G-III Apparel Group Ltd (GIII) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the G-III Apparel Group Limited third 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 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 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 to discuss our fiscal third quarter results. With me today are Neal Nackman, our Chief Financial Officer; and Wayne Miller, our Chief Operating Officer. Because of the seasonal peak in outerwear, our third fiscal quarter remains our most important time of year. We're the dominant outerwear company in the industry with a significant presence in every tier of distribution. While we continue to diversify, outerwear accounted for approximately 70% of our third-quarter sales and accounts for slightly over 50% of our annual sales.

This year, the macroeconomic picture and the weather, both of which affect the category, have been less than ideal. We've executed well but our financial results have been impacted by difficult market conditions. Here are some of the financial highlights for the quarter. Net sales in the quarter were roughly in line with our expectations, sales for the quarter were up 13% to $510 million. If you looked at our operating margin percentage, the cost of keeping our sales volume up is evident.

Our operating margin is percentage was 14.4% during the quarter, 170 basis points lower than its last year comparable quarter. Constrained pricing, higher incentives and higher input costs were all reflected in a lower operating margin percentage. I am pleased to note that our scale did offset some of this margin pressure. Despite investment spending with respect to new categories and development, our SG&A expense as a percentage of sales in the quarter improved by 70 basis points compared to last year's comparable quarter.

Net income in the third quarter was $2.16 per diluted share, the same as last year's third quarter, but below our prior expectation for net income in the range of $2.25 and $2.35 per diluted share. We've [shift] the plan in our outerwear business led by Calvin Klein and Guess? but we will see some impact from the unseasonably warm weather linger into the fourth quarter. Input costs in outerwear for the third quarter were a factor that created pressure on the margin comparison versus last year. Our team collegiate sports business across both outerwear and sportswear grew nicely and saw very little dilution in margins. Our Calvin Klein sportswear, although up 20%, had margins that were under pressure as a result of the promotional market environment.

We provided higher levels of incentives, even so, we continue to expand doors, which should be at 600 for this spring, up from 400 last year. We have more work to do and to make sure we achieve our potential, we've hired a very experienced senior executive to lead our Calvin Klein sportswear business, who will be starting with us in January. We've made a significant strategic move to expand and diversify our presence in the women's sportswear category. We believe that contemporary sportswear is a good growth area. As a result, we've signed a long-term license for the Kensie brand that includes sportswear, active wear, suits and dresses. We've retained Eric and Lani Karls, who are the present management and the original founders. The brand currently has good retail penetration and is expected to have approximately $40 million of sales in 2011.

We will begin shipping sportswear for spring 2012 and we believe sportswear can reach annual sales in excess of $100 million. In the dress area, Calvin Klein is the dominant brand for the department stores, and has grown its market share. We've provided higher incentives to retailers to continue to move merchandise. We took some share in the young, contemporary portion of the market with strong increases in Jessica Simpson, which will be even more widely distributed for spring. We also are very excited about our new launch of Vince Camuto dresses which began shipping this spring with a sizable launch.

The moderate area of dresses, specifically Jessica Howard for us, was not as strong as last year. We responded to this with pricing concessions that have moved inventory effectively, albeit at lower margins. Despite the challenges, we're confident that our dress businesses, particularly with the strength of the contemporary market, will deliver better gross margins, as well as sales next year. Our Wilsons outlet business generated a 4% comp store sales increase in the quarter. Leather outerwear, a key Wilsons category, was particularly affected by higher product costs and came in at a lower than planned margin. Additionally, warm weather impacted sales.

Margins were lower than expected as promotions were necessary to drive sales. However, as a consequence, inventories remain in good shape. We're anticipating a strong performance during the peak holiday sales season. We believe we have merchandise in effective holiday selections, both in terms of product and in price points. The Vince Camuto outlet stores, which are operated by a joint venture between the Camuto Group and G-III, continue to be in a test mode.

The brand has been extremely well received by consumers and the Camuto Group has aggressively expanded beyond women's shoes and handbags and is doing a great job on quickly creating strong awareness for the brand. We continue to see a great opportunity through these stores but need to continue to test the model format before pursuing a wider rollout. We're also pleased to have made progress with several of our major business development initiatives. One of these is to develop the lifestyle image and product assortment associated with our Andrew Marc brand.

While we shipped well in the outerwear category, the best known category for Andrew Marc, we need to continue to take steps to raise the profile of the Andrew Marc brand. We're increasing our spending this year in advertising. We're also working hard to develop the brand in Europe in key countries such as England and Germany. Another major development initiative is our entry into the handbag and the luggage category. Each of these business will be anchored by our licenses with Calvin Klein, but we will quickly grow by adding new brands such as our signing of Tommy Hilfiger luggage. We're confident that we can be a major provider of both the handbag and the luggage categories.

We're also pleased to continue to see good results from CK performance wear. We issued a separate press release today announcing that we've entered into an agreement with Calvin Klein granting us the additional rights to operate retail stores in a number of countries throughout the world. We'll open a couple of Calvin Klein performance stores this spring in the United States and we're close to signing a strong retail partner to work with us in China. Calvin Klein is a global brand with a global opportunity and we're excited about this -- with this new initiative.

Longer term, some of the doors that will open for us are quite exciting. Calvin Klein continues to be our most important licensing relationship. We have license arrangements that cover eight categories of Calvin Klein products. This is an iconic brand that has a wide audience. We're honored and proud to have been repeatedly selected by the Calvin Klein organization to help fulfill its potential. I'll reserve some additional comments for closing, but will now turn the call over to Neal Nackman for a closer look at the numbers.

Thank you, Morris. First, for the quarterly review. Net sales for the third quarter ended October 31 were $510 million, up 13% compared to $450 million in the year ago third quarter. Net sales of wholesale licensed products in the quarter increased to $374.2 million, from $320 million, primarily as a result of the introduction of three new Calvin Klein product lines. In addition, we had increased shipments of Calvin Klein and Guess? outerwear, and licensed sports apparel.

Net sales of wholesale non-licensed products in the quarter increased to $110 million, from $107 million in last year's third quarter. Net sales in our retail segment increased 15% to $37 million in the current quarter, from $32 million in the comparable period last year. This was from a combination of an increase in new stores and same-store sales increases of 4.2%. Our net income for the quarter was $43.6 million, or $2.16 per diluted share, compared to $42.7 million, or $2.16 per diluted share in the same period last year. Our gross margin percentage was 31.8% in the third quarter compared to 34.2% in last year's third quarter.

Gross margin percentage in our wholesale license segment was 29.8% this quarter, compared to 32.2% in the prior-year period. Gross margin for the wholesale license segment was impacted by greater promotional activity which resulted in lower initial selling prices, as well as higher allowance support by us through our retailers. The gross margin percentage in our wholesale non-licensed segment was 29.8% compared to 33.3% in last year's quarter. Gross margin for the wholesale non-licensed segment was impacted by lower initial selling prices, as well as the sale of a higher proportion of lower margin product. Both segments were negatively impacted by increased input costs compared to the prior year.

Lastly, the gross margin percentage in our retail segment was 48.4% compared to 48.6% in the prior year. SG&A expenses increased $7 million to $87 million for the quarter, from $80 million in the prior year's third quarter. This increase is primarily attributable to increased payroll costs resulting from the addition of new product lines and additional retail staffing as a result of our increased store count. In addition, we incurred increased third-party warehousing costs associated with our increased sales and inventory levels, and increased facility costs primarily as a result of the additional outlet stores. We were able to leverage some of the SG&A expenses as a percentage of sales and achieved a 70-basis-point improvement in the quarter.

Turning to the balance sheet. Accounts receivable at October 31 were approximately $368 million compared to $297 million at the end of the comparable period last year. Our inventory increased to $273 million from $209 million last year. In addition to anticipated higher sales, our inventory is up over last year as a result of advantageous early buying, the launching of our new product categories, a higher retail store count and increases from replenishment programs in women's sportswear and suits.

Our bank debt was $245 million compared to $167 million last year, and our working capital increased by over $58 million compared to last year. Through the end of the third quarter we have spent approximately $13 million on capital expenditures which were principally for the expansion of our showroom locations, as well as the opening of additional outlet stores. In September 2011, we authorized a program to repurchase up to 2 million shares of our common stock. During the quarter ended October 31, 2011, we repurchased 125,000 shares of our common stock for an aggregate purchase price of approximately $2.9 million. Lastly, with respect to our revised guidance, we continue to forecast net sales of approximately $1.25 billion for our 2012 fiscal year that ends January 31, 2012.

We are now forecasting net income in the range of $50.8 million to $52.8 million, or between $2.50 and $2.60 per diluted share for fiscal 2012, compared to our prior guidance of net income in the range of $62.5 million to $64.5 million, or between $3.05 and $3.15 per diluted share. We are anticipating continued pressure on our gross margin in the fourth quarter, and expect that we will not anniversary last year's gross margin percentage in the upcoming fourth quarter. EBITDA for fiscal 2012 is now forecast to range between $96 million and $99 million compared to our previous guidance of $117 million to $121 million. That concludes my comments and I will now turn the call back to Morris for closing remarks.

While our near-term operating and financial performance has been good, it's been below our expectation. While our forecasted current fiscal 2012 results will not be as strong as we initially thought, we're focused on ensuring that we maximize our profitability and return to strong growth next year in fiscal 2013.

Strategically, the progress we have made is excellent and we've created a lot of significant growth opportunities for next year. These include, expanded distribution for Calvin Klein handbags, as well as for Calvin Klein and Tommy Hilfiger luggage, the launch of the Calvin Klein performance retail stores, our new strategic initiative for the Kensie brand, expanded distribution for Jessica Simpson dresses, expanded NFL rights for sports apparel, a new launch of Vince Camuto dresses, and a new license for Jessica Simpson outerwear.

Our balance sheet is strong with no long-term debt. We have a previously announced share repurchase program in place. In addition, we continue to believe that the M&A market will enable us to expand our business into new brands and new categories and perhaps new markets. While there's nothing imminent and we have fairly stringent criteria, we're constantly reviewing potential acquisitions. We've made a series of strong, accretive cash flow generating acquisitions and we have the resources and the skill set to identify, integrate and leverage others. Thank you for your attention today, and I think we are now ready to take some questions.

Thank you. (Operator Instructions) Our first question is from Jeff Klinefelter with Piper Jaffray.

Yes, thank you. Morris, maybe just initially a general question about next year's outlook. I know you're not ready to give guidance yet, formal guidance, but you just listed a very long and impressive number of initiatives, and I was wondering as you view 2012 how do you view your organic growth potential versus your new initiative growth potential? And do you see meaningful growth, meaningful top line growth, and margin expansion potential in both of those cases?

That's a little bit of a wild card in one of the categories that we've dominated and that would be the coat business. We're actually in the final lap of our coat season. And it is critical, depending on how retailers lined up with inventory and margins, will result in how we forecast the coat business going forward. So I can't logically commit to aggressive growth in the coat area until I see the final results of where we are.

The dress business, I believe that our dress business, which has grown quite dramatically over the last three years, will be probably in the flat range. I don't see dramatic growth, but I see dramatic improvement in margin going forward. We've done some corrective surgery both in sourcing and styling and there are areas of our business that will have significant improvement. So in as much as there won't be very much top line growth, there, I would say I feel very confident that there will be major margin improvement.

Sports licensing affords us some growth initiatives. We have expanded rights through NFL and that will enable us to grow as much as 25% in that segment of our business. The performance piece of Calvin Klein and the sportswear piece of Calvin Klein will result in better top line growth, better top line growth and better margin. And the rest of our business, I see margin improvement, more so than dramatic top line, but the initiatives that we've expressed, some of them are real. Right out of the box, we inherit a Kensie brand that currently is doing north of $40 million in volume. Everything is in place to have a continuation of that business, it's not a start-up, and we have some initiatives in place that make me very comfortable that we get close to double that size in year one.

Our handbag and our luggage business will grow. They are organic components, and so will Andrew Marc. We see some growth there, as well. But collectively, I would tell you that I'd have trouble on the organic growth giving you better than low-single-digit growth projections from where I sit today. But the accretive -- I guess we would call it the acquisition of the Kensie brand is an enabler for growth, it's very real. And the other new initiatives, the launch of Calvin Klein retail, that, I believe, will add some top line as well as bottom line expansion. We should get the benefit of retail margins versus wholesale and we'll be in control, more so control, of our own destiny.

The Vince Camuto dress launch, this has been exceptionally well-received. There is a department store group that claims they've never did an all store launch with a new dress brand and they have committed to it in the Vince Camuto segment of it. So we are very excited with the design, the exposure that we are afforded right out of the box and it looks like we'll have a very good year going forward.

That's great, that's very helpful. A couple of other just quick questions on, your CK performance stores, I'm not sure if I missed this, but did you say roughly how many stores you'd roll out on kind of on an annual basis? And also, will this be operated within your Wilsons business by that retail team or will you be bringing in a new team?

The operations side of it will fall under the Wilson platform. As we've described several times, the initial intent of the Wilson acquisition was to create a new platform which was retail. So the Wilson team will oversee the operations. The management team at Calvin Klein will add one or two people to oversee the merchandising of the stores in the United States, and the initiative that we believe we'll announce in less than 30 days for China is done with a joint partner, a joint venture partner. We will own 51% of the venture, they will own 49% of the venture, and they will be the operating partner. We'll be the provider, the creator of product, closely governed by the Calvin Klein corporate management team.

So we believe, and I believe you asked me how many stores, we've committed for two locations. They should be open, the store design is complete, we've been at this for a little while, and we believe that we will be open for spring in the two locations, clearly one, definitely, two possibly, in the spring of this year. And the initiative in China should be a relatively fast rollout of something that would be significant to our business. I hesitate to give you the store count because it is a blend of freestanding units, in-store shops and points-of-sale that are a little unique to our business. So, but it feels like it's a major initiative for us.

Thank you, that's helpful. One last thing, just on sourcing, could you comment there? I know that last year you did a very nice job of negotiating, committing early, or late in 2010 to cover a lot of your 2011 exposure. Give us a sense for what is happening there in some of your key fabrications?

Part of where we are today, and part of the cause of taking some markdowns in the third and fourth quarter, were the result of the early purchases of last year. Part of -- the pricing issue is also a result of that. If we all remember, there was a severe scare last year, there would be a shortage of factories in peak season. There would be no production available because the Chinese factories would be producing for their local economy.

That never happened. There was plenty of space for production in August, September and October. We were forced into a situation to protect our business to buy earlier than we've ever done. This year, we are tempering the buy becauseb simply because we can and it is the prudent thing to do. We'll have more information that when our outerwear is finally placed, and we believe that we will have more competitive pricing this year than we did last year, which is the reason that I candidly say that we believe our margins will be better going forward.

Great. Thank you very much.

Thank you, Jeff.

Our next question comes from Edward Yruma with KeyBanc Capital Markets.

Hi. Thanks so much for taking my question and good afternoon. In terms of the way that the markdown cadence works, or at least as markdown money works, is the residual impact of the weather, or the unfavorable weather kind of done at the end of the fourth quarter? Or is there some possibility that it spills into the first quarter as you continue to negotiate with retailers?

Quite honestly, it's never done until it's done. The only way I can respond to that. We have a history of tempering our cooperation with the retailer but walking away where the retailer feels that it's a fair deal. We've always accrued sufficiently, I can't remember a year where we've under accrued for allowances and returns. We've historically had it all covered, and I have no reason to believe that this year is any different.

We're that Company that generally cooperates but also respects the fact that we have a higher authority, our shareholders, to report to, so we protect the shareholder and we try at the same time to protect the retailer.

Got you. I noticed, you guys commented that you're adding Tommy Hilfiger luggage. I guess, as you think longer term, how big of a category could luggage be?

Well, we've added and we have begun to ship the Tommy Hilfiger luggage. We believe the luggage potential is $100 million potential. We're going to be halfway there in 18 months. So it's something that -- we've hired a seasoned professional. We've shipped quite a bit of Calvin Klein luggage successfully, the sell-throughs are good, and the early reads on Tommy Hilfiger are quite the same.

We're likely to launch other luggage brands going forward. We have the ability of launching Andrew Marc to a different distribution base and we have the ability of adding other brands that are in our portfolio. So I'm very comfortable in saying that we should have, three years, we should have $100 million luggage business.

Got you. And one final question, I know you talked about some of the early, positive reads in some of the Vince Camuto outlet stores. I know you're still working on format but what do you need to see before you begin a more kind of wholesale rollout of that concept? Thank you.

Number one, I don't know that I said earlier on the Vince Camuto rollout the retail that we've seen great news yet. If I saw it, we would roll out the stores, we would roll them out far faster. Our initial plan was to roll out 50, we have 12 -- 50 within a 12-month period. We've stalled that a little bit. We want to learn more.

It's not as easy having a partner in a venture than operating it as your own vertical business. The Vince Camuto Group has been great in a partnership area where we license, in operating a business where the dependency is on one for operation, the other for product and creation is not an easy formula. So we're measuring the viability and the future of that, quite honestly.

Great, thank you very much.

Okay.

Our next question comes from Diana Katz with Lazard Capital Markets.

Hi. Thank you for taking my question. Morris, you commented that you see a dramatic margin improvement for next year. Can you at all quantify the range and what you see margins can improve?

I believe that we can show somewhere north of 200 basis points improvement going forward. And in a business that is showing growth, it's a sizable drop to the bottom line. We've got initiatives to streamline our expense structure. We've got many initiatives that should show improvement in our business going forward, not only the margin piece.

Okay. Can you talk about some of the cost input pressures next year? Or non-pressures in terms of leathers and wools and other input costs?

Leather is very high. We're not certain as to how big our leather business will be next year. We had segments of business that were pretty good but it's not a major call out. Unfortunately, for me, it's my personal heritage and I would love to see it grow in a multitude of multiples of what we're doing. But that's not likely to happen in the near future. So, but it's not important to us.

The rest of our businesses, wool, which is a very big piece of our business, seems like it is very stable. There were situations that we believe we can buy better than we did a year ago. The down piece of our business is much more under control this year than it was a year ago. And the cotton side of our business seems to be under control, as well. The second half of the year, our anticipation is that cost of cotton, we don't buy cotton as a commodity, but we buy it in product. We believe that we'll get a benefit there and -- in totality, our cost structure is, at worst, it is the same as last year. My belief is it's below last year as we go out to the market to buy our classifications for the coming year.

Okay. And then, Neal, we've left you alone for a while. How about inventory, by the end of the year? Will it be closer to sales growth or should we be modeling in some additional pickup for some of these new businesses?

You certainly should be modeling in increases for the new businesses, as well as I think we mentioned on the last call that we expect that the Chinese New Year timing for this year is such that we've actually receded inventory already for the beginning of next year. And we expect that will also be -- that will impact us at the end of the year as well. So we'll have increases over last year. I would expect that after the first quarter, that we get back to a more normalized inventory to sales ratio.

Okay, thank you both very much.

Our next question comes from Eric Beder with Brean Murray.

Good afternoon.

Hi, Eric.

Hi. Could you talk a little bit about the Andrew Marc business? Talk about how -- what you're going to do with the non-core product in terms of getting a lifestyle there, kind of how do you want to keep that, or get that momentum going? And what are (inaudible) for the new Calvin Klein executive? What is his or her major responsibility going to be for the brand?

I'll address the Andrew Marc piece first. The core business, which is the outerwear business, is quite solid. Some of the misses in the business were handbags, which was licensed out. We've now, with our success at Calvin Klein handbags, we've decided to really back in. We've picked up a competency that we are very comfortable with, so we can sort it well. We will be doing Andrew Marc handbags in-house. Last year it was outsourced.

The denim piece of the business, Andrew Marc denim which was in the hands of -- it was the only men's piece at Jones New York on the denim side, and it also wasn't a great performer at retail. And what we've done is we've reeled it back in-house, and we're going to create a small positioning business that we believe over time will be important to us. It's not going to hit the radar screen this year, it's going to be placed in select stores, designed carefully, it's sourced carefully, and at a different price point than the Jones organization had created.

The rest of it, the dress business, we've had, I've described generally the progression of the new dress launch. It generally takes us three to four seasons to get it right and with Andrew Marc, it's following the pattern. This delivery, the delivery that should be hitting the stores in the next couple of weeks looks 100% better than anything that we've ever shipped. The fit is better, the reception at retail is better, and where we had a concern that some of the stores might consider dropping it as their consolidating vendor base, they've increased their door count for Andrew Marc dresses.

So we're comfortable that we'll have growth, and certainly margin improvement in the Andrew Marc dress segment of our business. And we have several licenses out there, we're shipping watches for the first time through a licensee. There is eyewear, and there is tailored clothing that has not only started to ship domestically, but I'm told that they have a very nice opportunity for the UK market. And neckwear which is held by PVH. Neckwear was just shipped and I have no reason to believe that it won't be as good as any neckwear out there.

To respond to your key executive question on Calvin Klein, this is an executive that's been in the industry for 25 years. She is a great merchant, so I guess I've told you the gender. The belief is that we'll have great product improvement, we're good on the sourcing side, we've become very important on the planning side with the retailer, and we believe that it was a move that we needed to make. We've made it and she's agreed to come on board in January. So she will report to Sammy Aaron, who is the CEO of our Calvin pieces, and she's got a great team underneath her.

Okay, and in terms of Kensie, you talked about how last year it was $40 million under someone else and now you're talking about how next year -- are you saying next year it is going from $40 million to $80 million? And how is that going to occur? What's driving that?

Well, currently, the team that we took over is the team that owned it originally. This was a brand that was owned by Eric and Lani, and they sold it to Liz Claiborne. Liz Claiborne operated it for many years. It's currently on its last shipping cycle at Liz Claiborne. We take over the shipping and basically the entire business in January, and it's ours in totality. So there is an existing order book that's being built. We have door counts, increases for next year in all of their key department stores. Their performance at retail this year was very, very good. I encourage you to walk into a Macy's and see how they're presented.

The product is great and we believe that there will be over 600 doors for spring. So this is hardly a launch for us. And then there is a private label initiative that we believe we're on the final stage of negotiating for another brand, not having Kensie as its name. So all that adds up to some comfort that it should be close to double the size of what we're starting out with.

Okay, thank you. Good luck.

Thank you, Eric.

(Operator Instructions) Our next question comes from Eric Alexander with Stifel Nicolaus.

Hello, everyone, sitting in for Jim Duffy today. Just a couple questions on fourth quarter guidance and inventory. In your assumptions, what, for fourth quarter, what do you believe has to go right in terms of weather to hit that guidance? And as far as markdowns, promotions that you've taken, is that everything that you expect to take for fourth quarter or what have you built in there for the remainder of the quarter? Just to take account for maybe seasonality or atypical weather patterns?

Yes, I think if you looked at our previous guidance and compared to where we were and where we are today one of the significant factors that were taken into consideration is the retail environment and the slow start to some of the outerwear season as far as the weather is concerned. So I would tell you that we have certainly increased our anticipation of markdowns and allowances in that category.

Okay, that's helpful. And then a semi-follow-up to that question, regarding exiting fourth quarter with clean inventory, what are you guys looking at as far as vehicles? I know you guys have provided some concessions to retailers already. Is that your main vehicle to make sure that you enter into 2012 with clean inventory and, thus, mitigate any negative impact on next year's results?

The two vehicles we have really are providing incentives to the retailer, or selling to the off-price channel. So those are the two that we've factored into the numbers that you're hearing.

Okay. And then lastly, it would be helpful if, I don't know if you are open to providing, but incremental growth attributable to each of the drivers for the year-over-year inventory growth that you had cited? I know you had talked about early buying new categories, et cetera.

At this point, we've given you the general categories, I think that's what we're going to stay with that at the moment.

Okay, I can understand that. Thank you.

Our next question comes from Mike Richardson with Sidoti & Company.

Yes, good afternoon, guys, thanks for taking my call. I was just wondering if you could remind us how many doors the Calvin Klein handbags are in at the moment? And any potential door growth for next year?

We are currently in 350 doors, and we are expanding into 2012, starting in the spring actually, 700 doors.

Okay.

This is an expansion and it came out of testing and finding the correct assortment, and what's even more important than the door count we're getting a presence within each door. The door penetration is going to make a major difference. So we're getting that, it's not just a couple of handbags in each individual store, we're creating a department that should make a difference.

Okay, thanks. Can you remind us, I think you had mentioned before, how big do you think that the handbag business can get to?

I said earlier that our handbag business can get to $200 million in three years.

Okay, thanks. And just one last one, I just wanted to clarify something that someone asked before regarding gross margins for next year. Did you say that you thought that gross margins could expand 200 basis points possibly next year? Or was that just longer -- you thought that maybe next year and that's more back half weighted or just kind of evenly distributed throughout the year?

No, it's evenly distributed. We believe our early shipments are going to show improvements in margin and the early shipments, the beginning of the first quarter should show improvement.

Okay, thank you very much.

Thank you.

And, we have no further questions at this time. I'd like to turn the call back over to Morris Goldfarb for any further comment.

Thank you for your time and thank you for your questions. Have a good day.

That does conclude today's conference. We appreciate your participation.