is there any way you can give us any kind of a sense of whether -- I mean can they all move the dial or the potential of them?

Some can move the dial, and others can move the dial in the coming years. Kenneth Cole management has the potential of moving the dial. Beyonce can help move the dial corporately because it's going to bring a great deal of attention to our Company. We are expecting a significant launch. The energy that this woman brings on for the fashion community is just great. We are proud to be part of it.

We are attempting to create some volume for holiday. We are working hard at creating a line. Jeanette Nostra and our newly appointed design team is aggressively moving toward creating an appropriate line to market. And so we are excited.

Can it move the dial? I would say probably not. Izod has the potential of moving the dial. We have both men's and women's. The brand has been received with great enthusiasm for May company on the men's side. That was the first piece that would grow. We have not yet shown the women's component. We are about to break it, and we believe the combination of men's and women's with Izod has strong potential to yes, move the dial as you say.

Cece Cord is a great property to own long-term. Cece's volume is not very large. We currently market to only one retailer or currently have marketed to one retailer, and that is Bergdorf Goodman. We believe that we will have approximately two dozen accounts that we will ship to this coming year. We are excited by the potential, and this is again high-profile, small volume, high-profile, great margins, potential for brand extensions, and again this brand brings good attention to us. It is also -- let's call it an entry-level initiative in maybe small leathergoods and handbags for the future for this Company.

So all these are well calculated additions to our mix, and they all have distinct qualities that we recognize for our future. But they don't all move the dial immediately.

Sure. That is very helpful to, you know, just give us some kind of definition. Thanks.

(OPERATOR INSTRUCTIONS). Dave Starkey (ph), Smith Barney.

Can you tell me on the Izod what the rationale is for taking on that license given the fact that this is sort of an old brand that may have been popular 10 or 20 years ago, but does not seem to be so anymore?

Actually I would have to differ with that. I think the brand is on the rise. This is Jeanette Nostra. The marketing is fresh. This whole trend toward preppy plays right into that brand. It's all about color and the enthusiasm for the brand is growing both with the consumer and with the retailer. The business is really quite robust.

Okay. And when do you expect to begin seeing some sales from this area? What percentage of business, say, in a year from now will this be of your business?

Well, we don't break out brands by percentage. But we will begin shipping this brand fairly aggressively in maybe the back-end of our second quarter. We've got great positioning at May Company. The brand is very well accepted there. They have carved out platforms to showcase this brand in all categories. So it is a brand that Philips venues and is aggressively -- I'm not sure it is repairing but investing in and the consumer -- the consumer, as well as the retailer, are believing it.

Okay. And just from a layman's point of view and the season we have had this year, we've had a pretty cold winter pretty much throughout the Northern half of the country, and it would seem that outerwear sales should have been quite strong for you guys. Are you holding market share or losing market share? What is happening there?

Let me address the first part of your question. Our season, our shipping season really ends in November, and the weather through November was unseasonably warm. It got cold post-January. We are done. The retailer is in the process of liquidating their inventory during that period, and it is actually a good thing that it was cold. They were able to liquidate their inventory quite well, and there is a strong appetite for new inventory going forward.

So we are in a good position in our booking cycle. We are significantly ahead of last year in our bookings.

The second part, which relates to market share, we are growing our market share. We are very very obvious at the department store level. If you review our portfolio of brands and you walk into Federated, May Company soon-to-be Dillards, Nordstrom's, you would find that we take a lot of space in the department store arena, as well as thousands of specialty stores throughout the country. So we do grow our market share, not only with our brands but also our private-label business that we may not be given credit for visibly. So -- and we are continuing to grow that.

Okay. And how much of your business is private-label now relative to named, and do you think places like Burlington Coat Factory aren't taking a greater share of the business these days?

They are one of our larger customers.

Okay. So your sales -- (multiple speakers)

We kind of root for them as we do for all our retailers. But something just kind of comes to mind that maybe we do not clearly explain, we had a rather large decrease in volume in one of our trendy areas or maybe our trendiest area, which was the retro sports license component of our business.

I earlier said we don't disclose volumes by division, but this one is part of a division. We dropped about $40 million in pure volume. We had a business that was $40 million that dropped down to zero. And in spite of that, our coat business, if you affect that change, has actually grown. We have not given up market share. The piece that diluted some of our topline volume was the sports retro piece.

Okay. So going forward really though, then this year based on this cold weather we have seen, you should be obviously much greater ordering quantities and things like that from the major retailers than you are hoping anyway?

I can only tell you that our year-to-date bookings are stronger than last year.

Okay. Do you guys release those booking numbers at all?

No, we do not. But I did say earlier I highlighted our sports license area, which has shown an increase of greater than 20 percent over last year. And our you know core coat pieces are also showing growth.

And I'm assuming you're looking still at other licensing agreements as we go forward here?

To the extent that they fit our mix, we certainly are. We do not look to cannibalize our positioning at retail, but we do look to supplement our business with areas of business that we are not covered in.

Right. Thank you.

Nelson Ovis (ph), Winfield Capital.

There has been a lot in the trade press recently about the challenges for small and middle-sized apparel companies like yourselves caused by consolidation in the retail channels. Is that having -- how is that affecting you, and what is your strategy for coping with it?

Our strategy is to kind of wait and see. There is no strategy there we believe that we can implement, but we do discuss it. We do have opinions as to how this will all unfold, and we believe that we are in a rather strong position.

I believe that if you look at most fashion companies that are driven by one single brand, they are shooting craps. We are a company that has -- that is composed of approximately a dozen quality brands, some of which do business at Federated, some of which do business at May Company, and some overlap.

So to the extent that maybe the assumption is that Federated will have the management team supporting the merchandising and buying, we believe we are in a very strong position. To the extent that they eliminate all brands, we have a private-label division that has a foothold at retail as well. So we have a great opportunity there.

We are fairly well covered to the needs of the retail world. So selfishly we are rather positive. If May Company's real estate or Federated's real estate is disposed of, it is likely that it would go to possibly Kohl's, Target or maybe a Wal-Mart. Quite honestly, we do business with all of those accounts.

So if there is a shrinking possibility at retail with Federated or May Company, there might be a growth potential in the areas or the retailers that assume the leases that May Company or Federated give up. So we are not overly concerned. We are curious, but not concerned.

There are no further questions, so I will turn the conference back over to you.

Well, thank you very much and have a good afternoon.

This does conclude today's conference. We thank you for your participation. You may disconnect at this time.