G-III Apparel Group Ltd (GIII) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the G-III Apparel Group Limited third-quarter fiscal 2006 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and instructions will be provided at that time to for you to queue up for questions.

I would like to turn the conference over to Mr. James R. Palczynski of Integrated Corporate Relations. Please go ahead.

Thank you. Good morning, 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 the federal securities laws. Forward-looking statements are subject to risks, uncertainties and factors which include but are not limited to reliance on licensed product; reliance on filler manufacturers; the nature of the apparel industry, including changing customer demands and tastes; seasonality; customer acceptance of new products; the impact of competitive products and pricing; dependence upon existing management; possible business disruption from acquisitions; general economic conditions; as well as other risk detailed in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update the information in this call.

With that out of the way, I will turn the call over to Chief Executive Officer Morris Goldfarb.

Good morning, and thank you for joining us for a review of our third-quarter results. With me today are Jeanette Nostra, our President; Wayne Miller, our Chief Operating Officer; and Neal Nackman, our Chief Financial Officer.

Our third quarter was a good one. We accomplished three very important goals. First, we successfully managed our business through a challenging environment to achieve our near-term financial plan. Second, we continued to successfully integrate the Marvin Richards and Winlit businesses, which are benefiting us in a number ways. And third, we entered a new product category through the signing of a license with Calvin Klein women's suits. We consider this to be an important strategic event, and it is a great complement to our Calvin Klein men's and women's outerwear licenses.

I'll go through each of these in a little detail. With regard to our third-quarter results, as you can see, we recorded an increase in net sales of almost 62% in the third quarter to $186.6 million from 115.4 million last year. And net income per diluted share increased to $1.73 from $1.33 last year. It should be noted that we had approximately 8.6 million diluted shares outstanding in this year's third quarter compared to 7.4 million in last year's quarter, an increase of approximately 15%.

Needless to say, the increases in sales and earnings were primarily the result of our acquisitions made in July 2005. I am pleased that we are in a position to perform to plan for the year. Our business is highly diversified and more balanced by brand and distribution channel, in part as a result of the acquisitions we made. We have been working hard and seeing results despite a challenging outerwear market.

The second key goal for the quarter was to proceed smoothly with the integration of Marvin Richards and Winlit. We remain on plan to have the Marvin Richards back office integrated with G-III by the end of our fiscal year. As previously indicated, Winlit's back office was integrated in July.

During this period of integration, we are reviewing best practices throughout the Company and will be revising our best practices across the whole organization. Having one strong back office operation and best practices in place throughout the organization will be important as we seek to capitalize on growth opportunities and to maximize our opportunities for profitability.

Our third key goal is to move our Company into new categories of product in order to become a more diversified all-season apparel company. The Calvin Klein women's suit license we signed during the quarter was a big step toward achieving this goal. We believe that this license is going to be a meaningful business for us. We will continue to pursue other apparel categories that fit well with our existing businesses.

We're able to pursue a more diversified path toward growth as a direct result of our strong organizations with a solid infrastructure in place. We have a bright future, and the addition of the Calvin Klein licensed brand in coats and women's suits is an important part of it. This brand is the leader in the department store tier and should prove to be an excellent growth vehicle for us. This is in many respects a new G-III, and we're looking forward to demonstrating to you our expanded capabilities.

Thank you. I will now turn the call over to Neal Nackman, our Chief Financial Officer, who will give you some details on the numbers.

Thank you, Morris, and good morning. First, regarding the third quarter of fiscal 2006, we reported net sales of 186.6 million, an increase of 61.7%, compared to last year's 115.4 million. Our net income increased 49.7% to 14.8 million from 9.9 million in last year's quarter, and diluted net income per share increase 30.1% to $1.73 from $1.33. The acquisitions of Marvin Richards and Winlit Group, both completed in July of this year, were primarily responsible for our improved financial results.

Or gross profit margin percentage for the third quarter remained seasonally high at 29.5% in both the current and prior year's quarter. SG&A expenses increased $11.2 million to $27.3 million, due primarily to costs associated with the acquired businesses. The current quarter's expenses include a $1.6 million non-cash compensation charge related to the vesting of restricted shares of common stock previously granted to key management. The vesting occurred based upon the achievement of a predetermined market price of the Company's common stock over a 10-day trading period during the third quarter.

Regarding our first nine months of fiscal 2006, we reported net sales of $254.9 million, an increase of 45% compared to last year's 175.9 million. Our net income for the nine-month period increased to $9.8 million from 3.4 million, and diluted net income per share increase to $1.23 from $0.46 in the prior nine-month period.

As with the third quarter, the acquisitions of Marvin Richards and Winlit Group were primarily responsible for improved financial results in the nine-month period. Our gross profit margin percentage for the nine months improved slightly to 27% compared to 26.4% in the prior year's period. SG&A expenses increased $11 million to $49 million, due primarily to costs associated with the acquired businesses.

Finally, with respect to guidance, as you may recall, for the year ending January 31, 2006, we previously indicated we expected revenues in the range of 330 to $340 million and net income per diluted share to be between $0.95 and $1.00. Our revenue guidance remains the same.

Our earnings guidance for the full year is now adjusted due to the non-cash compensation charge, which was equal to $0.11 per share on an after-tax basis. We estimate gross profit in the range of 85 to $85.7 million, operating profit in the range of 16 to $16.7 million, net income in the range of 7 to $7.4 million, and net income per diluted share in the range of $0.85 to $0.90.

And with that, I will turn the call back to Morris.

Thank you for taking the time to listen to our call today. I hope you heard about a very different G-III Apparel Group on today's call. I do not think I can understate the level of energy and drive that these two acquisitions have brought into our Company. I hope you will share in these benefits as we take that energy and direct it towards further developing our businesses and create value for our shareholders. Thank you. And I would like to also wish you all happy holidays.

Operator, we're now ready for some questions.

(OPERATOR INSTRUCTIONS). Deena Friedman, Brean Murray.

Good morning. Congratulations. Just two questions. I was wondering if you could give me a sense of difference that you're seeing in different channels -- any different trends, you know, the value channels versus, say, the higher-end channels?

The department store channel actually opened up a couple of weeks ago. The outerwear departments have had very good sell-throughs. It's helped out inventory levels, it has helped the sell-throughs at retail, and we're very optimistic for the remainder of the year.

The mass market has done okay as well. We are finding fairly good sell-throughs in retailers such as JCPenney and Kohl's for that mid-tier. And Wal-Mart is doing okay as well. So the outerwear departments have had significant sell-throughs to enable us to go forward with an aggressive tone for the future.

The luxury channel is a little bit more challenging for us this year. We have some space that we have occupy in that area, but nothing that would concern us as a company.

And then in terms of the Calvin Klein launch, can you give us a sense of how that is progressing and when we should expect to see product in the stores?

This year, we launched Calvin Klein men's outerwear, and that is progressing well. Retail in the men's departments is not having a stellar year. Yes, Calvin Klein is absolutely a standout. Our business there is very good. The women's business, which is part of an acquisition, the company that we acquired had signed this license a year ago, their business is excellent. The sell-throughs there, the inventory levels, the profitability at retail, are stellar, I would say.

The suit business that we recently signed, we have developed a collection or several collections that go into the first half of next year, and bookings are very good. The margins appear to be good. The distribution is exactly where we want it. And we're very optimistic on the future potential of the women's suit business in Calvin Klein.

Excellent. Congratulations again.

Thank you for your question, Deena.

(OPERATOR INSTRUCTIONS). Nelson Obus, Wynnefield Capital.

Nice quarter. I'm just wondering what the revenues would have looked like without the acquisitions.

The G-III core business was up slightly over the prior year. I would say that about 90% of the increase was attributable to the acquired businesses.

All right. Great. And Morris, can you give us an update on the integration of the businesses? I think there's a different strategy for each one.

I'm not sure that there is a different strategy. I think the fact that we acquired two companies with great licenses and pretty good infrastructures, as well as aggressive talent pools, necessitates careful thinking on how we utilize all the strengths that we now have. They are not very much different.

We occupy -- today we are told in excess of 40% of retail space in some of the department stores. And we are carefully evaluating how to best utilize our brands, our businesses, our people in fueling future growth in the department store channel, as well as doing the mass market programs on private label. There is -- it is quite challenging. Yet everybody is cooperating immensely. We are constantly meeting to utilize the strength of all the three companies combined. And it is working faster than I would have anticipated.

How about in regard to sourcing strategies?

The sourcing strategy is -- again, it will be a blend of all three companies -- G-III, the company that we had prior to the acquisitions, has a very developed sourcing organization. We are currently trying to integrate the companies that we acquired into our sourcing organization, and at the same time utilizing some of the people that remain offshore on the acquiring company side -- acquired company side.

At this time, we have no other questions. I will turn the call back over to our presenters for any additional or closing comments.

Thank you very much for participating this morning. And again, thank you for being our partners. We hope to post some very good results for the future. Thank you very much.

And this does conclude today's conference. Thank you for your participation. You may now disconnect.