G-III Apparel Group Ltd (GIII) 2011 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, thank you for standing by, welcome to the G-III Apparel Group limited second quarter 2011 earnings call. Today's call is being recorded. At thistime 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 to turn the conference over to Neal Nackman, Chief Financial Officer. Please go ahead, sir.

Thank you. Before we begin, I would like to remind participants that certain statements made on today's call and the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in forward-looking statements. Important factors that could cause actual results of operations and the financial conditions of the Company to differ are discussed in the documents filed by the Company with the SEC. The Company undertakes no duty to update any forward-looking statements. In addition, during the call we will refer to EBITDA, which is a non-GAAP number, we hae provided a reconciliation to EBITDA to our net income according to GAAP in our press release and on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning and thank you for joining us to discuss our second quarter results. With me today is Sammy Aaron, our Vice Chairman, Wayne Miller our Chief Operating Officer, and Neal Nackman, our Chief Financial Officer. G-III had a very strong second quarter. This positions us well to post good results for the fiscal year and to pass one key milestone this year, $1 billion in annual net sales. Historically, due to seasonality, we have lost money in the second quarter. We were able to leverage our operating infrastructure and realize the benefits of our diversification strategy. While we had originally expected a small loss for the quarter, our revenue performance and our higher gross margins enabled us to report net income per share. In many respects, our numbers speak for themselves.

Here are some of the financial highlights from the second quarter. Net sales grew 39% to $189 million. This was nearly $30 million better than the expectation we had when we spoke to you last quarter. Operating income driven by higher sales and higher gross margins rose $5.6 million, a favorable swing of approximately $9.4 million compared to the operating loss we reported last year. Net income for diluted share during the second quarter was $0.15. This compares to our prior guidance of a loss of $0.01 to $0.05 per share and a net loss per share of $0.17 that we reported in the second quarter last year. I should note that we are pleased with the performance of the business since the close of the quarter. As Neil will detail in a few moments, we are comfortable with increasing our prior annual guidance beyond the effects of the improvements of the second quarter.

Our balance sheet also remains strong with over $170 million in working capital, and bank debt at $77 million, approximately $34 million better than at the end of the second quarter last year. We're succeeding and seeing growth in nearly every category and tier of distribution. Our retail business continue to show improving performance. We are under no illusions about the challenges of the retail market or the pressures on today's consumer and in fact, we believe that our success results from how well we've positioned our products and brands for a challenging environment. We are providing to our retail partners and consumers desired brands that are well designed with great quality at compelling prices. Growth in dresses and women's sportswear has been the key to the reduction of seasonality in our business.

We are now also seeing improvements in women's suits. Our businesses in those areas are anchored by licenses from Calvin Klein and by department stores distributions. We had another strong quarter in the dress business which continues to show and maintain good levels of profitability. The design and sourcing infrastructure we've built for this category is excellent and we're delivering great fashion at exceptional value. We are expecting a strong fall and Holiday dress business -- a stronger fall and Holiday dress business than last year, while dresses remain more of a spring and summer category, we've managed to build an all season dress business.

In addition to Calvin Klein, we are seeing good results in this space from our Company owned Jessica Howard and Eliza J. business, as well as the Andrew Marc brand. Jessica Simpson is improving everyday and we are quite comfortable with the future growth of this brand. We are excited to see some growth in private label in this category for some important customers, we are also excited for the repositioning and the relaunch of the Ellen Tracy business for this Holiday season.

Our Calvin Klein women's sportswear business continues to perform well and our sell throughs remain strong. We're very comfortable with our progress and continue to set our sights on achieving better than $200 million in annual sales for the sportswear business in the next two years. I'm pleased to add that we are now seeing strength in Calvin Klein women's suits business led by suit separates. We believe that we are benefitting from good design and merchandising, as well as from pent up demand from consumers. As we move forward, we are excited to add licenses for handbags and luggage under the Calvin Klein brand. These are large categories and we will launch them for spring 2011. We believe these businesses together can achieve $200 million in annual sales in the next few years. We also believe that ultimately we will be able to leverage some of the infrastructure we are building in these categories to add additional brands.

I'm pleased to note that our core outerwear business is also very healthy. Our outerwear order book for the fall season is up double digits compared to last year. We are the most capable Company in this space and have demonstrated an ability to produce good results in tough market conditions over the course of many years. This year, we expect to drive solid results across all channels of distribution. We have seen positive booking trends in Andrew Marc, Calvin Klein, Guess?, Kenneth Cole and our sports business led by NFL. In addition, we are seeing rapid growth in our Tommy Hilfiger business. We believe that our outerwear businesses are well positioned for fall. We are moving now into our peak shipping season and we are very intent on executing well through the critical months of September and October.

I'm pleased to note that our Wilsons retail outlet business is much improved. We've worked hard to get the merchandising right and to offer strong assortments at key price points. Sales per square foot in the stores have improved and we continue to post double digit comp gains in the second quarter with better gross margins. Wilsons will contribute to the growth in our operating income both this year and next.

Finally, let me take a few moments to update you with respect to developments at Andrew Marc, one of our most important properties. We are doing a very good job expanding our coat and dress business under this label and the related Marc New York label. We have greatly increased our marketing budgets for this year and the past quarter we added eyewear to our roster of Andrew Marc licensees which now totals six. We are excited about Jones Apparel's Marc Moto jeans launch, which should take place in the fourth quarter of this year at approximately 500 doors. In addition, we are working on two additional licenses for Andrew Marc product, which we hope to sign shortly. Andrew Marc royalty income should become a contributor to our profits over the next two to three years. We believe we are well on our way to building Andrew Marc into a true lifestyle brand.

Our business continues to have important organic growth opportunities, including luggage, handbags additional growth in sportswear and dresses and in our core outerwear business, that can produce continued double digit rates of revenue and profit growth. We believe this will come from our existing business and through the pursuit of new licenses in a number of categories. Additionally, as those of you who have followed us for sometime now know, the development of our Company has been assisted by an effective acquisition program. Each of our acquisitions has opened new paths to long-term growth for us. Our balance sheet remains strong, with no long-term debt and we have the willingness and an appetite to continue to deploy our capital to reinforce our growth. I will reserve some additional comments for closing, but will now turn the call over to Neal Nackman, our Chief Financial Officer, to review our results and updated guidance in detail.

Thank you, Morris. We had net income of $3 million for the quarter or $0.15 per diluted share compared to a net loss of $2.8 million or $0.17 per share in the year ago quarter. Our wholesale segment showed much improved aggregate operating profits of approximately $9.2 million in this year's quarter compared to last year's aggregate operating profit of approximately $1.2 million. Net sales for the quarter ended July 31, 2010, increased 39% to $189 million, compared to $136 million in the year ago period. Net sales of wholesale licensed apparel for the quarter were $130 million compared to $91 million in the year ago quarter. We saw increases in wholesale licensed apparel sales this quarter primarily as a result of the increased sales of Calvin Klein products, most notably in the dress and women's sportswear categories and larger shipments of Guess? men's and women's outerwear. Net sales of wholesale nonlicensed apparel increased in the quarter to $40.7 million from $28.8 million in last year's comparable quarter, due to increases in sales in the Jessica Howard and Andrew Marc divisions, as well as increases in private label outerwear sales. Net sales in our retail operations increased to $23.8 million from $21 million in the quarter of the previous year.

Our gross margin percentage increased during the quarter to 32.2%, from 30.0% in the prior year's quarter. Margin percentages increased in the wholesale segment as well as our retail segment. The gross margin percentage in our wholesale licensed apparel segment increased to 30.4% from 26.9%, while the gross margin percentage in our wholesale nonlicensed apparel segment increase to 26.5%, from 25.5%. The gross margin percentage in our retail segment increased to 44.5%, from 42.9%. Gross margin percentages improved primarily as a result of better sell through in the licensed and retail segments and increased sales volume in our higher margin Calvin Klein dress line. SG&A expenses exclusive of depreciation and amortization increased to $53.8 million from $43.2 million in the year ago quarter. This increase is primarily attributable to increased payroll, shipping and advertising costs associated with our increased sales and profitability.

Turning to the first six months, our year-to-date net income was $1.6 million, or $0.08 per diluted share compared to a net loss of $9.6 million or $0.57 per share in the year ago period. For the first six months of fiscal 2011, net sales increased 41% to $343 million, from $243 million last year. Net sales of wholesale licensed apparel increased to $222 million, from $151 million, attributable significantly to increased sales of Calvin Klein dresses, sportswear and suits. Net sales of wholesale nonlicensed apparel increased to $81 million, from $57.6 million, primarily due to increased sales in our Jessica Howard division and to a lesser extent increases in our Andrew Marc and private label division. Net sales of our retail operations increased to $53.8 million in the current year compared to $48.1 million in the prior year.

Our gross margin percentage increased first half of this year to 32% from 29.6% in the prior year. Gross margin percentage increased to 28.6% from 26%, in our wholesale licensed apparel segment, and increased to 27.7% from 23.1% in our wholesale nonlicensed apparel. Gross margin percentage in our retail segment increased to 44.2%, from 40.5% the previous year to date period. Gross margin percentages improved as a result of better sell through in all segments and increased sales volume in our higher margin Calvin Klein dress line.

Our balance sheet continues to be in good shape. Accounts receivable at July 31, were approximately $120 million compared to $91 million, at the end of the comparable period last year. Our bank debt is down to $77 million from $111 million last year. And our working capital has increased by over $83 million compared to last year. We are spending more on capital expenditures driven mostly by projects involving both our warehouse and office facilities. With a year-to-date period, we have spent $11 million, and anticipate that our total capital expenditures for the fiscal year should be around $22 million.

With respect to our guidance for the fiscal year ending January 31, 2011, we are now forecasting net sales to increase approximately 28% to approximately $1.025 billion, compared to the $801 million of net sales in fiscal 2010. Net income to increase between 64% and 70% to between $52 million and $54 million, or between $2.60 and $2.70 per diluted share compared to net income of $31.7 million or $1.83 per diluted share in fiscal 2010. We are forecasting EBITDA to grow between 56% and 61% from last year, to a range between approximately $96.3 million to $99.3 million, compared to $61.6 million in fiscal 2010. That concludes my comments, I will now turn the call back to Morris for closing remarks.

Thank you, Neal. We are pleased to be in a position to have outperformed our plan and to be continuing on a path of growth of very, very strong growth. I think it's incredibly telling that we have more opportunity now at $1 billion in annual sales to grow our Company than we've ever had. Our transformation into an all season dual gender multi-category apparel company has been further cemented. We have an incredible operating platform that touches many pieces of the market. Over the next several years, we will be working to maximize the value of the work that has already been done to ensure our growth continues. I believe we are clearly emerging as one of the winners in an environment that has put every company in our industry through a meaningful test of strength and capabilities. This has certainly reinforced our competitive position and enabled us to demonstrate a true leadership position in an industry that makes us partners of choice for a wide range of stakeholders in our business. Thank you for your support and attention and operator I believe we are now prepared to answer some questions.

(Operator Instructions). We will take our fist question from Jeff Klinefelter with Piper Jaffray.

Yes, thank you. Congratulations, everyone. Great performance particularly in this environment. Couple of questions for you. First of all, Morris on the outerwear category, it's obviously meaningful here in the second half, recollection is that last year was a very strong performance and turned out to be a very strong early season for outerwear. Could you talk a little bit about what you learned going through the season last year in terms of the pattern, how you are positioning this year, contingency plans, et cetera, given it's a very weather sensitive or can be a very weather sensitive category and how you see it flowing through Q3, Q4? And then I have a follow up for you in sportswear.

Thanks, Jeff. Our plan for the coat business is an increase over last year. It's a mid single digit increase plan, we are beating that plan. Our business if you looked at our order book is quite good. Our early shipping indicates that we have been fashioned right and priced right, our reorders have started to come in, the early indicators are very good. We have the inventory necessary to fulfill better than our plan. We learned last year that the season went on longer than anticipated. Retail stores kept fall inventory on the floor well into March and early April, that enabled us to get the exposure that we need to maximize our sales and profitability and all the indicators are that we will retain that space and the aggressive attitude that the retailers had I would say for the last four or five years in maximizing their coat volume and business. So the indicators are very good for coats.

Okay. Do you feel that the coat business or from your perspective in talking to your retailers is the coat business, outerwear business planned up in general or are you taking share or what combination do you see?

This is -- basically it's a mixed bag depending on the retailer. Some of the provide label businesses seem to have been planned down and in the private label sector last year we've cited that as a miss in our business if we had a miss we would have told you it was a private label piece of our business. This year I'd tell you we've picked up market share in the private label business and that's on a growth pattern. So I guess the overall response in private label is their business is planned down, our business in that sector is planned up. Department store business seems like it's planned up, we are planned up better than the department, in the department stores both in men's and lady's though I would say we are doing our job in growing our business organically, this is without really the addition of any new brands or businesses, this is the comp brands to last year's -- to last year's brand.

Okay. That's helpful. Just a couple of other quick ones, sportswear, I know a number of new doors were added this year carrying that, can you remind us again on that door add and then also any anticipated door adds, potential blocks of door adds heading to next year and then just sourcing, lots of concerns there not only about cost but more about availability, the logistics of the sourcing supply chain at this point just to comment on that.

Door count is increasing. Even better thanthat is door penetration is increasing. We have done an amazing job in convincing the retailer and the consumer that we are fashioned right, we are priced right and we are delivering appropriately to secure that customer on a regular basis. Our deliveries are very frequent, our real estate is very central on the floor and we are getting the support of the retailers to garner more space. It appears we will have expanded door count as well which for spring will reach between 300 and 500 -- 500 more doors Macy's is increasing us to an additional 100 doors, if any of you are in New York we opened a shop in Lord and Taylor that's quite impressive. It's as big as any in store shop you will see, it's approximately 7,000 square feet, on the fourth floor, fixtured incredibly well and it opened last week, last Wednesday and all the indicators are that it's doing extremely well.

In response to your question, Jeff, was on our logistics, and our ability to supply the retailer, it's challenging but that's what we are here for, we do that extremely well. I think in every call, every meeting I cite our success, a big part of our success in our ability to source, our ability to comply with the retailers needs and desires and it is quite complex every retailer has a different manual of how to ship, what to ship and when to ship and we are doing a pretty good job of it. We have a little room to improve, we just moved into a major facility and as always there are some challenges in a new facility, a new warehouse that is housing Calvin Klein is approximately a million square feet and it opened in July. We are functioning I would say at about a 75% quotient of perfection, so we have some improvements due but we are fine.

On the supply side, we are one of the larger producers in China today. The factories that we work in we are generally the largest client or the largest customer to that factory. So attention to always given to our needs. There is always an effort to supply us with excess inventory when we need it. So we turn very rapidly, our initial orders are given early, our planning has been -- it's been done early. Our timeline accommodates difficult markets. We have the financial ability to program our buys as we need. We don't depend on cash flow from our customers to enable us to buy inventory and that is a major advantage. So I would say we are operating on all cylinders.

Thank you very much. Good luck.

Thank you, Jeff.

Thank you, we will take our, next question from Jim Duffy with Stifel Nicolaus.

Thank you. Good morning, everyone. Morris, my compliments to you and the team on a great progress with the business. Question I guess for Neal, the gross margin improvement very impressive, structurally what do you see as achievable objective range for gross margins given the categories where you play and the mix?

Jim, I think that we've mentioned before that gross margin we are going to continue to experience some pressure. I see as you go out to balance of the year I don't see us being able to continue to show the kinds of improvement we've shown in the first half. I think that for the full year we'll certainly have some great operating leverage, but on the gross margin side, the retail business was still expecting decent improvements but on the wholesale side, I see us being flat as you carry the year out.

Okay, great. And then, Morris, as you see strength in some of the higher margin businesses are there any businesses that you guys feel like it's appropriate to strategically de-emphasize?

No, actually not. Every one of our businesses is well thought out. I would say we don't -- we don't put a needle to a fabric unless it is profitable. We -- the one area that some of the people that are on this call remember we were a major leather producer. We depended on leather for basically all our income. Today leather is a very small part of that business and I look for, contrary to your question, I look for signs of improvement in leather so we can jump on that. Every other classification that we are in, we actually belong there, we chose it carefully, we plan it carefully and I think the margins speak for themselves, the margins are improving in a difficult environment where freight is up, where cost of material is up. So the short answer is or maybe it's a long answer, we are in all the right business.

Great. Then maybe just a refresher, on the factors that could influence the split between third quarter and fourth quarter, in terms of shipment timing and the influence on the model?

Jim, we have -- clearly the third quarter is our largest quarter, we do a tremendous amount of shipping so we generally need the consumer to show up so that we can continue to fill inventory in the pipeline. Our distribution sources are going full tilt during Q3. We always get a little bit sensitive in terms of the ship to sail between Q3 and Q4 just because we are doing the largest volume in each one of those particular months. So I think the consumer request and the pull really from retail will certainly be part of the most significant factor. We still have more orders to book as far as rounding out the year and completing the projections that we've given you, but we feel very comfortable in terms of our internal projections and having inventory position, to be able to achieve those.

Okay. Great. Good luck and thanks.

Thank you, we'll take our next question from Paula Torch with Needham and Company.

Yes, good morning and congratulations on a very impressive quarter. I was wondering if you could talk a little bite more about the Andrew Marc dress business. Give us a little bit more detail. What's the feedback that you're getting from retailers? How have customers responded to the design fit and price points, is there any tweaking that could occur in either direction in terms of pricing and how many doors do you now expect to be in for next spring?

Our launch of Andrew Marc and Marc New York occurred about 9 months ago. Our door count is approximately 150 doors. The performance has been very very good at places like Bloomingdales, Lord and Taylor, a little bit of Neiman Marcus on the Andrew Marc brand. We believe that we are going to go for spring of 2011 that door count should increase to north of 300 doors. And as far as tweaking, we do tweaking every single day our first delivery, quite honestly the fit was not what we had intended it to be. We made mistakes on fit. We retooled, we had -- we hired new models and we think we -- not we think, the fit is much better today the sell throughs indicate that and the price points are appropriate. The price points are exactly where we need them to be. The brand is not intended to be a Calvin Klein brand. It's a notch above the retail for a Marc New York and several notches beyond in Andrew Marc. So its positioned as we do with all our brands in to a matrix that is appropriate for the brand.

Great, good luck for the second half of the year.

Thank you, Paula.

Thank you. We will take our next questions from Edward Yruma with KeyBanc.

Hi, thanks very much and congratulations on a really great quarter. I know you guys had indicated that you will continue to look at acquisitions, but I know historically you've completed most your acquisitions in the summer. Can you give us a little bit more color and context in terms of the size and scope of a potential target and timing? Thank you.

The timing of the acquisitions are not really by calendar. They are by availability and maybe a little bit by luck. Coincidentally and maybe favorably, when we bought the outerwear companies and when we bought Wilsons, they did occur at the appropriate time for business. But they weren't strategic. I hate to admit it they were not strategic. We are out there aggressively looking at acquisitions. They are not hard to come -- they are not easy to come by, we will find, we will find appropriate brands and not based aain, on calendar, we are looking for acquisitions in handbags and luggage. We're looking at additional acquisitions that might further enhance our sportswear businesses, we are looking at acquisitions in our sports licensed area. So we are likely to find something appropriate as we spoke earlier our balance sheet can easily support some nice size acquisitions. I don't think we have very much of a limitation and we have a bank group that's very supportive of our businesses and they're eager to lend.

Great. You guys had very solid results in the dress business this quarter how do you think about the longer term growth opportunity within the dress business particularly given your existing base of assets?

We are very pleased with dress business, we believe that they have continued long-term growth. I don't think we are anywhere near the end of maybe a cycle, I don't think it is a cycle. And the added feature to our dress business is in most of our licenses or brands or maybe all of them we have the right to produce women's suits. So the offset to a dress business might be a suit business if dress business for some reason softens it's likely they will go back to wearing a suit, we have the ability to design, source and take advantage of a suit business. So we are very very comfortable with the future of dresses. As a matter of fact we are looking to further expand our dress business with another license.

Great, thank you very much.

Thank you.

We will take our next question from Eric Beder with Brean Murray.

Good morning, congratulations. Hello?

Yes, thank you, Eric.

Hello?

Eric, we can hear you.

Good morning. Could you talk a little bit about what you're seeing -- how are your looking at the Mark Moto business and how is -- were initially the cases is at in terms of orders and in terms of is sports, we haven't heard much from that in a while what is going on with the sports property, you mentioned in NFL what is happening with that whole segment?

I'll start with the Mark Moto piece and I'm going to let Wayne response to the sports piece of the business. Mark Moto is being launched by Jones New York, it's in their denim division. It's a men's brand designed to be a young men's brand in denim, tee shirts, cotton sell, and the indicators are that they will launch with approximately orders from close to 500 doors, the denim prices will be $49 to $79, then the tee shirt will be $19 to $39, and we will do our licensees in both cold weather as well as men's bags will do compatible pieces under Mark Moto. You will see in the coming weeks, you will see some advertising in print that will give you a clearer message of what it might look like. The age of the consumer is approximately 18 to 25, and it's an aspirational lifestyle brand. In response to the sports piece of the businesses, I will give you Wayne.

The latest update is sports business has gone very well for us this year. I think I said last time that we added rights for the mass tier distribution with NFL and we also secured the rights to a collection of sportswear for NFL. On the mass, we did very well they and that increased the outerwear bookings at a nice level. On the NFL collection side we did very well with department stores, as a matter of fact we are in over -- we are in about 200 doors with department stores and across stadiums and specialty stores across the country. So those two areas have helped us for this year. In addition to that, we are working very hard now in securing additional distribution rights which hopefully would set us up well for the next two, three, four years. That's a big part of what we are hoping for with growth besides the existing growth that we have within the sports business. It's been the first time in a long time in the past several years that we've got good opportunities, we've got a good business this year that will be -- that will contribute well to our profits.

Okay, in terms of dresses, you have a number of different licenses and brands, is there a particular segment or area that you want to add the dresses that you're looking for, the new lifestyle brand or is it just in general?

As we always speak we are not generally looking for a brand that would dilute the efforts of an existing brand. So what we do look for today is maybe a younger brand. We think we found it, we are in the midst of negotiating. It fits that matrix very very well. And the piece of our business that's also growing I'm not sure that we've addressed it, but for the first time we are doing a significant amount of private label business in dresses. So that covers all of it. The model that we built over decades in the coat business is being repeated in dresses.

Cool, great, thank you. Congrats on a great quarter.

Thank you. We'll take our next question from Todd Slater with Lazard Capital.

Good morning. Let me add my congratulations first on earnings, positive earnings in the second quarter.

Thanks, Todd.

There is mounting concern about just sort of the department stores perhaps being overbought. I'm speaking generally in a bunch of fall categories relative to the current trends. I'm wondering if you could just talk about your guidance in the context of the possibility that these guys get a little more conservative in their ordering or in their receipt of inventory and some of the category slows. And my second question is about Wilsons you mentioned very, I think strong positive comps in the outlook business and so kudos to Joel. Wonder if you could quantify the comp growth there and talk about the productivity goals that you have now especially relative to where that business is -- what that business is producing right now in sales per square foot, so we can get a sense of what the upside there and the sustainability of that comp growth into the second half and what your guidance assumes in terms of the performance in the outlook business in the back half of the year? Thanks.

As it relates to guidance and in our business with department stores, we use several different factors in evaluating. Number one, the early order book and product that's out there and the expectations of reorders, the early reads, the nature of the overall business, our performance relative to the universe that we are in. And all the indicators that we currently have bring us to the guidance that Neal just gave you. Historically we have been fairly conservative and realistic on our assumptions and they factor in everything that we have. We do look at weather. We do look at the economy. We take every bit of metrics that's available to us to get to the guidance that we give you. Our business currently is strong, our reorders at Macy's are strong. Our inventory is well managed and there is nothing at the moment that should lead us to believe that we can't attain the numbers that we've just given you. Now, I will let Neal respond to the questions on Wilsons.

Todd, we have had -- year-to-date we've been in low double digit territory we are certainly forecasting -- Q3 of last year was a huge quarter for us in terms of comps we were up nearly 20%, at the end of -- in last year's Q3 so we are a little bit more conservative in terms of what we anticipate this year for Q3. Certainly for the back half of the year on Wilsons, we are looking for high single digit to low double digit comp growth certainly the month of August continues to give us proof positive that we are on our plan. So we think it's very achievable at this point.

Neal, can I follow up. What is the quality of the revenue growth you are driving there in terms of mark downs and margins and so on and so forth? Maybe give us a little bit of color on what you're selling? How the businesses evolved there? How you fixed it? And what is working?

Numerically we actually have been experiencing sales growth as well as gross margin improvement of course all of the three main categories we look at. The women's outerwear being the strongest, men's outerwear is also showing improvement as well as the accessories business. We have really been hitting the stride really in all the product categories. We really anticipate that to continue for the rest of the year.

Excellent. Thanks a lot and have a great back half.

Thank you, Todd.

Thank you, we will take our next question from (inaudible) with Telsey Advisory Group.

Hi, thanks. Great quarter. Following up on the Wilsons questions you've done a great job clearing inventory and turning it around, turning that business around. Where do you think the Wilsons gross margin can get to overtime? How much more improvement is there?

Well, last year we closed out at around 44% for the whole year, we certainly would expect this year that we would be just south of the 50% and there's probably no reason why this business shouldn't be a 50% gross margin business respectively.

Okay. And then also just a question that I've heard across the board with apparel, the cost pressures that are sort of impending back half of this year early next year, how flexible are you with your supply chain and for mitigating cross pressures and the likelihood of you passing through the increase in prices to retailers?

As it relates to this year we are pretty much done, our purchases are made, our deliveries are either on the water or in the warehouse. So we don't have very much concern. If anything we are taking advantage of some of the price increases overseas by adjusting our ownership and getting additional margin where we are able to. We are watching that very closely. As it relates to the future we have a great organization overseas that's currently scouring the world for appropriate places to produce. We are forming some new alliances as well as securing production in our old alliances a little bit differently than the past and our view is that it's a level playing field. We are not the only ones, it's the entire industry that will undergo some pressure in price increases. What we have on our side is we are one of the premier companies in the industry, we have some of the premium brands, we deliver -- we are historically known for delivering true value to the consumer, coupled with the brands that we have and we believe that we will gain market share. There may be less units sold overall but we believe that we still are on a growth pattern and the effect to G-III would be negligible.

(Operator Instructions). We will take our next question from Mike Richardson with Sidoti and Company.

Good morning, guys nice quarter. I'm just wondering if you could give us a -- let us know how many Wilsons stores you -- have been opened this year and what are the plans for 2011 expansion with the Wilsons?

We will have approximately 10 new stores open this year. Going forward we have several new models that we are incubating and depending on the success of those models we will decide how many stores we open next year. We have a developed management team, we are comfortable with them, we learned how to work with them wholesale retail and we certainly have a business model that's expandable. We currently have 120 stores growing to approximately 130 stores this year.

Thanks. Just one follow up. I don't know if you can give us indication of what you think CapEx might be next year?

Next year, if you looked at the history of what we have done, we've really never spent probably in excess of $3 million for the last handful of years. This year we've really been expanding with the rapid expansion in terms of the businesses that we've been entering into. That's why this year, I think it is unusually large at he $22 million that includes -- almost half of that is our warehouse build which was pretty significant. I don't have a plan for next year but my sense is that it will be more like the historical -- closer to historical levels.

Thank you very much.

Thank you, Mike.

(Operator Instructions). We have a follow up from Todd Slater with Lazard Capital.

Thanks. Curious Morris if you believe the current bout of inflationary pressure in sourcing is more of a temporary blip as raw material cost normalize and so on and so forth and labor cost increase a little bit in certain parts of the world. I'm just wondering if you think it's a temporary blip or more of a long-term trend that you are going to be focused on?

I think it's a long-term trend. I don't think I have ever seen where labor costs have gone up and then come down. I think there is upward mobility always and as the economy strengthened our industry is the first to suffer, they move from the needle industry into tech and first is hospitality then it's tech. I would say that our goal is to minimize the damage and go into some other countries beyond China but quite honestly China is key to our world and producing products that we need. So we will offset some of the damage but our -- our income is primarily derived out of China where the economy is growing and costs are going to go up. I believe fabric costs will continue to increase it's just the way of life. If we look at how stable our industry has been, it's quite amazing that it's probably the only industry that has not had increases over the last two decades. I think this was -- quite honestly it's long due. It's how we manage it that is going to result in how well we do as a Company.

I'm sure you are hoping for some inflationary opportunities at the retail level as well?

Yes.

Well, good luck with that.

Thank you, Todd.

At this time, we have no further questions. I'll turn the conference back over to our speakers for any additional or any closing remarks.

Thank you. Have a good day.

Ladies and gentlemen, that does conclude today's presentation. We appreciate your participation, you may now disconnect.