G-III Apparel Group Ltd (GIII) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the G-III Apparel group limited first quarter fiscal 2007 earnings conference call. [OPERATOR INSTRUCTIONS].

I would like to turn the conference over to Mr. Neal Nackman, Chief Financial Officer of G-III. Please go ahead, sir.

Good morning, everybody. Before we get started, I just want to remind you of the Company's Safe Harbor language. 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 products, reliance on foreign manufacturers, the nature of the apparel industry, including changing customer demands and tastes, seasonality, customer acceptance of new products, the impact of comparative products in pricing, dependence on existing management, possible business disruption from acquisitions, general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission. The Company assumes no responsibility to update information in this call. I would like to turn the call over to Chief Executive Officer, Morris Goldfarb.

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

This is a great time to be at G-III. We're encouraged by the outlook for the year. We've done an excellent job of signing new licenses and private label programs, and as a result, we believe we've repositioned our Company, not only for growth for the remainder of this year and beyond, but also to become a less seasonal, more diversified full-range apparel company. You should keep in mind that the results for last year's first quarter did not include the typical seasonal losses of Marvin Richards or Winlit. In addition, this year's quarter includes higher interest and amortization costs relating to these acquisitions.

You should also keep in mind that these businesses were historically more seasonal than G-III's business because prior to the acquisitions, they were solely coat vendors. by combining their strong relationships with our developing capability in other categories, we have created new opportunities that are expected to ultimately reduce our seasonal losses in the first half of the year. Our net loss in this year's first quarter was $8.9 million, compared to $4.7 million in last year's first quarter. Our net loss per share was $0.72, in line with our guidance, compared to a net loss of $0.43 per share in last year's first quarter. We are positioning our business for expansion in a number of ways.

Our coat business is growing and it's stronger than ever in our history. At the same time, we're growing our capabilities and expanding our business into new categories. Our long-held reputation for excellent product, on time delivery, innovative design has enabled us to leverage our opportunities to capture premier licenses for women's sportswear, dresses, and tailored clothing. We began to shift Calvin Klein women's suits to both department and specialty stores in January. Sellthrough has been strong and we're adding doors and capturing incremental floor space. We believe that this is going to be a good business for us and it will not only contribute meaningfully on its own, but it should open the door for us to capture other similar suit licenses.

We've been pleased to expand our relationship with Calvin Klein and its parent company, Phillips Van Heusen, for whom we also produce men's and women's outerwear under the Calvin Klein label. The acquisition and execution of the suit license is part of our stated strategy to expand our product offerings and establish G-III as an all-season diversified apparel company.

We've already built on this relationship with Calvin Klein to include a license for women's dresses, which will also be sold in department and specialty stores. We're quickly ramping up this effort and expect to begin shipping this line for this year's holiday season. We believe this is an excellent opportunity for us and that its volume potential may be at least as large, if not larger than the opportunity with women's suits. The dress business is a bright spot at retail right now and the trend is clearly in our favor as we we launch this business.

Also, during the first quarter, we announced that we would be designing and producing for Wal-Mart, their new urban young men's and boys branded sportswear line, Exsto. This men's line is expected to be available in approximately 300 Wal-Mart stores for the fall of 2006 season, and up to 500 doors for holiday. The boy's portion of the line is expected to be in at least 50 doors for holiday. We're very excited about this opportunity, which may prove to be our most substantial new initiative, and we believe it will begin to be meaningful in the results of of 2008.

We also expanded our relationship with Sean John, long one of our best-performing outerwear licenses to include a license for women's sportswear. We regard this as a marquis brand for us. This line is expected to launch in 2007 in both department stores and urban specialty stores. As you are no doubt aware, the Sean John brand has come on the fashion scene in an extraordinary way and is filling a void for fashionable apparel in markets across the country. We've had a good experience with Sean John in outerwear as it's grown consistently in both sales and profits every year for the last five years.

In fact, our present order book for Sean John outerwear is already larger than our full year's sales of last year. We believe this brand can be successful in the women's sportswear market and look forward to launching the line. We're booking very well and we expect a good fall season. Our order book plus ship year-to-date represents an excess of 80% of our total expected sales for the year. We are confident that we will achieve our sales plan for the year of approximately $400 million.

Our ability to generate improved results is directly related to several key competitive strengths that we have developed. We have a very capable design department, evidenced by the breadth of product that we've produced. We source at a world-class level. We've been in the far east for over 30 years. We have strong networks and relationships and can make compelling product at any price point for any tier of distribution. Our design teams, our merchants, and our production teams are highly coordinated and we work hard to create designs and styles that represent the look our license stores want and that our customers can sell on a profitable basis. We also have become more efficient at distribution and have an excellent track record for on-time delivery and customer service.

Our mission is to grow our business aggressively. First and foremost, we intend to execute at a high level on each of our new initiatives. There is no question that the opportunity in front of us is felt throughout the organization and our management and employees are highly motivated. Even in the absence of additional licenses, and we do intend to build our license portfolio, we believe we have the growth vehicles to produce outstanding results for our shareholders.

We also remain open to further strategic acquisition opportunities that could help us grow our business. We are satisfied and pleased with the acquisition of Marvin Richards and Winlit. The benefits they've brought in terms of management, new programs, and infrastructure are all compelling. Further, they've done nothing but exceed our expectations. The value of the relationship with Calvin Klein that came through Marvin Richards is obvious and exciting. We believe the new private label opportunities we've captured through Winlit, as well as the Guess? and Ellen Tracy licenses have excellent potential. As we've stated, acquisitions will continue to be an integral part of our growth strategy. It is our belief that we've positioned G-III for a period of strong growth.

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

Thank you, Morris.

Net sales for the quarter ended April 30, 2006, were $14.4 million compared to $13.8 million in the year-ago first quarter. Our first quarter continues to be our smallest sales quarter with shipments comprised of a small amount of spring outerwear deliveries, closeout shipments of outerwear and new suit shipments. Our net sales of outerwear was slightly less than in the prior year with net sales of our new Calvin Klein women's suits more than offsetting this decrease. We had a net loss of $8.9 million for the quarter, or $0.72 per share, compared to a net loss of $4.7 million or $0.43 per share in the year ago quarter. Our per share results have been retroactively adjusted to reflect our 3 for 2 stock split completed in March of 2006.

As mentioned before, our results in last year's first quarter did not include the seasonal losses of Marvin Richards and Winlit, which were acquired during the second quarter of last year. Gross margin percentage during the quarter of 4.7% for the current quarter and 6.6% for the prior year's quarter are both reflective of our low sales volume not being sufficient to offset our base of fixed costs. SG&A expenses increased to $14.4 million from $8.8 million from the year-ago quarter. This increase is consistent with our prior two quarters since the acquisition, and is principally due to the overhead related to the acquired companies. Depreciation and amortization increased $800,000 due to amortization of the acquired intangibles.

With respect to guidance, as disclosed in our press release, for the full year we continue to forecast net sales of approximately $400 million, an increase of approximately 23% compared to our recently completed year. We continue to believe our EBITDA for the year will grow from $20.1 million to 25 to $26 million, an increase of between 25 and 30%. We have provided a reconciliation of our EBITDA numbers to our net income according to GAAP in our press release. We continue to expect net income for the year ended January 31, 2007, of 7.5 to $8 million, or approximately $0.58 to $0.62 per diluted share, compared to $7.1 million, or $0.58 per diluted share for the year ended January 31, 2006. When comparing our guidance for the second quarter and full fiscal year ending 2007, the results for the comparable period in fiscal 2006, again please keep in mind that we completed the two acquisitions in July 2005.

As a result, our second quarter and full-year results for fiscal 2006 excludes seasonal losses that were incurred by our acquired companies in the first half of fiscal 2006 as well as higher interest expenses and amortization costs in fiscal 2007 relating to the acquisitions. Regarding the second quarter, we are forecasting net sales of approximately $60 million compared to $55 million last year, with a net loss expected to be in the range of 3.7 to $4.3 million or $0.30 to $0.35 per share compared to a net loss of $300,000 or $0.03 per share last year.

We believe that a comparison to our previously reported pro forma net loss for the second quarter last year of $5 million or $0.41 per share, which assumes we had acquired the two companies as of February 1, 2004, is a more appropriate comparison of our financial performance for the quarter. Accordingly, we also note that we can expect our year-to-date net loss through July 31, 2006, to be in the range of $12.6 to $13.1 million, which is similar to the previously reported pro forma net loss of $13 million for the six months ended July 31, 2005.

With that, I'll turn the call back over to Morris.

Thank you for taking the time to listen to our call today. We're entering a very exciting time in the history of our Company. We've successfully repositioned our strategic direction to not only continue as a dominant outerwear company, but to expand into a wider variety of categories. We're excited to push forward on our path to become an all-season diversified supplier of branded and private label apparel. I'd like to thank both our longstanding shareholders for their continued support and our newer shareholders for sharing in our vision. We're in an excellent position to drive significant value and look forward to demonstrating the new power and capabilities of our Company over the quarters and years to come.

Thank you. We're now ready to take some questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from Jim Duffy with Thomas Weisel Partners.

Thank you. You had mentioned that your order book year-to-date represents 80% of your expected revenue for the year. How does that compare to where you stood at this point last year, or where you typically stand at this point during the year?

We estimate -- keep in mind, Jim, that in this year, we've got new businesses that weren't all online as far as our system, but we're estimating that we're about 5 to 10% ahead of where we were last year.

Okay. Another thing I noticed, seems like an upward revision in the number of doors for Exsto, is that true?

It's pretty much consistent with the initial Wal-Mart plan, the initial rollout is about 300 doors and it rolls out by year-end, approximately 500 for young men's and about 50 for boys.

Okay. And then, Neal, a question for you. On the gross margins in Q1, down year to year, you mentioned you weren't able to leverage your fixed expenses there, however, you'd expect with the contribution of suits, which are a better margin business, certainly, than the outerwear closeout that you'd get some benefit from that. Can you help me understand the dynamics there?

The one thing, Jim, you have to keep in mind is, those fixed costs -- while suits were profitable for us in the quarter and a higher margin, we did have an increase in those fixed costs as it relates to bringing on the acquisitions, as well.

Okay. Are you comfortable speaking about the contribution of the suits in the quarter as far as the amount of the revenue?

No, that's not information we're disclosing.

Okay. Thanks very much.

Our next question comes from --

Thank you, Jim.

Deena Friedman with Brean Murray.

Can you hear me okay?

Yes.

Just a few questions for you, Morris. You talked about possibly increasing the number of doors the Calvin Klein suits are sold in. Can you give me a sense of what you're looking at in that regard?

We've done extremely well with the launch of the Calvin Klein suit area. Initially, Federated had distributed the product to 12 doors. The plan for April went to 40 doors, and for June/July, we're at 70 doors. And beyond that, our distribution is growing literally every day. We're very, very happy with this launch.

And then in terms of the Calvin Klein dresses, is it going to be a similar cadence in terms of the launch, in terms of the number of doors selling the product?

We believe it will be at least as large. Today is the first day that we're showing the collection and traffic in our showroom for the last two hours has been absolutely incredible. There's a great deal of excitement in the Calvin Klein showroom consistently. But today being a different day, dresses have been added and we believe that this will be probably more successful than even the suit business.

Excellent. Keep up the good work. Thank you.

Thank you for your support, Deena.

[OPERATOR INSTRUCTIONS] Our next question comes from Nelson Obus with Wynnefield.

Hi, Morris. Perhaps you could give us an update on the progress of the follow-on/secondary offering and any comments about what might be the ramification if market conditions don't allow you to get this off at an appropriate price?

Nothing at this moment, we're not really prepared to comment on that.

Okay. You don't want to leave it out there, too long, obviously. So whatever you need to do. Okay, thanks.

Thank you for your question, Nelson.

And we have no further questions.

I thank you all very much and have a good day.

This does conclude today's teleconference. We thank you for your participation and have a wonderful day.