G-III Apparel Group Ltd (GIII) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the G-III Apparel Group Limited fourth quarter fiscal 2008 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. Instructions will be provided at that time for you to queue up for questions. I would like the to turn the conference over to Mr. Neal Nackman, Chief Financial Officer of G-III Apparel Group. Please go ahead, sir.

Thank you. Good afternoon, everybody. Before we get started, I just wanted 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 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 competitive products and pricing, dependence upon existing management, possible business disruption from acquisitions and 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. I will now turn the call over to our Chief Executive Officer, Morris Goldfarb.

Good afternoon, and thank you for joining us to discuss our fourth quarter and full year results. With me today are Wayne Miller, our Chief Operating Officer; and Neal Nackman, our Chief Financial Officer. We had a solid fourth quarter and finished 2007 really on a strong note. As announced in February, we completed the acquisition of Andrew Marc, a transaction that provides us with a variety of strategic and operational benefits.

While there is no question that the retail environment has been somewhat challenging and is expected to remain that way, we are pleased with our accomplishment in the fourth quarter and for all of fiscal 2008. Here are the highlights for the fourth quarter.

Sales increased approximately 30% to $129 million in the quarter. This growth was driven by a variety of programs, with some of the standout performances from our Calvin Klein, Kenneth Cole and Guess? businesses. Earnings per share came in above our internal plan at $0.06 for the quarter.

We had some significant non-recurring items that lowered our reported earnings by approximately $0.09 during the fourth quarter and for the entire fiscal year as well. Neal will detail these for you in a few moments.

Inventory at the end of the year was in good shape and we're comfortable that we were properly positioned as we headed into 2008. For the full year, our highlights include: Sales grew by approximately 22% to $519 million. This was the result of strong performances, particularly with our Calvin Klein businesses. We also had a great year with Kenneth Cole, Guess? and Cole Haan.

Net income per diluted share for the year was $1.05, up from $0.94 last year. Adjusted for non-recurring items in both years, net income per diluted share for fiscal 2008 was $1.14, up from the fiscal 2000 level of $0.87. Diversification has been one of G-III's strategies over the past few years. We've been successful in attracting new licenses, adding additional categories to existing licenses and layering on some important businesses through acquisition.

Our strategy is to leverage our market presence as one of the world's leading manufacturers of fashion outerwear in order to develop other less seasonal categories of business. We're very pleased with our entry into the dress category. Our dress business, driven by Calvin Klein and reinforced by the Jessica Howard business acquired last May, was up significantly from last year.

We have also continued to make inroads in the sportswear and women's suit categories, which remain long-term opportunities for us. Calvin Klein Performance just began shipping for a soft spring launch and we're looking forward to an expansion of this program in fall. We're seeing strong growth in our women's sportswear offerings in the sports licensing business, led by Alyssa Milano.

We're continuing to push for new licenses and new private label programs in the dress and suit categories, and we expect them to continue to grow. We've been building a very capable infrastructure for those businesses, and together they've begun to contribute meaningful financial results. We believe that Andrew Marc, which we acquired in February, will be a compelling story for us.

The Andrew Marc brand, which has distribution centered on great retailers such as Saks, Neiman Marcus, Bloomingdale's and Nordstrom, is known for fine outerwear, and to a lesser extent, handbags. Marc New York, the Company's diffusion label, has a great presence in Nordstrom, Bloomingdale's and Macy's. As a result of this acquisition, we added licenses with Dockers and Levi's for men's and women's outerwear, which is predominantly a mid-tier business, sold primarily to JC Penney and Kohl's.

The Andrew Marc business recorded about $80 million of net sales in 2007. These categories are, of course, part of our core competency. We expect there will be an immediate operational benefit to integrating this business. The fit should be seamless and we expect that we'll be able to improve the profitability of the Andrew Marc business.

At the same time, Andrew Marc brings us something that we've wanted for a very long time. G-III now owns a highly regarded luxury brand, focused on high end retail distribution. We believe we're capable of significant expansion to additional product categories. In addition to great selling and marketing, the Andrew Marc organization has a superior focus on customer service.

While we do significant business with some of the same retailers serviced by Andrew Marc, and we have good history and relationships with them, this acquisition is expected to enhance our relationships with these retailers. We're looking for best-of-class partners for a variety of lifestyle categories. We intend to take very purposeful steps to manage the planned brand expansion.

After functioning as a licensee for so long, not only do we know that we want -- what we want to see in our potential partners, but we're looking forward to receiving rather than paying royalties. This acquisition will provide significant financial benefits to us. As the seasonality of the Andrew Marc business mirrors our seasonality, we expect to see increased losses in the first half of the fiscal year. However, we expect that this acquisition will be accretive for the full 2009 fiscal year.

Before I turn the call over to Neal, I just want to say what has enabled us to stand out and deliver in this tough environment is the flexibility that we've built in our operations. We are diversified.

We have a very strong balance sheet, a responsive supply chain and strong systems. These strengths have allowed us over the past several years to manage some tricky market environments with regard to aberrant seasonal weather, economic downturns and the fast changing retail environment.

Thank you for your attention and ongoing support. I'll now turn the call over to Neal Nackman, our Chief Financial Officer, who will review the numbers.

Thank you, Morris. For the full year, we reported net sales of $518 million, an increase of 21.5% compared to last year's $427 million. Net sales of licensed products increased 36% to $269 million, due primarily to outerwear increases in our Calvin Klein, Kenneth Cole and Guess? brands, and non-outerwear increases in the Calvin Klein brand.

Sales of Calvin Klein suits and dresses more than doubled in the current fiscal year. In our previous fiscal year, Calvin Klein dresses started shipping in the third quarter and it was the first year of our Calvin Klein suits distribution. Non-licensed sales decreased slightly as customers moved to branded programs and we did not repeat certain private label programs. The current year includes the Jessica Howard acquisition results from the date of acquisition, May 24, 2007, around forward.

The Andrew Marc acquisition was completed in February 2008, after our year-end, and will be included in our fiscal 2009 results of operations. Net income for the year increased to $17.5 million from $13.2 million last year, and net income per diluted share increased to $1.05 from $0.94 in the prior year. There are several non-recurring items that impacted both last year's and this year's financial performance.

The current year's fourth quarter and full fiscal 2008 results were affected by three different non-recurring items. First, we incurred a $3 million pre-tax charge in cost of sales equal to $0.11 per diluted share that reflects losses with respect to financing that the Company guaranteed related to purchase commitments by one of our long-standing vendors. Our vendor had financial difficulties which caused us to make payment on the guarantee. This vendor is no longer in business and no other guarantees are currently outstanding.

Secondly, as previously disclosed, we incurred a $720,000 pre-tax charge in cost of sales equal to $0.03 per diluted share related to the termination of the Sean John Junior sportswear license. Lastly, we realized a pre-tax gain of $860,000 included in selling, general and administrative costs equal to $0.05 per diluted share, related to the reversal of expense reserves no longer deemed necessary that were recorded in connection with the close down of our Indonesian production facility.

The prior year's results included the reversal of tax reserves in the third quarter of approximately $950,000 equal to $0.07 per diluted share. Excluding all of these non-recurring items, the Company had adjusted net income per diluted share in fiscal 2008 of $1.14, compared to adjusted net income per diluted share of $0.87 for fiscal 2007. A reconciliation of adjusted net income per diluted share to net income per diluted share in accordance with GAAP is included in the table accompanying the condensed financial statements in our earnings press release.

Our gross profit margin percentage for the full year decreased slightly to 26.9% compared to 27.1% in the prior year. Excluding our non-recurring charges, our gross margin percentage would have been slightly higher than the prior year's percentage.

SG&A expenses exclusive of depreciation increased $18.4 million to $101.7 million, due significantly to the additional expenses associated with the acquired business. Interest expense in the current year decreased by $3.2 million, from $6.4 million last year, primarily as a result of the cash proceeds received from the follow-on stock offering completed in March and April 2007, in which the Company raised knelt net proceeds of approximately $36 million.

Our fourth quarter net sales increased 30% to $128.7 million in the fourth quarter, compared to last year's $98.8 million. The sales increase was from both segments of our business and from higher sales of both outerwear and non-outerwear products. Net income for the quarter improved to $1.1 million, or $0.06 per diluted share, from net income of $518,000 or $0.03 per diluted share in the previous year.

Again, excluding the non-recurring items mentioned before, we had adjusted net income per diluted share of $0.15 for the three months ended January 31, 2008, compared to adjusted net income per diluted share of $0.03 during the comparable period in fiscal 2007. Our gross margin percentage for the fourth quarter decreased to 23.3%, compared to 26% last year. The decrease is primarily attributable to the non-recurring charges. Without those charges, we would have had a gross margin percentage similar to the prior year.

SG&A expenses exclusive of depreciation increased $4.9 million to $26.6 million. As in the full year, this increase is significantly impacted by the acquisition of the Jessica Howard business.

Now turning to guidance. The Company is forecasting net sales of approximately $60 million for its first fiscal quarter ending April 30, 2008, compared to $35.1 million in last year's first fiscal quarter. The Company is also forecasting a net loss of $7.7 million, to $8.5 million or between $0.47 and $0.51 per share, compared to a net loss of $6.4 million, or $0.42 per share in last year's first fiscal quarter.

The first quarter historical results and seasonal losses and the increase in the forecasted first quarter loss is attributable to our acquisition of Andrew Marc which experiences seasonality similar to our outerwear business. We expect that the Andrew Marc acquisition will be accretive for the full fiscal year ending January 31, 2009. Now I will turn the call back over to Morris.

We are very pleased to put a strong finish on the year. In addition to continuing to produce solid rates of organic growth, we're very excited to have continued our acquisition strategy with the purchase of Andrew Marc. As we move forward into next year, we remain confident that our business will perform well even in these challenging times. I'd like to thank our shareholders for their support, and, Operator, we're now ready to take questions.

Thank you. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We'll pause for just a moment to give everyone an opportunity to signal for questions. We will go first with Jim Duffy with Thomas Weisel.

Thank you. Hello, everyone. Question for you. What do you consider to be the organic growth rate as you look back to the past year and for the quarter and just help me understand how you get to that calculation?

You know, Jim, the -- I think the acquisition -- our historical acquisitions of Marvin Richards and Winlit, those are fully integrated, we certainly include those in the core growth. I guess the only thing that we would really exclude would be the [stolo] acquisition which was about $40 million of our volume this year. So without the Stolo, we're probably looking at about a 12% core growth for this past year.

Okay. And then as you speak to the -- your channel partners, what are you hearing from them as they think about open-to-buy planning?

They've been clear on conference calls with Wall Street that they're planning things more conservatively. How are they communicating that to you? Are they asking you to take more inventory risk? Any color or commentary there would be helpful? Thanks.

Hi, Jim, this is Morris. Well, clearly, we get the same information that you're reading and this will be a difficult environment. But if our order book is any indication of what the future is going to bring, our order book is up significantly. That includes both the organic and the new start-ups and acquisitions.

What I believe retailers are doing, they're concentrating on their core vendors and eliminating some of the secondary and third-tier vendors, so we're the beneficiary of all of that. Our performance last year was very good and in most cases, all the ones that are significant in my mind, our order book has increased rather than what we're reading out there today.

Remind at what stage you're at for the order book for outerwear?

Excuse me?

The order book for outerwear, what stage are you?

I would say we're well ahead of last year, if that's what you're asking. But we have in excess of 50% of the year booked, 50% of the planned year booked, and that, having just two months under our belt with a difficult environment, we applaud our associates for having accomplished that.

Very good. As you look towards the acquired businesses, the run rates that you've seen in the past year, do you think those could be achievable as you get into FY '09, or is there some exposure there that some of the revenue you've acquired may not repeat itself?

We believe that the run rate should continue. All our indicators, everything that we've experienced lead us to believe we're just fine. We've made the appropriate decisions and, we stand by them. If I had it to do all over again, it would be great. I would do the same thing, same processes all over again.

And then one more question for Neal. I'll let someone else jump in. Neal, expenses, which will be eliminated with the departure of the Sean John women's sportswear business, what type of numbers are we talking without there?

We have not quantified that and their business, again, was pretty well integrated with the rest of ours. There will certainly be some expense savings, Jim. If you look at our Company, we're always doing investment spending and I guess the way we look at it is that piece was our investment spend for last year.

Throughout every year in the past we have something that we've got investment spending. We sort of see that as our spend for last year.

Okay. Very good, thanks.

Thank you, Jim.

Next we'll go to Eric Beder with Brean Murray.

Good afternoon. Congratulations.

Thank you, Eric.

Could you talk a little bit about the Calvin Klein Active Wear line? I know you guys do this soft roll-out for spring. How deep are you looking at roll-out for fall? Who's going to be taking this line for fall?

Pretty much every department store has written the collection in limited doors. We're performing well at Lord & Taylor, at Dillard's. We're yet to ship Macy's. We have a host of specialty store orders. We're concentrating on the sports specialty shops, some of the performance wear stores and we're pleased with the distribution and the response.

And clearly, this was the first initiative that we've had with this product and certainly I'd be the first one to tell you that we've made some mistakes in maybe some fabric selection and maybe some design selection, but we've corrected it quickly. We had the opportunity to distribute to our retail partners that worked closely with us and we believe this to be a huge business going forward.

We're very aggressive on marketing the product. We've just decided on a marketing campaign and we see this as a big future for G-III or big opportunity for the future for G-III.

Do you plan on -- do you think you guys will ship to Macy's for fall?

We certainly will. We will ship to Macy's by summer.

Okay. I guess we can expect, just conceptually, this -- the Andrew Marc deal will basically make -- will heighten the seasonality this year, virtually every quarter, because of when you bought it, in terms of our monitoring, that's how we should be looking at this?

Yes, the highs are going to be higher, the lows are going to be lower.

Deeper roller coaster, huh?

Well, the good piece of the business is our dress business is doing extremely well, so we have worked toward rounding out the seasonality and we've been successful in most of our endeavors. The miss that we responded to is the Sean John piece, which I'd say we reacted appropriately.

We shut it down with barely a year and-a-half under our belts, saw that it wasn't -- it was not right for us, time for that sector of business wasn't appropriate, but had that worked, the rounding of seasonality would have gone even further. So we're pleased with where the Company's going. I think the immediate hiccup that we look at for the -- it's not even a hiccup, but it's a way of life.

The first quarter is the quarter that we did not have a chance to even appropriately correct the seasonality of Andrew Marc to the extent that we're capable of. We've let go of quite a few people at Andrew Marc. We've consolidated offices. We've done a bit of that that's going to play very nicely going forward.

But the first quarter of ownership of the brand, we suffer for it. And that's planned. It's not a surprise. There's clearly an opportunity with that brand, as I've said earlier, to become a licensor rather than a licensee and it would be a wonderful thing to begin to collect royalties.

Do you think that the Andrew Marc brand, as you integrate it into your network, will give you the opportunity for higher margins than, or margins, I guess, maybe equal or better than you're getting now because you don't have to -- obviously, you're not licensing this any more, and you're more efficient in your manufacturing network?

Yes, both of those are examples of where we're going to enhance our margins, the fact that we use approximately 10% as the gauge of what we pay for licensing. So that's not in this model. And the fact that this is a business that integrates very, very well into our core competency.

You might remember, we used to be only a leather Company and Andrew Marc is known for leather at a much smaller scale, but we immediately identified opportunities in purchasing, in quality control, all of it, even distribution. Our distribution costs are significantly less than what Andrew Marc was. So this will be a high margin business for us.

Okay. Two other quick questions. What's going on with Ellen Tracy and what are you seeing in terms of inflation pressures on materials and China?

Ellen Tracy, that's really a good question. I've seen some articles in the press that indicates that the Windsong, I believe, is acquiring it. I'm not sure that the deal is done yet. I can't get any clarity on that, quite honestly. And as far as how it relates to our business, it's a wait and see.

We're positioned where Liz Claiborne had mandated we needed the product positioned in. We're doing okay with it. It's fine. It's not a show stopper either way.

If it goes away, if it's forced into another tier of distribution we're fine. If it stays where it is, we're fine. There's not a lot of expense attached to running that brand within our business. So we're curious, but we're not concerned. And the other half of your question, I'm sorry.

Was in terms of what inflationary pressures are you seeing for leather and in China?

All our costs in China seem to be edging up. There is -- it's cost, it's environmental issues, it's political issues, all of it seem to be sensitive in China. But this is something that if we had this discussion a year ago, we would have given you pretty much the same headlines and our strategy, which we incorporated a year ago, was to bring in our product as early as possible, as soon as we could identify the trends, the orders for the future, bring the product in and get out of the way before the Olympics add additional burden to our business.

So our inventory levels will be a little bit higher for the back end of the second quarter. And they're all -- the inventory is as solid as can be. It's sold, but in fact it will sit in our warehouses for possibly 30 to 45 days longer than normal and it's a risk that is well worth it.

We're sufficiently capitalized to handle it. We're very close to finishing our loan agreement, release that any day now and we basically have what we need to run our business. More than we need to run our business in partly defense and partly offense mode as it relates to China.

Great. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) Next we'll go with Jody Kane with Sidoti & Company.

Hi, thanks. Can you talk a little bit about exactly what type of products are in the Calvin Klein Active Wear segment that you're introducing?

The product is a concentration of product that is yoga wear, it's performance tennis wear, biking, any form of athletic wear that you can find. It will be functional outerwear and it will be pretty much the product that a woman might put on in the morning, go to a yoga class and shop all day long with it and get ready in the afternoon for her dinner or wherever she's going.

So it's -- the fabrics are all technological -- technologically advanced. We're working in the finest factories in Asia, and our design team comes out of this sector. So it's product that your wives would very well identify with.

And that's being sold into your existing doors and in opening up doors in the sports equipment sector, I guess?

The existing doors would be the department stores, yes. The department stores love having the Calvin Klein brand in different departments. So the reception that we got was very aggressive and the specialty stores are buying it as well. So we're very comfortable with the growth of this business.

And the specialty stores, that's all new business or new channels for you?

Yes, it's a new channel. It's sports specialty stores. It's, the gyms might be buying it. The ski shops and bike shops and tennis wear shops all buy it. So we've identified a new constituency that will support the brand.

All right, great. Can you walk us through your assumptions for first quarter guidance because I'm looking at sales up sort of 71% year-over-year but then a larger loss? I would have thought you got a little more expense leverage, even though there's more expenses. The fact that your sales have gone up, you would think you would at least get some more expense leverage.

I'll just give you a couple of pieces of guidance on that, Jody. In terms of gross margin, what's really impacting and driving that in Q1 is the additional dress business. Our gross margin will see some lift.

But on the expense side, keep in mind we did not have the Stolo business at all -- I'm sorry, the Jessica Howard Industrial Cotton business, we did not have it at all in the first quarter, so those are all incremental expenses associated with a lot of that sales, and then in addition to that, the Andrew Marc acquisition is the other big driver of the expenses. So that's why you're not seeing that expense leverage.

All right. And are there any sort of one-times, or integration or purchase accounting costs or anything associated that will be leveraged out over the next couple quarters, even into next quarter, Q1, next year Q1.

No, essentially not. We (inaudible) purchase, we have to get valuations done and do our accounting associated with that so there's always an amortization issue as far as what will be amortized and which assets we'll start to identify. But there's no -- other than the amortization, there will be no other special types of purchase charges.

As Morris said earlier, we just completed this acquisition in the beginning of February and we're working very hard at scaling down and right-sizing their business, integrating where we can integrate. Although we weren't able to impact Q1 from an expense standpoint with Andrew Marc, we will impact Q2 and forward.

All right, great, and you guys are not providing full year guidance, right? Or any more.

We're not. Historically, we haven't. But clearly, we believe we're in the middle of a very good year.

Our order book is strong. All the indicators lead us to believe that when we're ready and we can get our arms wrapped around Andrew Marc and several of the other pieces, we believe that you won't be disappointed.

All right. Great. Thanks.

Next we'll go to Lee Backus with Buckingham Capital.

Congratulations, Morris, on a great quarter.

Thank you, Lee. But I have two guys here that want to take credit for it, as well.

We accept on behalf of our (inaudible).

Good. On Q1, when you look at Q1, if you just X out the extra charges for Andrew Marc and the other start-up businesses, just look at your ongoing businesses, what would the Q1 quarter look like?

Well, we would have shown improvement to the losses that we had previously, which is really what happened last first quarter, as well. So our shift to non-seasonal, the off-seasonal businesses was starting to happen and the Andrew Marc is really the only difference. We would continue to see that kind of improvement.

So the other businesses will be improving in Q1, even in this environment?

Yes, Lee, they would. I don't know if you were on the call, I think our last conference call. I think it was maybe Eric Beder who asked a question and I think I responded with not far from now we'll be profitable in the first quarter. And that was pre-acquisition, pre some of this stuff and I really kind of stand firm.

We're feeling good about the future of our business. So you will see an improvement as time goes on and the reason that we -- we're not having a better first quarter is all good. It's growth. It's timing. But if you annualize it, I think we do all the right things.

When do you think you will be in a position to give full year guidance?

Certainly, by next quarter. By second quarter, certainly you'll have it.

Okay. Thank you.

Thank you, Lee.

Next we'll take a call -- question from John Curti with Principal.

Good afternoon. I had some questions on the Andrew Marc business. How much of your year-end cash did you use to fund the acquisition and how much debt did you incur?

We used a significant portion of our cash on hand at the time. Just so that you have a sense of what our cash position was, last year we raised about $51 million in both private equity offering, as well as a public offering. From a cash standpoint we've really essentially been raising the money that we used to do both the Jessica Howard acquisition as well as the Andrew Marc acquisition.

We virtually have no long-term debt on our books. This is even post acquisition.

Okay. Of the approximately $80 million in revenues that the business generated last year under the old ownership, was some of that licensing revenue and if so, how much?

Virtually nothing was licensing revenue. Part of it was licensed revenue, because they in fact do license Dockers and Levi's, so a portion of the top line really came out of licensed revenue.

All [righty]. And are there any parts of their business that you're scaling out of that would end up reducing that $80 million revenue number?

Well, simply timing and evaluating what we have, adds some sensitivity and change of management sometimes interrupts the top line when the retailer is not certain where the brand is going. Our plan is to reduce the top line of clearly the Andrew Marc, Marc New York business by some 10% to 15%, just on that piece of it, not the Dockers, Levi's piece, that as it happens will grow.

So the net-net is that it will be down less than 10% in top line in that division. But much more profitable.

And then what was your CapEx for the year that just ended, and what do you anticipate for the upcoming year?

The CapEx last year was about $1.5 million and I would tell you that, again, if you look at the history we've run between $1.5 million and $2.5 million, so I would say that that's what you could probably anticipate from us for the next year.

Thank you very much, gentlemen.

Thank you.

We'll go next to Todd Slater with Lazard Capital Markets.

Hi, good afternoon. It's actually Jennifer for Todd. First, congratulations on a good quarter. And second, I saw the Calvin Klein Performance Wear at my yoga studio and it looks great.

Thank you.

Congratulations. Can you give us an update on Exsto?

Exsto is, actually, it's moving along. We reduced our head count. We integrated the division into our sports licensed area. Now it's being run by a young man, Eric Shapiro, that's been with us for about 10 years, understands the culture of our Company. And understands Wal-Mart. Wal-Mart is one of his largest accounts in sports.

So he's in Bentonville very regularly. We seem to have gotten our arms wrapped around what the business is. It will be profitable this year. It's not of the scale that we hope it will be a couple of years from now.

But the good news is, we've stabilized it and we're growing it. Our boy's business should grow in door count. We're currently in 250 doors. We believe that for fall, we should be in closer to 400 doors. So we're pleased with where the brand is going. Not with where it is.

Okay. Great. And then how many doors are suits in right now?

About 350 to 400, approximately.

Okay, so most stores?

Excuse me?

Okay. Sorry. Thanks. And then what percent of sales was outerwear this year?

About 80% this year.

Okay, and then do you expect that, with the acquisition of Andrew Marc, do you expect that to increase a little bit?

Yes, I think that that's right.

Actually, our business should probably remain to the same proportion, because our dress business is growing rapidly. We have anticipated growth in sports licensed junior business and our suit business should grow.

So it should be pretty much the same and there's still the possibility of taking some of the components or the extensions that Andrew Marc affords us and doing coats, suits, active wear, all the categories that we're doing well, they can fall under that Andrew Marc umbrella as well.

Right. Okay. And then what kind of -- you had mentioned that you would like to get into, or you you look forward to becoming a licensor rather than a licensee. So what kind of -- what were you thinking? Like bags and -- ?

We do bags currently. It's not a very big business and if the appropriate opportunity came up, we'd consider licensing that category. There is small leather goods that's perfect for the brand. We've had discussions with people in eye wear. We've had discussions -- people have come to us and asked us about sportswear. So we're working at choosing, I guess, to the extent that we can, best-in-class to take on the responsibility of doing product that is outside of our core competency.

Okay. Great. Thanks a lot.

Thank you, Jennifer.

We'll go with Dan [Schwartzvaller] with Buckingham Capital.

Hey, Morris, congratulations to you and everyone, the whole team there.

Thank you.

All right. This is one of the long calls you're having. Anyway, you made a comment that people won't be disappointed, the order book is great with the year. I just want to make sure I understood that properly.

Right now the consensus estimate for the year is $1.27. Is that what you meant, people should be pleased with the way things are going, fully understanding that that is the number that's in there for the year?

My comment is, I guess, you can take it, assuming that I do have a knowledge of what the consensus is --

Thank you.

Be clear on our order book. I can be clear on our anticipated growth. And I need to be a little bit general in nature.

As you know, we run a conservative business. We're not known to disappoint, but we are cautious as to the timing of our releases and I could speak a little bit clearer in the second quarter if you give me that grace.

No, no. You have the grace. I just wanted to make sure that you were aware where the analysts were right now when you made that. Which is fine. Terrific. I guess this is the year of the coat, the dress, the leather and everything seems to be going your way in fashion.

It's not by accident. You, Dan, and many of the people on this call have had the experience of walking through this facility and individually meeting with the leaders that run this business, and it's their choices, their hard work, their competencies that bring us to where we are. It's clearly strategic. It's not an accident.

Well, our congratulations to all you guys.

Thank you.

Thank you, Dan.

We'll take a follow-up from Jody Kane with Sidoti & Company. Okay. His line's been disconnected. We'll go with Jim Duffy with Thomas Weisel.

Thanks. Quick question as we look to the margin structure going forward, it seems we're seeing an increase in the percentage of higher gross margin businesses, which should have a beneficial impact on your overall gross margin. Is that a correct assumption?

Yes, I think that's right, Jim.

And then perhaps you give some of it back on SG&A investments to -- for future growth initiatives?

Right. I think in the short term, that's what we're looking for.

And looking at the businesses as they stand, assuming no future acquisitions, when would you expect an inflection point on being free cash flow positive for the business?

Well, we look at our free cash flow as positive now. We're getting ready to, again, $8.5 million in net income, we had about $5 million of depreciation in that number, so we generate about $20 million.

We do have earn-outs with one of the acquisitions that only goes for another year. But, and then, of course, we're not a highly capital intensive business. We feel the business is growing with a decent amount of cash right now.

Even if you account for adjustments in working capital?

I think we're (inaudible) the business, as well as growing acquisitions, I think we do -- we look at our bank lines and we do use our bank lines for seasonal needs and we use a mixture of both bank and outside financing to fund acquisitions in addition to working capital.

All right. Maybe we'll get into it in more detail offline. Thanks very much.

Thank you, Jim.

Okay. It appears there are no further questions at this time. I'd like to turn the conference back over to you, Mr. Goldfarb, for any additional or closing remarks.

Thank you all for participating and have a great afternoon.

This does conclude today's presentation. We thank you for your participation. You may now disconnect.