G-III Apparel Group Ltd (GIII) 2014 Q4 法說會逐字稿

Welcome to the fourth-quarter fiscal 2014 G-III Apparel Group earnings conference call. My name is Loraine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Neal Nackman. Mr. Nackman, you may begin.

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. The 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 non-GAAP net income per share and to adjusted EBITDA, which are both non-GAAP financial measures. We have provided reconciliations of GAAP net income per share to non-GAAP net income per share and GAAP net income to adjusted EBITDA in our press release and on our website.

I will now turn the call over to our Chairman, President, and Chief Executive Officer, Morris Goldfarb.

Good morning and thank you for joining us to discuss our fourth quarter and full year. With me today on the call are Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; and Jeff Goldfarb, our Director of Strategic Planning. Neal will go through our financials in some detail in a few moments, but first, I'd like to give you a few of our financial and business highlights.

Fiscal 2014 was a great year for us. We continued to grow both sales and profits at a fast pace. We executed our strategic plan for Vilebrequin and acquired GH Bass.

We performed well throughout the year and finished up with a record-breaking year. First with respect to the first quarter, we grew sales to a record level of $473 million, an increase of 26% compared to last year's fourth quarter. Net income per diluted share was $0.62 in this year's fourth quarter, up 55% compared to $0.40 in last year's fourth quarter.

Our financial strength is particularly noteworthy, as the retail environment was tough in January. There was a significant number of shopping days and shipping days that were lost or severely impacted as a result of winter storms. This hurt traffic in January at both our retail partners and our own retail stores. Despite these challenges, we performed well and finished up our season ahead of plan.

Before I go into more detail about the quarter, I will provide you with a few highlights for the fiscal year. We grew our sales this year by 23% to $1.72 billion, compared to $1.4 billion in the prior year; 65% of this growth was organic.

We continue to have good momentum on the revenue line with opportunities for growth in nearly every category and in every tier of retail. We grew our full-year adjusted EBITDA by 29% to $147 million, compared to $114 million in the prior year. Our adjusted net income for diluted share for the year, which excludes acquisition and transaction expenses, was $3.74, up 28% compared to the prior year's level of $2.92.

We're very pleased with these results. We believe that our ability to consistently drive superior performance is due to a combination of attributes that make G-III a special Company.

We have built one of the finest management teams in our industry, with a pool of talent that extends deep into our in design, merchandising, sales, operations, marketing and finance. We've forged a corporate culture that incorporates an unparalleled work ethic with a deep commitment to our customers.

Our success is also the result of a diversification strategy that is designed to mitigate risk and broaden our growth opportunities. We've demonstrated that our ability to identify, finance, and integrate value-driven acquisitions is a core skill set.

The fourth-quarter environment started stronger than it finished, predominantly due to the widespread inclement weather in January. Fortunately, we planned our inventories properly, generating good sales prior to and during the peak holiday season, and had a good performance in our end-of-season clearance activity. This last piece was particularly important for the outerwear category.

Our strongest women's coats were Calvin Klein and Jessica Simpson. In men's, our strongest brands were Calvin Klein, Tommy Hilfiger, Levi's, and pretty much all our brands are quite good. Our team sports business also concluded an excellent year with good fourth quarter.

Dresses also performed well, though holiday is a smaller season in this category than spring, we have done a good job of creating a broader assortment of seasonally appropriate merchandise for the fall and holiday season. Calvin Klein continued to be the key dress brand in our mix; the Eliza J dress business also performed well. Additionally, while it was a modestly sized launch, it was a good initial performance from our Ivanka Trump dress line.

We grew our sportswear business in both Calvin Klein and Calvin Klein Performance; the Calvin Klein that I am referencing is the sportswear piece of our business. We continue to grow our door counts and achieve greater penetration in existing doors, which drove growth for both lines. Our Kennedy contemporary sportswear business also wrapped up a strong year.

Sportswear did see some price pressure in January toward the end of the fourth quarter. We think it was mostly weather-related, which will also have some margin impact for the category in the first quarter.

Our suits and separates, also anchored by Calvin Klein, have been performing well for us all year and the fourth quarter was not an exception. We are also pleased with our initial launch of Ivanka Trump suit and sportswear separates.

With respect to our retail business, Wilson's continued to perform well during the fourth quarter, with comp sales up almost 9% against better than 12% in the year-ago quarter. Our economics at the store level have improved dramatically over the past two years, and we believe more sales productivity gains will be realized over the next few years.

We wrapped up this year with sales per square foot of approximately $375, up from $350 a year ago. We continue to be optimistic that the Renaissance and the Wilson's brand will be able to support a full-price store opportunity, and we are continuing to open full-price Wilson's source.

Now I'd like to talk briefly about our newest retail business, our GH Bass business, that we acquired from PVH in November. While we have only owned Bass for a short time, we believe there is a lot of opportunity in this business.

As was the case with Wilson's, realizing the opportunities that Bass represents will require significant changes, primarily to merchandising. Our integration of backend systems is progressing well and we expect to be completed -- to complete this project prior to the original target date of July 2014.

Bass is a powerful, authentic, heritage brand. We're working to create stronger assortments, refine the pricing and promotional strategy, and at a higher level, leverage the infrastructure at Wilson's to benefit Bass. While all of this will take a little time, we're excited for our future with this brand.

As indicated, we inherited a business that needs to be improved. Sales at Bass retail stores were down in the high single digits for the fourth quarter, and we have very modest expectation for this year, with increases only expected to occur in the second half of the year. We have a lot of work to do. We'll be deliberate and patient, but we will get it done.

Vilebrequin, our status resort-wear business, continues to be a true leader in the market. We are confident in our management team and the direction they are taking with the brand and the product.

Our wholesale business was good, and our franchise business is improving. Our comparable store sales were up low double digits in the fourth quarter and up mid-single digits for the full year. We intended -- we ended the year with 70 stores and expect to open 10 more over the course of the new year.

The core men's business was healthy, and we saw a good reception to our core styles, as well as some of our new silhouettes. We're in the midst of introducing an improved women's collection, with new product hitting the market this month. I'm pleased to note that our limited collections of suntan lotion and sandals were well received.

Over time, we expect to continue to expand the product portfolio for Vilebrequin. We are confident in our ability to build Vilebrequin into a true lifestyle resort-wear brand for both men and women.

I'll now turn the call over to Neal for a closer review of our financial performance.

Thank you, Morris. For the full fiscal year, we reported net sales of $1.72 billion, an increase of 23% compared to last year's net sales of $1.4 billion. Net sales of licensed products increased 17% to $1.15 billion, from $982 million, and net sales of non-licensed products increased 22% to $343 million from $282 million.

Net sales in our retail segment increased 52% to $298 million from $196 million in the prior year. Increased net sales in our licensed products were primarily driven by increases in the net sales of Calvin Klein products, most significantly in our women's sportswear, suits, hand bag and performance-wear lines. Increased net sales of non-licensed products were primarily attributable to including a full year of net sales from our Vilebrequin business in the current year, compared to less than five months in the prior year.

The increase in net sales of our retail segment was primarily driven by the addition of the GH Bass & Co business, which was acquired in November 2013, as well as by a combination of a higher store count and a comparable store sales increased of 10.7% in our Wilson's business.

The overall gross margin percentage for the 2014 fiscal year was 34.1%, compared to 32.3% in the prior year. Gross margin for the licensed product segments was 28.4%, compared to 28.5% in the prior year. The gross margin percentage for the non-licensed product segment was 33%, compared to 27.8% in the prior year, which is primarily attributable to our Vilebrequin business, which we owned for the full fiscal year and which operates at a higher gross margin percentage than our other non-licensed businesses.

Gross margin percentage for the retail segment was 49.5% this year, compared to 47.8% in the prior year. Gross profit percentage for this segment was positively impacted by less promotional activity and a higher-margin product mix.

SG&A expenses for the year increased $99 million to 25.6% of sales, from 24.1% in the prior year. This increase is primarily attributable to increases in personnel costs, facility costs, and advertising expenses. Increased personnel and facility costs resulted from additional expenses related to our GH Bass & Co business, which was acquired in November 2013, and the inclusion of the Vilebrequin business for a full year in this year, again, compared to less than five months in the prior year. Most of these businesses operate with higher selling, general, and administrative expenses as a percent of sales than the prior mix that existed in the Company.

Personnel costs also increase due to compensation relating to increased profitability, as well as an increased retail store count. Advertising expenses increased primarily due to increased net sales of our licensed products.

Net income for the year increased to $77.4 million, or $3.71 per diluted share, from $56.9 million, or $2.80 per diluted share, in the prior year. On an adjusted basis, excluding expenses associated with the acquisition of GH Bass and other potential transactions this year, and expenses related to the acquisition of Vilebrequin in the prior year, non-GAAP net income per diluted share was $3.74 this year, compared to $2.92 in the prior year.

Regarding our fourth quarter, net sales increased 26% to $473 million, compared to $375 million in last year's comparable quarter. Net sales of licensed products in the quarter increased 6% to $257 million from $244 million, primarily as a result of increased net sales in our Calvin Klein product lines, most significantly in our women's handbag and performance-wear.

Net sales of non-licensed products increased 16% to $89 million from $77 million, primarily due to increases in our Vilebrequin business and increased private label sales. Net sales in our retail segment increased to $156 million from $82 million in last year's comparable quarter, primarily attributable to $62 million of net sales by GH Bass, which was acquired in November 2013. Our net income for the quarter was $13.1 million, or $0.62 per diluted share, compared to $8.1 million, or $0.40 per diluted share in last year's comparable quarter.

Our overall gross margin percentage for the fourth quarter was 35.2%, compared to 31.4% in last year's fourth quarter. Gross margin percentage for our licensed product segment was 24.9% in the fourth quarter, compared to 24.7% in the prior year's quarter. The gross margin percentage for our non-licensed product segment was 29.3%, compared to 24.4% in the prior year's quarter, and for our retail segment was 48.9%, compared to 47.3% in last year's quarter.

SG&A expenses increased $41 million to 29.7% of net sales, from 26%, primarily attributable to the addition of our new GH Bass business.

Regarding our balance sheet, accounts receivable at year end decreased 10% to $160 million from $178 million at the end of the prior year. Our revolving bank debt, less cash on hand balance at year-end decreased to $27 million from $38 million at the end of last year, despite our cash expenditure of approximately $50 million in connection with the acquisition of GH Bass. In addition, we have also approximately $21 million in long-term debt related to promissory notes issued in August 12 as part of the purchase price of Vilebrequin

Our inventory at year end increased 28% to $360 million, from $281 million last year. This increase is consistent with our forecasted first-quarter sales increase. For the 2014 fiscal year, we spent approximately $29 million on capital expenditures, primarily for additional retail stores and Wilson's and Vilebrequin, as well as fixturing costs at department stores.

In terms of guidance, for the fiscal year ending January 31, 2015, we are forecasting net sales to increase 19% to approximately $2.05 billion, compared to $1.72 billion in fiscal 2014; and net income to increase to between $85.2 million and $88.5 million, or between $3.95 to $4.10 per diluted share, as compared to net income of $77.4 million, or $3.71 per diluted share in fiscal year ending January 31, 2014.

We are forecasting fiscal 2015 adjusted EBITDA to grow between 13% and 17% to a range of approximately $166 million to $171.5 million, up from $147 million in fiscal 2014.

With regard to the first quarter ending April 30, 2014, we are forecasting net sales of approximately $346 million, compared to $273 million in the previous year's first quarter. We are also forecasting a net loss between $2 million and $4 million, or between $0.10 and $0.20 per share, compared to net income of $1.1 million or $0.05 per diluted share in the previous year's first quarter. The first-quarter loss is significantly impacted by the GH Bass acquisition.

That concludes my comments, and I will now turn the call back to Morris for closing remarks.

Thank you, Neal. Our performance in fiscal 2014 was excellent, and we continue to have solid opportunities for growth. We have strong platforms, category by category, that we can grow organically and leverage with additional brands. In some brands like Ivanka Trump, we expect to move more quickly with multi-category launches that drive scale into a brand in a way that very few companies can execute.

We will also continue to look for acquisitions. We have access to capital, the skill set, and the drive to build on what is already a strong track record of success in the M&A market.

We believe we can drive meaningful improvement into an already strong -- into already strong businesses like we're doing with Vilebrequin. We believe we can also take a business that is struggling and give it the help it needs to shine. We've done this with Wilson's, and expect to accomplish this with Bass.

Whether growth is organic or through acquisition, we believe we know how to add value. We're great partners with our licensed stores and with our wholesale customers. We create product that resonates with consumers and that provides a superior price-value equation at each tier of distribution.

We are on the right path to continue to deliver value to our licensed stores, customers, and shareholders. We're grateful for your support and recognition and look forward to demonstrating our capabilities again in the year ahead. Thank you.

Operator, we are now ready for some questions.

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Great. Thank you. Good morning. My first question is with respect to the first-quarter guidance, very solid revenue guidance. The outlook obviously impacted by the dilution and part of Bass. Could you parse out two things for us: first, what visibility you have at this point from a top-line perspective as we think about the first quarter?

And then second piece, from the dilution, can you help us think how much of that loss per share is actually from GH Bass, specifically? Thank you.

Sure, Erinn. Well, first-quarter visibility is pretty strong, assuming we have on the wholesale side, we've really got the full order book as a matter of executing and getting distribution. We certainly have on retail, we've got a month in. So we have a significant amount of visibility in terms of first quarter.

In terms of the EPS impact, the GH Bass is significant part of the reduction from the prior year. Without that, we would have had a positive increase for the year quarter.

Okay. That's helpful. Circling back quickly on the visibility that you have, can you parse out what you are seeing from a either sell-through rate perspective in some of those key categories that are important in the spring season, dresses being one of them? And then also what have you seen from an overall retail environment?

Clearly the weather has still been not typical of this time of year. Stores have still been shedding throughout the quarter. Help us think about the retail traffic piece, and then maybe the sell through from those key categories for you in the first quarter.

Hi Erinn. The business in retail for the first quarter was a little difficult. We happen to have some shining stars. The best brand at retail and the dress business is Calvin Klein. Sell-throughs are good. Some of our other brands struggled a little bit.

We believe that our margin contribution to the retailer will be a little bit more than we had originally planned. The sell-throughs, because of the inclement weather and some of the store closing, has definitely impacted retail business, and we believe that we'll have to cooperate more than we had originally planned.

Overall, the business for the future is great. Our order book is much more aggressive than it has been in the past. We have several of the power brands in the industry, and we expect to benefit from their performance and their placement, which is occurring right now.

Spring is a very important season for dresses. And that is pretty much the impact, besides the Bass piece, for our less-than-aggressive position for first quarter.

Okay. Thank you, Morris, that's really helpful. Then Neal back to you, as we think about the dilution, so obviously Q1 it sounds like that's the entire loss per share, so you would've been in an earnings per share. Otherwise, as we get into the second quarter, should we also anticipate a similar level? Or help us think about the balance of the year as you really integrate that business and work towards enhancing profitability.

So, Erin, we're anticipating advance for the full year will be slightly accretive to us, so we'll pick up that loss throughout the balance of the year. And we won't have that -- Q2 will not have that kind of significant impact, with the one proviso that we are in the process of integrating the business into our system. And the timing of that will be important relative to how that performance and the impact on the second quarter is.

Thank you. Edward Yruma, KeyBanc.

Hello. Good morning and thank you for taking my question. Morris, when you did the VBQ acquisition, it seems like one of the things that you did successfully was build some external management talent to help grow that business. As you look at GH Bass, in terms of either the management team that you have or people that you are eyeing, what kind of talent acquisitions do you need to make and what other process improvements do you need to make to get that business to perform?

Well, what we've done pretty much out of the box is pretty much the same thing. We've replaced the leadership. We hired a gentleman by the name of Scott Hoffman, which Scott is, in effect, our Chief Merchant at Bass. He's got an extensive history in casual footwear and he's an excellent retailer.

We replaced some of the field organization. We've hired several people that have origins from Abercrombie, and we're seeing change already. The store appearance, I encourage you to walk in -- if you have a history with the brand, I would encourage you to walk in and recognize the beginning of a transformation into a brand that has a lot of love behind it.

And we've hired Joel Waller who has been involved with us in the past. Joel is an incredible turnaround expert. So Joel has been consulting and spending a couple of weeks a month at Bass and helping in the transition. And better than that, the organization in New York being much closer than we were to Vilebrequin has an influence on how the process is moving, and we're very proud of the acquisition and hope to deliver results to you quickly.

Great. And sorry if I missed it earlier, but I was wondering given the cold weather that you saw this winter, what your new indications were for outerwear bookings for the back half? If you did see more retailer receptivity, given obviously the strong sell-throughs they had this year. Thank you.

We did have strong sell-throughs when the stores were open. There's very little you can do if you are faced with store closings and it's hard to make that up. So we had our share of store closings. The customer was unable to get there and see the value and satisfy the need for their coats this year. So it was a unique balance, sell-throughs when the customer were in the store were great.

The dilution at retail, the markdowns at the retailer had to take were far less than the past. The return factor that we're sometimes faced with is far more conservative than the past. So we wind up with a good year in the coat area, and we project an increase for the coming year, partly because we were faced with store closings, and partly because we have some additional brands and better designs for others and our bookings support the projections. Our bookings are strong going forward.

Great. Thank you so much. Best of luck.

Thank you.

Joan Payson, Barclays.

Hello. Good morning. In terms of the Bass business, could you speak a little bit more to that, in particular, what progress has been made so far? What the early learnings are within that business? And then also when you expect to begin to see more meaningful productivity and profitability improvements in the business?

We're working aggressively in changing the product assortment; that's key. We identified that early on. We acquired this company knowing that there was a weakness in product. We acquired it for brand value, the real estate that it had, the amazing real estate that it had, the fact that we identified management that could support the initiatives that we had in mind, and the fact that it integrated into Wilson's in Minneapolis very, very well.

The changes that we've made, as I said earlier, are some of the top management has been replaced and hopefully improved. We have a licensing agreement with PVH who now licenses the men's wholesale component and their early reads are quite good.

So we'll start to generate some income derived out of licensing royalties. We've had some very aggressive meetings with a vendor in Europe that we're close to an understanding of a future license that would enable distribution in Europe. We're looking at launching a women's wholesale component. We're not quite ready with that; that'll probably be the last piece that we add on and improve.

The early initiatives are the licensing piece, the footwear piece, we are improving on the footwear assortment. We're working closely with Harbor who is the current licensee in the United States on improving the product.

And the wholesale and retail men's initiatives, the men's product, most of it, for our retail stores will be bought from PVH, simply because it looks amazing and we believe that the back end of the year will show a totally different picture. We've had lots of interest from retailers going forward for exclusivity, which we've denied. We like the brand for distribution throughout the country and pretty much throughout the world. So this will be a good asset for us.

Okay. Great. And then Morris, you also mentioned continuing to pursue more acquisitions. Now that you have a strong footwear business or resort-wear business, are there any categories that you are more focused on going forward?

No. I don't think -- well, there's been a focus on improving the scale of our team licensed area. We're a Company of scale today in that arena, but the scale is not enough in our view. We're somewhere around $100 million in wholesale sales, and there is a big gap between what people like Nike and VF do and what we do in that segment. And we would be on the second tier of scale, so I think we have a good deal of room there, so we aggressively search for either acquisitions or additional assets to improve on that business.

And beyond that, our palate is quite broad. We're able to integrate most companies in our Company. We are not focused on retail. We're not focused on men's, women's; we are focused on good companies that we could add value to, that we could either identify management to help us with or existing management. So we've succeeded in both cases.

We've acquired companies where there was no management and we've got traction on it, that would be Vilebrequin. And we acquired companies with great management, that there was possible risk of that management leaving, while that management stayed when we acquired some of the Calvin assets and some of the Guess assets.

So our culture is that of respect and understanding of the needs of management, and we're wide open in to what we can integrate.

Okay. Great. Thank you.

Thank you, Joan.

Rick Patel, Stephens.

Good morning, everyone, and congratulations on the strong year. A question on the Bass acquisition, you've owned it for a few months now and highlighted some key opportunities to improve the business. What do you consider to be the low-hanging fruit for the improvements versus what you -- what the longer-term challenges will be for improving that business?

And as we think about accretion in the back half of the year, is it safe to assume that you'll get there through a better expense structure or is a better top line also part of that assumption?

Well, the low-hanging fruit, I identify licensing as being virtually not existed, so we believe that we can create a licensing revenue quickly. We won't derive very much of that benefit this year, but there will be a strong business. And if you value simply the cash flow that the licenses will generate compared to what we paid for the company, it would be an amazing acquisition.

The other piece of low-hanging fruit is improving on the product. The product was very, very poor for many reasons, but we believe we can have an influence on that quickly.

Our process right now is pretty much in liquidating the inventory that exists, and that's a little bit painful, but it's the appropriate thing to do. And then for the back half of the year, infuse superior product with good price points, and we're off to the races.

We're going to impact volume per square foot somewhat dramatically this year, the same as we did with Wilson's. When we acquired Wilson's, the volume per square foot was approximately $250 a square foot, and we've obtained this year approximately $375 of square foot.

At Bass, we are starting at a lower level with what we believe is even better real estate, where we're at $225 a foot, and we believe that we can -- because of the footwear component, the locations of the stores, and the structure that we've implemented, we believe we can beat the Wilson numbers. And on top of it, we add-on, as I said earlier, the licensing revenue and the global reach that this brand has.

Great, and then a question for Neal. Neal, can you give us a little bit more color on the Bass business for modeling purposes? I'm curious, perhaps, if you can talk about how we should be weighting sales by quarter. And perhaps, if there is any quarters where gross margin or SG&A is particularly skewed towards and also how the deal is going to have an impact on your longer-term corporate tax rate?

So in terms of the quarterly flow top-line, the first quarter is the weakest quarter, followed by the second, and Q3 and Q4 are pretty comparable. I mentioned the earnings before, we expect to be slightly accretive for the whole year. And those earnings will be, as Morris indicated, more back-ended weighted, with Q2 being a quarter that is impacted by how quickly we get out of our transition.

In terms of tax rate, we don't see any change in the tax rate as a result of the GH Bass.

Great, and then a last question on Wilson's, can you update us on your thinking for the full-price store opportunity? Curious how the stores you've rolled out so far are doing and at what point you'd look to accelerate those efforts? Thank you.

We've opened about a dozen stores. They are doing fine. We've made some mistakes that we are improving on, and we believe store design needs to be modified and so does product.

We are on it, and we are still very aggressive on the prospects of opening those stores. We're opening several more this year, and we are on expansion mode. There's no reason that this won't work.

And as we gain proficiencies in other classifications, there's nothing that says that we can't integrate some of the footwear that we learn about into some of the Wilson's stores. So the idea is get better every day.

We're on -- we're still on the mode of improving who we are in the malls, as I said. We're not very happy with the store design, and we are modifying it right now.

Thank you very much.

Thank you.

Eric Beder, Brean Capital.

Good morning. Congratulations on the solid quarter. Hello?

Thank you, Eric.

Okay. In terms -- could you tell us a little bit about the Ivanka Trump rollout and how that is going to come out through the system here? And when you -- and also talk about Calvin Klein Performance. I know you've been opening stores with a licensee in China. How do you look -- how is Calvin Klein Performance doing, and where you see that going in the years ahead?

Let me start with Ivanka. We've built an amazing show room, and again, hired great talent to run that area of our business. The product is superior. It was one of the better launches that our Company has had. We've distributed dresses and suit and sportswear separates to our retailers.

We believe that in our assortment, that we would classify Ivanka as a power brand. We have uniquely, we have pretty much all of the apparel components to that brand. Our license is fairly comprehensive, and as we launch areas of business, our cooperation with Ivanka is great. She's a personality that does play an active role. We're proud of that agreement, and you'll see some wonderful things in the near future as it relates to Ivanka.

And as we were talking about CK Performance, domestically, we have two additional letter of intents for leases or located -- one location in New Jersey and another one in Minneapolis; that would bring us to a total of five. We currently have three open, one in Scottsdale, one in San Francisco, the third one recently opened in Las Vegas.

We are doing well. It's also been a learning expense. We are improving on the product regularly. We're understanding what the consumer wants, and we're seeing major improvements in our first store.

Our Scottsdale store started off very well and then it slipped a little bit, and today it's improved dramatically. It's far better than it's ever been. Comp sales are up significantly there; they are up somewhere, I think it's about 22% comp to last year. And it's an exciting number for us, and we're continuing to open stores domestically.

As it relates to our business in China, we currently have approximately 25 stores, the stores are not profitable. We have a partner in China that owns 49% of the entity, he's the operating partner; we're the provider of the product.

And China is not an easy market for us to conquer just yet. A lot of people have attempted China. We're tempering our growth, and we're deciding about what our future strategy should be with China.

Okay, and a quick update on the Calvin Klein handbags: I know you talked that you were going to see significant increases indoors. How has the response been to the Calvin Klein handbags and where do you see that going this year?

Calvin Klein handbags is growing very nicely; it's one of our better growth areas. I said early on that this classification of business has a potential of growing to a $200-million business. I still stand by that.

Our wholesale sales are up approximately 40% against last year. Our door count is up 25% against last year.

What we've done that's made a difference is we've spent some money on building shops and hiring talent for managing those shops. Last year we had 18 shops, and this year we've added 30 more, and we are continuing to evaluate where we should open additional shops.

It's not only the shops; what we've done is we've hired people to manage those shops. They are on our payroll, not the department store's payroll.

So what we have is a regional manager, and we have -- we're testing this concept first in Florida where we have an in-store employee and we have a regional manager that those employees report to, and that's made a huge difference in store performance. And as we get more proficient in how to manage those people, we will expand that concept hopefully nationally.

So we're excited by handbags. It's definitely a growth area for us, and we're likely to expand into other brands as we learn this business better.

John Kernan, Cowen and Co.

Hello. Good morning, guys.

Good morning, John.

A little bit of a follow-up to a prior question, how do you feel inventory is in this wholesale channel? Macy's just came out with some comments that they are seeing a highly promotional environment, that consumers haven't really responded that well yet to spring offerings. So wondering beyond the inventory levels in outerwear throughout the entire portfolio, how do you feel inventory levels are in the wholesale channel, given where we are in the promotional cycle?

There are really two questions there. The first one, the coat inventory is relatively low. I addressed that a little bit earlier in saying that we believe we are okay on either mark-down allowances and the return factor, simply because there's less inventory in the system.

There is the question as it relates to spring inventory a little bit different. There is inventory, and there is likely to be additional markdowns to move that inventory. There are a few -- a solid few weeks missed at good retail, and there is likely to be some additional markdowns taken to move that inventory and we've got that in our budget. We anticipate that.

So we think we've planned it well. We are conscious of it. And we move forward. This is just a moment in time. It's a first-quarter issue.

Okay, and then shifting to Wilson's, the productivity recovery here has been pretty outstanding and dramatic. Where do you think we are -- what inning are we in there? And what's been the biggest driver of the improvement? Is it traffic? Is it ticket? What is embedded in your outlook, in the top-line outlook this year for Wilson's on a top-line basis? Thank you.

We have in our Wilson's plan, we have double-digit -- low double-digit increase plan. We attribute it to solid management and in improvement of management. If you walked into Wilson's of today versus the Wilson's of three years ago, you would see a big percentage of our staff has been improved.

We hired, as I said earlier, some talent for the field from Abercrombie primarily. We were lucky enough to be able to attract them. As we were improving our business, it became easier to garner top talent, so that talent now exists at Wilson's and is motivating our people very, very well and we are seeing an improvement.

We're building better product. We're -- as our wholesale grows and our designs improve through our wholesale offerings, Wilson's has the opportunity to walk through 17 floors of different brands and decide what's appropriate for them. And we've modified it to be more Wilson's specific. We've expanded our handbag business at Wilson's, and we are able to get now improved real estate.

When a company is doing well, everybody wants to be part of that company, so the developers are calling us for better real estate. We're able to negotiate better deals. Our [fixed during] expenses are coming down per store, so it's costing us less to build the stores. We're -- we have lots of opportunities yet at Wilson's.

Jim Duffy, Stifel.

Thank you. Good morning. A couple of questions. You've done very well to diversify. If you look out to the plan for FY15, where do coats stand as a percent of the business at this standpoint?

Coats continue to come down a little bit, Jim. They are probably going to go down to about 41% of our wholesale business, down slightly probably from the current year, which was low 40%s.

Thank you for that. And then Morris, from a strategic standpoint, what do you see as key whitespace opportunities to add to the portfolio? Maybe it's classifications or channels of distribution? Do see more opportunity on the wholesale side or would you expect future acquisitions to be more focused on direct to consumer? Any perspective there would be helpful.

Our core business is wholesale. So if I leaned toward anything, I would tell you that I'd lean towards opportunities at wholesale. What's happening in the department store sector is there is a consolidation of brands; there is a consolidation of departments in many forms. So the strong seem to be surviving and flourishing.

Fortunately for us, as some of the brands evaporate, we get additional space in the department stores. And as I said a little bit earlier, referencing people wanting to be part of success, I would tell you we have no problem negotiating space, opportunities, and pretty much anything we need at the department store sector. We've become amazing partners and with the department store operators, and it's reciprocated. They are also amazing partners to us.

So the growth, in my mind, would be the existing assets that we have that we leverage into greater space and broader product assortments that the department stores are likely to give us. So we're concentrating on our core distribution and expanding on it and adding talent to help us better understand the needs of the consumer and the department store sector. That would be the one area that you could look for major, major improvement without an acquisition.

Got you. And then shifting gears to Vilebrequin, comps really saw progress across the year. Clearly some of the new merchandising efforts are gaining traction. How accretive was Vilebrequin in the FY14, Neal?

It was an accretive event for us, Jim.

Can you put some shape around that?

We haven't been breaking it out separately. I can tell you that we certainly saw good improvement; we had a loss last year. Business is still small relative to our total Company, but it was a positive

I will tell you that in terms of operating margin, the business is really now at a mid-single-digit operating margin business, so that should give you some good color. And we're looking for some improvement into the probably high single-digit operating margin for next year.

Good to hear. And then last question, the gross margin really stand out in the fourth quarter, some of that presumably from reversal of markdown accruals. How should we think about that as a compare looking out to fourth quarter next year?

Yes.

Or I should say in FY15.

Gross margin in Q4 is not so much a reversal situation for us; it really is -- we did have a strong outerwear season. We perform well across the retail businesses as well. So that's really what drove it. I don't think there was anything that unusual that we couldn't be anniversarying again next year.

Good to hear. Thank you so much guys.

Thank you Jim.

(Operator Instructions)

David Glick, Buckingham.

Good morning. Thank you. Neal, I wanted to dig in a little bit further on your comments on Bass for Q1. From understanding what you said correctly, it sounds like it's at least a $0.20 loss for the quarter, and I'm trying to understand how much of that is driven by the transition service agreement, how much of that is typically -- obviously Q1 is probably the smallest volume quarter for Bass. So I trying to understand how much of that loss really goes away, how much sticks with you going forward.

And then I have a follow-up.

Yes. So you're right on your estimate. As far as the impact on the EPS, it's around that $0.20 impact for the year for the first quarter. Not really -- it's a little challenging to split out that transition services cost, because some of those, while they are direct from PVH, some of those are internally expenses that we are starting to absorb and build as we replace it.

So that's a little bit more challenging for us to come up with. And as I mentioned earlier, we do see that. In terms of the full year, we see a slightly accretive events, and therefore, we see it coming at us in terms of an EPS impact more significantly in the Q3 and Q4 period.

Okay, and then a follow-up on your outlook. If you segregate out your projections for Bass, which I presume are probably somewhere around $250 million in sales or thereabouts, can you again give us a sense for what the organic revenue growth is for your key business? As you mentioned, Wilson's up low doubles.

Trying to get a sense for when you strip out the noise of the Bass acquisition and the transitory impact on your P&L, your guidance obviously was lower than expected. But trying to get a better sense if you strip it out, what kind of top-line growth and sales -- earnings growth you are really looking at here.

Right. So we indicated about 19% total full-year growth in top line. If the high end of our range were about 10% top-line growth in terms of EPS; the organic growth is about half of that. And I mentioned that Bass will be slightly accretive, so you can see that most of that earnings growth is from the organic, in fact, almost entirely from the organic business.

Okay. Great. Thank you very much. Good luck.

Thank you, David.

Michael Richardson, Sidoti.

Yes. Good morning and thank you for taking my question. I have actually two questions.

One I wanted to follow-up on inventory issue or question from earlier. It looks like inventory is up about 28%, 29% year over year. Are you comfortable with inventory levels? And what amount is attributable to GH Bass?

And then I apologize if I missed this earlier, but Neal, did you give CapEx guidance for the coming year?

Yes. So Michael I did not give CapEx guidance. This year we spent about $29 [million], and we expect next year it will be something comparable to that. That's primarily for the development, again, of the retail at Wilson's, Vilebrequin, and then fixturing with department stores.

The first part of your question again?

It had to do with inventory; it's up about 28%, 29% year over year. Comfortable with inventory levels, and then what amount would be attributable to GH Bass?

Right. So very comfortable with inventory levels overall. The total increase is about 28%. Again, the Q1 sales forecast is about 27%. Bass was about half of that increase.

As we mentioned, the outerwear inventories are probably in better shape than they've ever been at the Company, especially in light of the size of the business. And the non-outerwear pieces of our inventory are also in good shape.

Thank you very much.

Thank you, Michael.

Thank you. We have no further questions at this time. I will now turn the call over to Mr. Morris Goldfarb for closing remarks.

Thank you for listening to our story and have a great day.

Thank you. And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.