G-III Apparel Group Ltd (GIII) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the G-III Apparel Group, Ltd. Second Quarter 2012 Earnings 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 for questions. I would like to turn the conference over to Mr. 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 in 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 or the financial condition 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 have provided a reconciliation of 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 afternoon and thank you for joining us. With me today are Sammy Aaron, our Vice Chairman and CEO of our Calvin Klein Division, Wayne Miller, our Chief Operating Officer, and Neal Nackman, our Chief Financial Officer. I'd like to start with a quick review of the second quarter. We had a strong quarter from a top line perspective. We grew revenues by approximately 22% versus last year. The strong brands and businesses we're developing and launching have enabled us to take market share in a volatile environment. Our strength was across the board with our wholesale businesses and our retail all growing at better than 20%. This growth, however, didn't come easily. We had to provide higher discounts and markdown support and it put some pressure on our gross margin.

Additionally, [sourcing] costs rose and while we took pricing increases where possible, we could not fully offset the increased cost on the gross margin. Where we did create some profitability improvement was in our expense structure. The strong growth in revenues enabled us to achieve some scale and leverage on our expenses. This came even as we ramped up our infrastructure to support new businesses in handbags, luggage, and a new initiatives in dresses which are not yet contributing much revenue. Our earnings in the quarter at $0.08 versus last year's $0.15 reflects short-term margin pressure. Our inventories are in good shape, and as a result, we're in a good position for the fall season, which represents the larger part of our profit opportunity for the full year. The reality of business today is that to grow into this kind of environment, you have to be special.

You must have great brands with high-quality and well-designed product at compelling prices. We have that special mix, which creates good business for us and our retail partners. G-III is a growth Company and we've worked hard to ensure that there is growth opportunity in every area of our business. Taking advantage of those opportunities is key, because the benefits of scale are going to help us improve our profitability. I'd like to walk you through the business a little so you can see how we're going to get there. Let's start with outerwear -- while our outerwear shipping only starts in the latter part of our second quarter, we're now shipping heavily for fall.

It's a little early yet to gauge the sell through rates, but we've received good feedback on our product assortment, and have a strong order book for a number of our major brands. This includes Calvin Klein, which our largest outerwear brand, as well is Andrew Marc, Kevin Cole, Guess, Levi's, Tommy Hilfiger, and Ellen Tracy. As you know, outerwear is our most important category for fall. We're the dominant resource in outerwear with our department store business being our strongest tier of distribution. We're at approximately 2,000 doors and we expect to reach wholesale sales of approximately $600 million, or roughly 55% of our total wholesale volume for the year. Through a combination of our existing brands and our ability to expand the portfolio, we believe we will continue to take market share and grow our coat business.

Regarding our team sports business, I'm also pleased to note that there was a timely resolution to the NFL's labor negotiations. We've booked well, and are meeting our growth plans for this fall. We also have an expanded agreement with NFL for 2012 that'll provide additional distribution channels and we expect to see growth in excess of 20% for this business. We are the dominant dress resource in department stores today, led by Calvin Klein. We will exceed [$250] million of volume this year, and we'll be in over 1,200 doors. Calvin Klein is our anchor brand in the category. We've done a very good job of developing other key licenses; Jessica Simpson is an important business in dresses.

Camuto Group is the master license store of the Jessica Simpson brand. They've done a great job in expanding the brand's presence. This is a great strategic relationship for us, and we're looking forward to expanding it over time. Our Jessica Simpson dress business will double for us this year and we expect it to double again next year. Jessica Howard, Eliza J., Andrew Marc and Ellen Tracy are also important brands in the dress market and they all have a good growth opportunity. We've been pleased to consistently build out our dress portfolio and are excited about the potential of our new licenses with Vince Camuto and Guess. Our Calvin Klein Sportswear and Performance business now totals $150 million. For spring, we'll be in 600 doors for sportswear and approximately 500 doors for performance.

We expect door count to continue to increase for both; sportswear is a large opportunity for us and we will be a strong fourth season business due to our sportswear and dress businesses. Perhaps our biggest near-term growth opportunity is handbags, a category which we expect ultimately to exceed $200 million. Again, our strategic relationship with Phillips-Van Heusen and the Calvin Klein organization has given us a great point of entry into this market. We've built the infrastructure to support significant growth. We're just now launching the business this year and it'll do approximately $30 million.

We're in 300 doors and will be in 700 doors for the fall. Importantly, because of the Calvin Klein brand, we've gotten great floor positioning within many doors. As we grow, we are going to leverage the capability we've built and drive improvements in operating margin. We're very excited about this business. Luggage is another new category initiative for us which we've built a good infrastructure. We expect to reach over $20 million in business this year with Calvin Klein and it'll be in over 800 doors this fall. We've recently added Tommy Hilfiger luggage, which we believe will exceed 500 doors for next year. Here too, we expect to pretty quickly see the benefits of scale.

We think luggage will ultimately be a large business with a well-diversified portfolio of licenses. We're very pleased to report that our retail operations are also performing well. Wilsons continues to improve its performance. As a reminder, we're operating over 130 stores. The assortments have consistently improved and this has driven productivity increases. The second quarter comps were up 11% and for the 6 months, they were up about 10%. We think we can continue to drive sales productivity.

We've been installing some creative fixturing and with an investment of approximately $20,000, we're seeing a list of several points to our comp performance. We've done this in over 40 stores, and if the program continues to perform well, we'll roll it out further. We're excited for the fall and holiday seasons at Wilson. By the end of the year, we'll have approximately 140 stores. Our retail team is doing a great job and we believe that there is a solid long-term opportunity for the business. Wilsons has also given us the infrastructure for other retail growth initiatives. The joint venture agreement we signed with the Camuto Group is one of these.

I'm very pleased to report that we now have 9 locations open. The consumer reaction to the concept has been good and the merchandise assortment should do well for the important fall holiday season. Finally, brand development work continues for Andrew Marc. We're continuing to position Andrew Marc as a lifestyle brand. During the upcoming months, you'll see an expanded media campaign led by magazines such as Vogue, GQ, Harper's, Men's Health, and on billboards in New York, Los Angeles, and Chicago. We've maintained a strong and growing outerwear business, added a number of key licenses, and we're building some businesses in-house, including denim.

Dress shirts and tailored clothing will be shipping this fall. We will also be opening 4 Andrew Marc outlets by the end of this year. We think that this will serve us as a laboratory for the business and help us learn more about our consumer. Across the Company, I hope you can see that there's a tremendous organic growth opportunity for us. There's also an opportunity to continue our growth through acquisition. Over the past few years, our experience with acquisitions has been very positive. Each of the deals we've completed has proven to be accretive, and more importantly, the revenue synergies we've developed have been powerful. Acquisitions have aided our capture of new licenses and our development of new categories.

We're certainly continuing to identify and evaluate potential transactions that would make a difference in our Company, but we remain disciplined about what makes sense from a return standpoint for our shareholders. I'll reserve some closing comments, but I'd like now to turn the call over to Neal Nackman, our Chief Financial Officer, for a more detailed discussion of our second quarter and our guidance.

Net sales for the quarter ended July 31, 2011 increased 22% to $230 million compared to $189 million in the year-ago period. Net sales of wholesale licensed apparel for the quarter grew 22% to $158 million compared to $129 million in the year-ago quarter. We saw increases in wholesale license sales in this quarter, primarily the result of increased sales of Calvin Klein products; most notably in dresses and the introduction of the new handbag and luggage lines. In addition, we saw increased sales in our Kenneth Cole and team sports divisions. Net sales in our wholesale non-licensed segment grew by 24.5% in the quarter to $50.7 million from $40 million in last year's comparable quarter due to increases in net sales of private label outerwear sales.

Net sales in our retail operations increased 19% to $28.3 million from $23.8 million in the year-ago quarter. Retail sales increases were from a combination of new stores and a comp store increase of 11% in the quarter. Our gross margin percentage decreased in the quarter to 28.5% from 32.2% in the prior year's quarter. Margin percentages decreased primarily in the wholesale segments. The gross margin percentage in our wholesale license segment decreased to 25.5% from 30.4% while the gross margin percentage in our wholesale non-licensed segment decreased to 24.7% from 26.2%. The gross margin percentage in our retail segment was 45.1% this year and 45.4% in the prior year's quarter.

Gross margin percentages in our wholesale segments primarily reflected higher promotional activity, which included increased allowance support and reduced margins on initial selling. This support for our retail partners helped move inventory and we believe it leaves both us and our customers well-positioned for this fall season. Net income was $1.6 million for the quarter, or $0.08 per diluted share, compared to net income of $3 million, or $0.15 per diluted share in the year-ago quarter. SG&A expenses increased to $59.8 million from $53.8 million in the year-ago quarter. This is an improvement as a percentage of sales of 250 basis points compared to the prior year and shows the benefits of scale from our revenue growth. The increase in dollars is primarily attributable to increased payroll, shipping, and advertising costs associated with our increased sales and new product lines. Regarding our balance sheet, accounts receivable at July 31 were approximately $172 million compared to $120 million at the end of the comparable period last year. Our bank debt is up to $142 million from $77 million last year and our working capital has increased by over $64 million compared to last year.

Inventory increased 44% to $322 million. This is, as we discussed on our call last quarter, a planned increase to support our upcoming quarter, which is the largest sales quarter of the year for us. We took receipts of goods earlier this year than we did last year and built inventory to avoid shortages and to reduce the need for air freight. For the year-to-date period, we have capital expenditures of $8 million and anticipate that our total capital expenditures for the fiscal year should be around $15 million. These expenditures are primarily to enhance our showrooms and for new outlet stores. With respect to guidance, for the fiscal year 2012 ending January 31, 2012, we are now forecasting net sales to increase approximately 18% to approximately $1.25 billion compared to $1.06 billion of net sales in fiscal 2011. We are expecting net income to increase between 10% and 14% or between $62.5 million and $64.5 million or between $3.05 and $3.15 per diluted share compared to net income of $56.7 million or $2.88 per diluted share in fiscal 2011.

We're forecasting EBITDA to grow between 12% and 15% from last year to a range between $115 million and $118 million compared to $103 million in fiscal 2011. With respect to our third quarter guidance, we are forecasting net sales to increase 11% to approximately $500 million in this year's third quarter compared to $450 million in the comparable quarter in the prior year. We're forecasting net income to increase between 8% and 12% to between $46.2 million to $47.8 million or between $2.25 and $2.35 per diluted share for the third quarter compared to net income of $42.7 million or $2.16 per share in the previous year's third quarter. Our third quarter forecast is anticipating that our gross margin percentage will be down from last year as a result of pricing pressures and the promotional environment we have been experiencing. However, we are anticipating that our fourth quarter gross margin percentage should be comparable to the prior-year and are encouraged by our holiday and early spring bookings. That concludes my comments and I will now turn the call back to Morris for closing remarks.

Thank you, Neal. And thank you all for the time this afternoon. G-III is entrusted with some very special brands. We've developed a reputation as a go-to partner in a wide range of categories. That's because we make great product. We're better than the competition and we expect to continue to take market share. Our second half is looking good right now, despite the challenges in the market. The order book is where it needs to be and our inventory is also where it is to be.

Our inventory is here now, when we need it, to capture the opportunity. Fall looks good and spring looks even better. We're very focused on creating strong sustainable double-digit rates of revenue and earnings growth. As our newer businesses, especially handbags, achieve scale, we should be able to drive our overall operating margins higher. We believe we have many ways to create value for our shareholders and we're excited about our many growth opportunities. Thanks for your attention today, I think we're now ready to take some questions. Operator?

(Operator Instructions) Jeff Klinefelter, Piper Jaffray.

My first question is really about the guidance for the second half. Recognizing that the strong top line performance in the first half, but 2 quarters in a row of margin pressure largely from promotional activity, can you give us a sense for what sort of stress testing you've done to the second half guide? What sort of promotional support are you anticipating in those numbers?

What really occurred in the first and second quarter, we had some pressure we really didn't expect in our dress business. We had weather in the first quarter that didn't work well for us, quite honestly. It was too cold. We're learning the dress business. This is really our third year in it and we've been fortunate all the way through. We've grown it, it's been quite profitable, and we had a little bit of a hiccup. The weather didn't work for us and therefore, in second quarter, we wound up marking down a fair amount of dresses to move them out of our inventory. And we had a fair amount of margin support that we had to give the retailer to enable them to move it out profitably.

We don't foresee that for third and fourth quarter. The third and fourth quarter are driven more by our coat business than our dress business. We have no reason to believe that there will be pressure unexpectedly for those periods of time. Our order books look strong, our inventory looks right, we begin to ship spring in January, which falls into our fourth quarter. Our spring bookings are stronger than they've ever been. I think we get the benefit of the early bookings and early shippings for our dress and sportswear business in January.

That's helpful, Morris. Could you just also clarify -- so coming out of Q1 into Q2, what really changed from that last conference call would be the Q2 weather trends and what that did to the promotional activity in the stores? I'm just trying to get a sense for what really changed over that 60- 90-day period.

It was promotional activity, it was our inventory levels were too high on spring products so we needed to move out of it. We had 1 fabrication that didn't work well. It happened to be a denim dress that we needed to move out of. We took some mark downs both at retail and wholesale on the dress side of our business.

Okay, thank you. That's helpful. A couple other things quickly -- in terms of the gross margin in Q2, you mentioned that it was promotional support. It was also inflation, cost inflation. Could you give us a sense for what role each of those played? And then, in terms of the second half guidance again, what are you looking for terms of cost inflation impact on those gross margin levels?

The cost inflation did not play a major factor quite honestly. We constantly review the effect of it and the pass-throughs that we're able to get our retailer to cooperate with. So I would say it was more an anomaly of the season than a cost increase event. And we're not seeing very much resistance. It's a little early to say. Our coats are going out a little bit higher retail. So far, it appears that the consumer is accepting it.

But it's early yet. We just started shipping our coats maybe the last week of July. We're getting good reads, and we believe that we're pretty much under control from a pricing point of view. There doesn't seem to be a major factor yet. There are commodities that are out of control. One that's very near and dear to my heart is the leather business. Price inflation is impacting our business somewhat dramatically.

In many areas we're simply out of the business, we don't believe the consumer will buy it. So we're not getting the benefit of what is the core competency of our Company. And where we are shipping it, we're shipping it cautiously with higher price points. But beyond that, the categories that we're producing are contained in very minor price increases.

Edward Yruma, KeyBanc.

Thank you, this is Jane in for Ed. I just had a couple of quick questions. The first one was on the second half gross margins, to what magnitude could we anticipate gross margins to be down in Q3? Would it be similar to Q2 or more like Q1?

It would be more like Q1.

Okay. And what is your current thought process on the acquisition front? What types of acquisitions are you looking for?

We're fairly broad in scope. We've looked at several companies. We're cautious as to how we approach it. The size of the Company that we would look for is probably anywhere from $100 million to as much as $400 million in size. We have the capability of both bank support and our balance sheet that really enable us to make that type of acquisition. We would look in the men's area, possibly a sportswear business that's branded with design and import capabilities. We would look on the women's side in the same way on the sportswear branded side. We have no fear of acquiring a retail company. We're fairly broad as to what we'd look at.

That's helpful. Thank you. My last question is can you talk a little bit more of the composition of your inventory category-wise and where the buildup is in specifically where you end up 44% at the end of Q2?

We've got increases in both the outerwear and non-outerwear components of our business. They really are both in sync with what we really see as far as the volume that we're anticipating for the third quarter.

Okay. Great, thank you very much.

Eric Beder, Brean Murray.

Could you talk a little bit about where some of the newer items you have your leverage points, or a handbags and the luggage, how should we think about that as when they start to add to overall operating margins in terms of expansion?

Eric, for this year, I'm anticipating that while there's been a lag in the first half of the year, I expect when we wrap up the full year, that it will only be a very slight drag in terms of the operating margins from those new businesses relative to what the total Company is. So, certainly prospectively as we get into the next year, we really would expect that, that would start to lift the margins. As we've said earlier, we really think an important part of our operating margin improvement prospectively is from building larger businesses, and certainly the handbag initiative is one that fits into that category, and our business units are very scalable. We certainly expect that, that will be one that will help us prospectively in the future.

Eric, as in any new venture that we go into that's not an acquisition, there's a slow build. Rather than making an acquisition, sometimes you enter into a category or sign a new license, and in the early stage of development, you're paying for market share, you're paying to learn how to source the product, in many cases you're flying the product in because you need to be on the floor in a timely way. So we're feeling a little bit of that. Not a little bit -- the Company's feeling a little bit of it, but I will tell you that the margins are very, very low on the handbag side of it. We clearly know how to buy it right, but the timing of when we need it to be on the floor, the guarantees that we made to our retailer being on time that enabled us to get great retail space made us bring the product in either by air or produced in factories further development of the categories, we would not produce in the same factories. We'd produce in factories that would give us much better margin.

We're getting a little bit of that and handbags, we're getting that in luggage, and as we broaden our scope in dresses, we're moving into different factories as well. I'm very comfortable that you'll see margin improvement in all the new initiatives. This is something we've done historically. It is not the first time this has happened.

Okay. And for Andrew Marc, what has been the response to some of the newer items, Andrew Marc dresses, the Andrew Marc denim, how is that really shaping up in terms of the business? I know you said you were going to ramp up the advertising, but how about in terms of product?

The advertising is starting this month, actually. You'll see lots of press. You'll see a lot of it in print, social media has done a bunch of it, there's a lot of billboards between New York, Chicago and LA. What we have done, and it's no different than what I just described, we went into a dress business and for, I would say 3 deliveries, we did not retail well, which was expected. You have to get the fit right, you've got to see your positioning, your color palette is not right on target, but with every delivery you begin to build a library of successes. So at this point, the reaction to what we have shown for spring delivery has been amazing. It appears that Andrew Marc will be an important dress resource starting this coming spring.

We've made money, we've not had any terrible issues with it. But the fact that it didn't retail was a struggle to get it to scale. We believe the real launch for Andrew Marc dresses really comes for spring of this coming year. The same thing had occurred with Jessica Simpson. It took us 3 or 4 deliveries to build Jessica Simpson into a viable dress resource. And today, I would tell you that if you were to speak to any department store buyer, they would tell you that Jessica Simpson is a stand-out at retail. It's performing exceptionally well. We're having a good problem, actually, we can't service the demand that was just created on the dresses that Jessica Simpson. So I said in my script that we'll double our business this year and we feel very comfortable we'll double it again for 2012, for calendar 2012. Sometimes it just takes a little bit longer.

On the denim side of Andrew Marc, we had a licensing agreement with Jones New York, it was a men's moderate-priced denim collection that was not executed extremely well. It was partly their fault, partly our fault, partly the retailers' reception and partly timing. And the moderate denim business is tough at the moment. We mutually decided that we'd pull it in-house, and we're doing a soft launch. We're going to skip a season. We're developing what we've believe is the right product under our watch, with what we'd like to do with the brand.

It's actually all good news. We did not have a quarter that we're extremely proud of on the profit side of it, but I'd tell you that all cylinders in this Company are functioning incredibly well. This Company's never been in better shape. Unfortunately, we operate in a world that get its report card every quarter. This was a tough quarter. We believe that the Company has not been better. We have retailers that -- every retailer we trade with would tell you that we're the resource that they watch, they want to grow, and it's a good place to be.

Anything new on the international front?

A little bit. Our international business this year, on a direct basis, the direct basis would be Andrew Marc and some private label. Finally hits the charts it'll be north of $30 million for the year. And the other piece that's quite interesting in our luggage business, Calvin Klein has given us the ability of going international with our luggage. So we have dealership agreements with people in Italy, we have somebody in Malaysia, we have somebody in France, Portugal, and Spain. That's a major initiative. We believe that it's something that will grow and we see a good deal of demand on the international front. And we're working on several others that we're not ready to discuss at the moment.

Okay, great, thank you.

Diana Katz, Lazard Capital Markets.

Thank you for all the color on the organic growth. Wanted to know how much bigger Calvin Klein dresses can become. Do you have a new mid-to long-term target because it seems you've blown through your last target?

I've found that this Company has no plateaus. There's always growth potential. The moment you put a number on it and you say this is what we're going to reach, that becomes our plateau. The Management team at G-III, they can get water out of a stone. There's a good deal of growth left, there are classifications of dresses that we don't do well enough.

There are price points, increased price points that we're beginning to address, and we're servicing retailers in a different form. We're doing fixturing in some cases. All of this is an enhancement to our business. I don't think we've scratched the surface.

Okay. Can you talk about how retail comps are trending in August? Any impact you see from the storms? Maybe can you talk a little more detail about the investments you're making in fixturing within the stores you mentioned that had a nice impact on comps, how big that test was?

I'm sorry, how big that --

How big that test was? You mentioned that you were doing some fixturing testing in your stores, how many stores was that where you saw a nice lift in comps?

Wilsons, we spoke about Wilsons earlier about re-fixturing in unique form, that's 40 doors. It's working well. We're seeing high single-digit comp increases in some of the stores. We have about 5 that we can't figure out. We've actually seen a decrease and we're in the middle of trying to sort that out.

But overall it looks like it's working very well. The store fixturing that we're doing through our sportswear and the beginning of our dress business is going to be quite large. We're working on budgets at the moment. We're getting cooperation from some of our licensor's and we're seeing a benefit at retail. I can't give you the exact amount, because it's early in the development stage.

And then your comps for August? Have they trended in line with Q2?

Our comp sales on the wholesale side?

No, in Wilsons stores.

The Wilson's stores, we were affected -- I think we had 18 stores that were affected by Irene and in spite of it, we had a decent August. I think, if I'm not mistaken, August was a miss of -- I think we had a 3% comp decrease. But it was made up immediately the first few days of September, we were off the charts.

Okay. And then very impressed with SG&A leverage in the quarter, despite some of the drags from new businesses. Outside of sales leverage, can you discuss some of the buckets there? Because it seemed you probably increased ad spend with Andrew Marc, so where would the pullback's in SG&A?

If you look at our core structure, there are very few purely variable expenses so we get some reasonable leverage really up and down the expense structure. As I mentioned before, the payroll within our groups is very scalable, and as our businesses keep adding volume, we're really not adding -- certainly not adding any expensive headcount. We had headcount, but I think if you go up and down the expense structure from payroll to our overseas operations and then all of the things that are necessary in terms of sample development and travel, we really get to leverage all those expenses. The only expenses that we have that are purely variable really are the ones that are related to national advertising campaigns that we have with our licensor's. And those are not all directly variable, but by and large, I consider those a variable expense for us.

Certainly, the advertising spend this year on Andrew Marc is something that we've increased in anticipation of some additional royalty income that we're getting this year. So, we're comfortable with the total spend. But certainly that is a lift in terms of our SG&A, of course. And lastly, I will tell you that on the warehousing front, we've had some increases in terms of warehousing the first half of the year, by using our third-party, we really relied a little bit more on third-party facilities in the first half. We actually expect to see some more efficiencies in the back half, as our large warehouse that we put up last year starts to continue to get more of their operational footing and we expect to see some more leverage from that in the back half. Overall, it is a good year for us in terms of SG&A leverage. We certainly expect over 100 basis points of leverage on the whole year and that's where it's coming from.

Great, thanks very much.

(Operator Instructions) Jim Duffy, Stifel Nicolaus.

Morris, the perspective on the size of a few of the components of the Calvin Klein business was helpful. Can you roll this up for us and share what percent of the total business plan for the full year is under the Calvin Klein brand?

The Calvin Klein brand is still under 50% of our overall business.

How much under, though? Are you in the 40%s, 30%s?

That's a number that we don't release. Quite honestly, we historically we've not broken out brands and I'd like to be consistent with what we've done historically. It is an important part. It is our trophy piece. It's something that we -- I'd love to tell you that it was north of 50%, that would mean our business was up dramatically. All our other businesses are great.

Okay. And then, Neal, related to your recent commentary on the SG&A, should gross margin come under pressure in the second half, perhaps more than is contemplated in the guidance, what's your capacity to manage the SG&A to protect the earnings line?

We always have the ability to rein in SG&A, one of our more significant expenses are people. We're an entrepreneurial group that's led by entrepreneurs at each one of the different division heads, each one of the different divisions, they're all charged with their own operating profit goals. And each one of them is constantly watching to make sure their business is operating as efficiently as possible. That being said, we watch it, but certainly the top line and our margin goals are certainly very important.

Okay. And then Morris, you mentioned some spring shipments in January contributing to full-year guidance. How much this year does that differ from a year ago?

It will differ -- I don't have the percentage for you, but I could give it to you by classification. We didn't have a handbag business, we didn't have a luggage business, we didn't have some dress brands, we have an early Easter this year. All those components lead us to believe that there's really a good, strong opportunity for fourth quarter.

Okay, great. And then related to that, you'll be anniversarying some one-time contributing factors to the inventory in the fourth quarter. Should we expect inventory growth to be more in line with the sales growth or are there some incremental programs which will keep it running ahead?

Some of it I'm going to let Neal field the question, but what we need to remember as our business changes, many pieces of what we do now involve replenishment. Replenishment basically means you need to own the inventory to support the retailers' needs. Luggage is one of those. We have a couple of items that are on replenishment in dresses and in sportswear in Calvin Klein. They skew the inventory to some degree. They appear, from the optics point of view, to be sometimes dated. But they're not.

They're current, they're shipped day in, day out. There's a pant that we're doing for 2 years that's on replenishment. It appears that it might be a dated item, but it's not. The other segment of your question, Neal?

Numerically, Jim, I would tell you that when we get to Q4, while we do have these new businesses and there is always a base that you need to build into your inventory level as far as handbags and luggage, but I would expect that we'll start to become closer to our sales lift when we get to the end of the year.

We also need to remember that we're opening retail stores that we didn't have last year. We'll have approximately 25 new doors at retail and that inventory turns at a different rate than our wholesale inventory.

Of course. Okay, thank you very much.

Mr. Nackman, at this time there are no further questions. Sir, I'll turn the call back over to you.

Thank you for joining us this afternoon. We appreciate your patience and your tolerance. Thank you very much.

Ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.