G-III Apparel Group Ltd (GIII) 2006 Q4 法說會逐字稿

Good afternoon, welcome to the G-III Apparel Group Limited fourth quarter fiscal 2006 earnings conference call. [OPERATOR INSTRUCTIONS] We will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for those questions. I would now like to turn the conference over to Mr. Neal Nackman of Integrated Corporate Relations. Please go ahead.

Hi this is Neal Nackman I'm Chief Financial Officer with G-III. Our media release just went over the wire. We apologize for the delay in that. It should of happened a little bit earlier. Good afternoon, everybody, before we get started I want to remind you of the Company's Safe Harbor language. Some statements made today on the call are forward-looking statements at that time is defined under the Federal Securities Laws.

Forward-looking statement's are subject to risks, uncertainties and factors which include but are not limited to alliance on licensed product, alliance on foreign manufacturers, nature of the apparel industry including changing customers' demands and taste, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependence upon existing management. Possible business disruptions from acquisitions. General economic conditions as well as other risks detailed in the Company's filings with the Securities and Exchange Commission. The Company assume 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 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, Wayne Miller our Chief Operating Officer and Neal Nackman our Chief Financial Officer. We closed the fourth quarter with good results and excellent outlook for the coming year. This past year was a pivotal year for G-III and we're very proud of the progress we made. We executed well.

We expanded our portfolio of businesses made two acquisitions and believe we have an unprecedented growth opportunity this year, several, I might say. First I will share with you some financial highlights. For the full year we grew our net sales by 51% to $324 million. Our operating profit rose to 16.8 million from 3.1 million last year. A net income per diluted share was $0.57, in line with our guidance and reflects a strong recovery from the $0.06 we reported last year. Share and per-share data in both years have been retroactively adjusted for our recent 3 for 2 stock split. There have been a couple significant pieces to our recovery and growth over the past year.

First, we stabilized our core outerwear operations and in the pre-acquisition G-III divisions. We planned the business appropriately for the market and kept our inventories clean which protected our profitability, despite what proved to be a challenging outerwear season. A few stand-outs in the pre-acquisition G-III outerwear business were Cole Haan Women's and Men's, Sports Apparel and Sean John Men's.

More important than individual programs was our performance as an organization. As you know, to remain competitive in the consolidating retail environment, it is particularly important to provide not only innovative product design but also effective sourcing, efficient distribution and strong sales support to our customers. Our outerwear business touches every tier of distribution. I'm very proud of the job we did on all of these fronts this past year.

Our recovery this year was accomplished by significant increase in our opportunities and in the scale and capabilities of our business as a result of the acquisitions of Marvin Richards and Winlit, we were extremely pleased with their performance right out of the gate. The contribution of these two companies was quite significant to our overall results this past year.

First, they meaningfully expanded our business portfolio, they brought us new license brands led by Calvin Klein, Guess and Ellen Tracy and significant private label programs in addition to several new company-owned brands. The Calvin Klein coat business had a very strong year and we expect to have a strong growth in both Calvin Klein men's and women's outerwear during the upcoming year. They expanded our range of product categories. We've become increasingly comfortable with our abilities to design, manufacture and distribute a range of apparel including sportswear and women's suits.

We're excited to be in a building mode with respect to our infrastructure and capabilities for each category. Through the Marvin Richards organization we secured a new license for the Calvin Klein women's suit business. The outlook for the suit business is strong. Sale through levels for right now are running well ahead of the average turns in the area and we expect to see good growth in the upcoming year from this suit business.

As we achieved scale in the Calvin Klein suit business, we will look to bolster our infrastructure with other suit programs both licensed and private label. We are building our design, production and sales effort with an eye toward diversification and believe that over a period of time we will become more proficient and more profitable as a result. We're excited to be pushing forward with two significant new sportswear programs. On the private label side we're providing Wal-Mart with branding, design, sourcing and marketing for their Exsto brand.

This collection is positioned as contemporary urban men's brand at the upper tier of Wal-Mart price points. We've hired two senior-level executives in marketing and merchandising to spearhead this important effort for us. The initial bookings have been strong with shipments to begin in July to over 300 Wal-Mart stores. Initial discussions are already under way for launches of the Exsto brand in other categories. We're optimistic about this business for the second half of 2006 and into 2007.

As you may have seen, we've recently leveraged our longstanding relationship with Sean John and were awarded license to produce women's sportswear. We're very excited about this business which will launch in the spring 2007. We did extensive research with retailers and the demand is very strong for this brand. We're in the process of recruiting some of the best talent in the industry to help run this business. We'll demonstrate to the market that as has been the case with many years with our outerwear business, we are a partner of choice across a wide range of categories.

Every organization needs to reinvent itself over the course of its history. The third and perhaps the most important aspect to our acquisitions this past year is the additional energy and management talent that has come into our company. We have a range of new ideas that have been brought to us by our key managers and I think the stage is set for G-III to rise to a new level of productivity and profitability.

Neal will take you through the numbers and our forecast for the year ahead in a moment. Before he does, I'd like to somehow reinforce to our investors how pleased we are with the year we've just concluded. It was not long ago that we were viewed as just a leather coat company. Now I believe we're viewed as a successful and profitable all-season multi product category apparel company. We expect to continue to execute our plan and build shareholder value. 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. Before I go through the financial results for the quarter, I will update you on a couple of operational projects.

First, I am pleased to report that we have completed the expansion of our primary warehousing and distribution center operations. We doubled our facility in Secaucus, New Jersey, by adding nearly 130,000 square feet. We took over some contiguous space in that facility and now have approximately 260,000 square feet of space. We completed expansion right in the middle of our key shipping season and it could not have gone smoother.

In addition, we have approximately 90,000 square feet of warehouse space in Edison, New Jersey, that was added as part of our acquisitions as a Marvin Richards business. The balance of our shipping is done by third parties in a carefully planned out strategy. The integration of [Winlit's] back office operations is fully completed and we are pleased with the results. We are going to continue to evaluate the best practices and we'll likely identify further areas for efficiency across the organization.

But from a capability, planning and back-office standpoint we are very satisfied. We have integrated a accounting and finance to Marvin Richards and working on other operational efficiencies in several other areas. For the financial results. For the full year, we reported net sales of $324.1 million and increase of 51.2% compared to last year's $214.3 million.

Net income for the year increased to 7.1 million from $703,000 last year, and net income per diluted share increased to $0.58 from $0.06 in the prior year. The 12-month results this year include after tax non-cash compensation charge of approximately 890,000 or $0.07 per diluted share.

Relating to the vesting of restricted shares of common stock previously granted to key management. The prior years 12 months result include an after tax non-cash charge of $882,000, equal to $0.08 per diluted share associated with the Company's sale of the joint venture interest in a factory in China. All share and per share information have been retroactively adjusted for previously announced 3 for 2 stock split, which became affective March 28, 2006 Our sales growth is primarily attributable to the acquired businesses.

The results included since the acquisition of date since July 11, 2005. Our gross profit margin percentage for the full year improved by 160 basis points to 26.2%, compared to 24.6% in the prior year. The increase is primarily attributable to higher margin from our acquired businesses.

SG&A expenses increased $17.3 million to $64.8 million, due primarily to payroll, advertising and facility costs associated with the acquired businesses. The depreciation and amortization expenses increase $1.8 million primarily due to increased amortization from intangibles from the acquisitions. With respect to the fourth quarter. Net sales of 69.1 million in the fourth quarter, compared to last year's 38.4 million.

Our net loss for the quarter was $2.8 million or $0.23 per share, compared to $2.7 million or $0.25 per share last year. The growth and sales again is primarily attributable to our acquisitions. Our gross profit margin percentage for the fourth quarter was 23.2 compared to 16.5% last year. The improvement related to better mix of regular price sales as compared to off price sales.

SG&A expenses increased $7.4 million to 17.8 million, again due primarily to payroll, advertising and facility costs associated with the acquired businesses. Depreciation and amortization expenses increased from $ .3 to $ 1.1 million again primarily due to the increased amortization costs from our acquired intangibles. Now, with respect to guidance. For the full year, we are forecasting net sales of approximately $400 million, an increase of approximately 23% compared to a recently completed year.

We believe our EBITDA which we consider an important measurement of our business will grow from 20.1 million to 25 to 26 million, an increase of between 25 and 30% in the coming year. Our EBITDA for the past year was negatively impacted by $1.6 million non-cash compensation charge related to the divesting of restricted shares of common stock previously granted to key management. We have provided a reconciliation of our EBITDA numbers to our net income according to GAAP in our press release which is posted on our website.

On the earnings line, we are forecasting net income of 7.5 to $8 million or approximately $ 0.58 to $0.62 per diluted share. That's compared to 7.1 million or $0.58 for January 31, 2006. These numbers again have been adjusted for 3 to 2 stock split. When comparing our guidance with fiscal 2007 to results of fiscal 2006, please keep in mind we completed two acquisitions in July 2006.

As a result our full-year results for fiscal 2006 excludes seasonal losses that were incurred by acquired companies in the first half of fiscal 2006. Results for fiscal 2007 will include the full year of operations of the acquired companies as well as full year of interest expense, depreciation and amortization expense related to acquisitions.

In addition, our forecasted net income for next year, includes anticipated start-up expenses attributable to new initiatives of approximately 2 to $2.5 million. In the first quarter of next year we are forecasting net sales of approximately $15 million compared to $14 million last year. With net loss in the range of 8.6 to 9.1 million, or $0.70 to $0.74 per share, as compared to $4.7 million or $0.43 per share last year.

The higher projected first quarter loss is due primarily to the conclusion of the results of the acquired companies as well as higher interest expense and depreciation and amortization expenses related to the acquisitions. In closing, our projected net sales and EBITDA gross rates are strong. We believe we have good opportunities in the coming year and are excited to demonstrate what we can do financially as well as operationally.

Now let me turn the call back over to Morris Goldfarb.

Thank you for taking the time to listen to our call today. Over the last several years we've worked hard to develop this company. As you know, we were not long ago not almost exclusively a leather outerwear company. We moved our core business into new fabrics and became a comprehensive outerwear supplier.

We grew our portfolio businesses to cover nearly every demographic group and tier of distribution. We then began to build a infrastructure that could execute a broader range of apparel. Now, women's inflection point in the development of our business. We're poised to enter sportswear in a very meaning way. We're also building a capable group to execute tailored clothing, beginning with Calvin Klein women's suits and we'll add expertise in other new categories of product as the year progresses. There has not been another time in our history when we've had so many excellent opportunities, so much talent and such strong relationships across the industry.

In addition to maintaining a very healthy core business, our recent acquisitions have leveraged operations to create opportunities for the future. We believe that our actions were highly strategic, well timed and will prove effective in generating value for our shareholders, our customers, our partners and the consumers. Thank you. Operator, we're now ready tore questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Deena Friedman with Brean Murray.

Good afternoon. Quick question for you. I wonder if you could give me a sense of what you're seeing in the different channels, the department stores, mid-tiers as well as the value channels.

As far as--hi, are we talking about future bookings? The direction of fashion?

In terms of future bookings and also what you saw during the quarter.

Our current bookings are well ahead of last year's bookings, and that takes into consideration the two companies that we acquired. Our bookings at the luxury level are fine. Our bookings at the department-store level are excellent.

Our private-label business is excellent. And the new initiatives that we've taken on, our bookings are strong, as well. I'm not quantifying it. There's what we don't do generally is divide it out and release numbers relative to any one division, but we're in a healthy position, as far as on-order is concerned. We've done our research in fashion. The on-order book is strong because we are fashion-right, and we're very comfortable with the coming year.

Excellent. And I saw your announcement this morning. Congratulations on that. I notice you're starting off with 300 Wal-Mart stores. Is there the opportunity to build out into additional stores.

I think the opportunity--as a matter of fact, I know the opportunity is there. We have been given the, I guess, the honor, the privilege, and maybe the potential financial reward that this all offers to us if we execute well. Wal-Mart has worked very closely with us in this initiative. They--they're very supportive, and if we execute well, we have no idea how many doors can open up for this product, for this collection of products, and there are opportunities, I think as was stated in--in extending beyond the young men's area for Wal-Mart.

Excellent. Thank you.

Thank you, Deena.

[OPERATOR INSTRUCTIONS] Ladies and gentlemen, at this time it appears we have no further questions. I'd like to turn it back to our speakers for any closing remarks.

Thank you for listening to our story, and have a good day.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect at this time.