G-III Apparel Group Ltd (GIII) 2015 Q2 法說會逐字稿

Welcome to the GIII Apparel Group second-quarter FY15 earnings conference call. My name is Lorraine and I'll be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I would now like to 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. 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 adjusted EBITDA which is a non-GAAP number. We have provided a reconciliation of our adjusted EBITDA to our net income according to GAAP in our press release and on our website.

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

Good morning and thank you for joining us. With me today are Sammy Aaron, our Vice Chairman; Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; and Jeff Goldfarb, our Director of Strategic Planning.

We had a strong second quarter, with our financial performance beating both last year and our forecast. Our broad diversification, careful planning and ability to focus and execute across the organization enabled us to drive broad growth. I'd like to start with a few highlights from the quarter.

Our net sales were up 39% to $424 million. This was better than our plan. Similar to the first quarter, our growth reflects significant outperformance in our wholesale business.

Our specialty retail sales, primarily located in outlet centers, were somewhat weaker than planned. We reported net income per diluted share of $0.29 compared to $0.19 per share last year. This was also better than our plan.

Our inventory position is clean and this puts us in good shape for the second half. As Neal will detail, we are increasing our net income guidance to reflect the strong second quarter.

In June, we successfully completed a secondary offering that resulted in net proceeds to the Company of $129 million. This strength in capital base helps ensure the continued implementation of our long-term growth strategy.

Our wholesale business, which represented about 76% of our net sales in the quarter, performed well. Calvin Klein continues to occupy a strong position with consumers and is prominent across the floor sets of our department store customers.

Our dress business had another strong quarter, led by Calvin Klein. We are also pleased with the performance of the balance of our brands in dresses, including Eliza J which was a stand out performer, Jessica Simpson, Guess?, Jessica Howard and Vince Camuto. Overall in dresses we're looking forward to a good fall. And based on our customer meetings thus far, we expect a strong solid pace of spring 2015 bookings in this category.

Calvin Klein sportswear achieved its plan for the quarter. We're working hard to improve our performance by increasing attention to fashion as well as inventory planning. Our Kensie contemporary shortswear line shipped well in a challenging overall market. Calvin Klein performance had another good quarter with strong increases in sales and margins.

Our Calvin Klein suit business also shipped well for the quarter. Calvin Klein continues to be the dominant brand in the suit department.

Ivanka Trump dresses and sportswear shipped well for the quarter, and we remain confident in our plan to build this brand into $100 million a year business. We are excited for our first shipments of the new Ivanka coat line in the third quarter.

We're off to a fast start with outerwear, led by sales increases for Calvin Klein, Kenneth Cole, Cole Haan, Tommy Hilfiger, Guess? and Jessica Simpson outerwear. While some of this strength is due to accelerated early shipments, I'd note that last year's outerwear season ended clean and we have our sights set on another good outerwear season this year.

Our team sports business had another solid quarter of sales and profits. Overall we're quite pleased with the momentum of our apparel business as we move into the second half of the year.

Calvin Klein handbags continued to be among our fastest growing initiatives, even in a more promotional hand bag environment. Our net sales increase was significant. And this remains a category that we believe can become increasingly meaningful for all of us over time.

Now I'll turn to our specialty retail business. We continue to transition out of old product in our recently acquired GH Bass business. The inventory we acquired, including open purchase orders, continued to sell at low margin and resulted in losses again in the second quarter.

New product assortments, which are key to improving performance, are now flowing into our Bass stores. We expect to have transition to our new merchandise plan early in the fourth quarter. We're systematically addressing the look of the stores, store level staffing, marketing, and product. And we are excited about the revitalization of the GH Bass brand into a strong, healthy business.

Our Wilsons business operated below plan for June and July, which we believe resulted from soft traffic that drove flat comps in the quarter. We're pleased to have seen comps turn positive in August, which showed a comp sales increase of 6%. We believe we are well assorted for the key seasons for this concept and expect a strong full-year performance.

We continue to build out Vilebrequin stores and now have 81 Company-owned stores worldwide. Vilebrequin comp sales were up in the low single digits for its quarter ended June 30. We're pleased with the direction of Vilebrequin's business and we are making steady progress in refining our ready-to-wear lines as we continue to diversify our product lines.

I will reserve some additional comments for closing but will now turn the call over to Neal Nackman, our Chief Financial Officer, for a closer look at the numbers for the quarter. Neal?

Thank you. Net income for the second quarter was $6.2 million or $0.29 per diluted share, compared to net income of $3.6 million or $0.17 per diluted share in the prior year's comparable period. Net sales for the quarter ended July 31, 2014 increased 39% to $424 million from $304 million in the same period last year.

Net sales of license products increased to $254 million from $202 million driven by increased sales of Calvin Klein licensed product, primarily in women's performance wear, and outerwear categories across several brands. Net sales of non-licensed products increased to $87 million this quarter from $70 million in the comparable quarter of last year. This increase is primarily related to an increase in net sales of private label programs.

Net sales of our retail operations increased to $100 million from $41 million in the prior year, primarily attributable to the addition of net sales from our GH Bass business acquired in November 2013. In addition, Wilsons had increased sales as a result of new stores.

Our gross profit percentage was 34.9% in the three-month period ended July 31, 2014 compared to 32.7% in the prior year's period. The gross profit percentage in our license product segment was 27.3% this quarter compared to 27.1% in the prior year. The gross profit percentage in our non-license product segment was 37.8% compared to 34.9% in the prior year. This increase was attributable to higher gross margin in the Jessica Howard and Eliza J dress lines.

The gross margin percentage in our retail operation segment was 45.6% compared to 49% in the prior year's period. The decrease is primarily due to our new GH Bass business operating at a lower gross profit percentage than our overall retail business and higher markdowns granted by Wilsons.

Total SG&A excluding depreciation and amortization increased to $131.6 million in the quarter compared to $89 million in the prior year period. This increase is primarily attributable to additional selling, general and administrative expenses associated with our new GH Bass business, as well as expenses associated with our growth in sales and overall increased retail store count.

Regarding our balance sheet, accounts receivable increased 19% to $193 million from $163 million at the end of the prior-year second quarter. Inventory increased approximately 31% to $534 million compared to $406 million at the end of the second quarter in the previous year. The inventory increase, excluding GH Bass, is approximately 16% and in line with our forecasted sales growth.

Our bank debt less cash balances on hand decreased to $23.5 million from $105.6 million at the end of last year's second quarter, primarily as a result of proceeds from our stock offering in June 2014 offset in part by our payment of the purchase price for the acquisition of GH Bass in November 2013. We have spent approximately $21 million on capital expenditures during the first six months of our fiscal year and continue to expect our capital expenditures to be between $30 million and $32 million for FY15. This is primarily due to the integration of the GH Bass business onto our distribution platform, leasehold improvements for new Wilsons and Vilebrequin stores, and fixturing costs at department stores.

Lastly, I would like to discuss our guidance for the full fiscal year and the third quarter. For the fiscal year ending January 31, 2015, we are now forecasting net sales of approximately $2.11 billion, up from our previous forecast of $2.06 billion. This would be an increase of approximately 23% from the $1.72 billion of net sales in FY14.

We are increasing our forecasted net income to between $90.6 million and $93.9 million compared to our previous forecast of between $87.9 million and $91.2 million. We are now forecasting net income per share between $4 and $4.15 per diluted share compared to our previous forecast range of between $4.05 and $4.20.

Our revised guidance includes the effect of our issuance of 1,725,000 shares in our recent public offering, which impacts our forecasted net income per diluted share for the year by $0.16. Our revised guidance compares to net income of $3.71 per share in FY14. We are forecasting adjusted EBITDA for FY15 to grow between 18% and 22% to between $174 million and $179.4 million compared to $147 million in FY14.

With respect to our third quarter guidance, we are forecasting net sales to increase to approximately $805 million in this year's third quarter, an increase of 20% from the $669 million of net sales in the comparable quarter in the prior year. We are forecasting net income between $63.9 million and $67.3 million, or between $2.75 and $2.90 per diluted share, for the third quarter, compared to net income of $59.6 million or $2.85 per diluted share in the previous year's third quarter. Our revised guidance includes the effect of our issuance of 1,725,000 shares in the recent public offering, which impacts our forecasted net income per diluted share for the quarter by $0.21 per share.

Net income in the prior year's third quarter and full year included expenses of approximately $1 million equal to $0.03 per diluted share associated with the Company's acquisition of GH Bass & Co., and other potential transactions.

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

We are pleased to have beaten plan in the second quarter and to be in a position to increase our full-year net income guidance. We're executing well in an overall tough retail environment. We continue to challenge ourselves to do better. We are intensely self-aware and self-critical.

This is particularly true in the context of our growth strategy which calls for both organic and acquisition growth. Our latest acquisition project, Bass, is on a good path but still requires careful management to achieve our goals. Our long-term goals incorporate not only a strong outlet business but also the reestablishment of a full-priced Bass wholesale business, and as a brand owner the potential for licensing income. I think that before long, this will be another good example of our ability to reinvigorate a struggling or neglected but essentially sound business.

I'd like to thank our shareholders and analysts on the call today for your continued interest and support, our customers and partners for their contribution to our success, and our employees and management team for their continued hard work and dedication. Our FY15 is progressing well and we are excited about the opportunities we have in the second half.

Thank you, operator, and we're ready to take some questions.

(Operator Instructions)

Our first question come from Erinn Murphy from Piper Jaffrey.

Great, thank you. Good morning and congratulations on an excellent second quarter. Morris, I was just hoping for you, if you could maybe just help us understand how you're viewing the M&A environment right now. What kind of profile are you looking at as you think about acquisitions that some of the money that you raised during your offering could be worked towards?

We're pretty consistent. What we're looking for is a brand that should be a global brand, but if not global at least an American brand that we can transition overseas. We would like it to be a brand that is established, has a management team, and has the capability of expanding from where it currently sits in multiple classifications and direct-to-consumer through online initiatives as well as brick and mortar.

And in terms of just the overall environment right now, how has that just M&A environment evolved over the last couple of months since the offering?

We've been fairly aggressive. We continue to look at opportunities. There are some that exist. They're not very easy to harness and bring to closure, but we spend a good deal of time looking at appropriate opportunities.

That's great to hear. And then, Neal, for you, just on the Bass dilution during the second quarter could you just help us break out how dilutive that was? And as we think about the back half of this year, what's the potential for that deal to start being accretive as we get into the third and fourth quarter?

Erinn, we're not giving out the specifics because the businesses are now intertwined with the Wilsons business. It's certainly, there were losses at the four wall basis that were greater than we had anticipated. And we're a little disappointed. We thought this event, the Bass acquisition this year, could have been a somewhat neutral event. We are thinking that certainly for the full year this year it will be dilutive.

We're still very confident and hopeful that in the fourth quarter we start to see some positive results, both top line as well as operating profit on the business. And as Morris indicated, all of the things we're doing at the store level, including changing the merchandising, getting new merchandising in, we hope will help us be able to make that come true in the fourth quarter.

Erinn, I might add that for really the last week or 10 days, we're seeing improvements in Bass as our new product hits the stores. I think we've done some amazing things in a short period of time. The blunder that we made -- I'll call it a blunder -- is that we exited the transitional services that PVH was doing for us. We thought that it was time for us to move on and integrate it into Wilsons. We could have used another three months.

The product is now refined. If you walk into a store today, and you have a memory of walking into one six months ago, you see a definitive difference in the way you're treated as you walk in, the store appearance. And as of the last week or 10 days you're seeing different products. So, I think the combination of all that we achieved is really a great story for the future.

Great, that's good to hear, guys. And best of luck.

Our next question comes from Rick Patel from Stephens Inc.

Hey, good morning, everyone. Congrats on the excellent quarter. As we think about the Bass accretion beyond this year, do you see this as something that's more a gross profit or SG&A oriented? I'm curious where the upside is really going to come from.

And then beyond this year how do we think about the growth profile for this concept? Will sales look to grow in the low single-digit range? Is it high single digits? Any color there.

Look, we stepped into a business that has been trending down and not making money, so we have lots of improvement across lots of different areas. The sales productivity per square foot is in the mid $200s -- mid to low $200s. We think that there's certainly tremendous amounts of upside in terms of that productivity on the top line. The gross margins are in the low 40% range. We think there's no reason why those shouldn't improve up into certainly the 50% range.

I think that as we continue to do that we'll see SG&A leverage. So, there's really lots of plenty of potential to improve the retail part of the footprint. And then we also think that it's a great brand in terms of expanding to wholesale, as well as potentially international expansion, as well. So, really, the brand has potential on many different levels and we expect to exploit them all.

Rick, I'm going to answer that a little bit. We have a couple of very important licenses that we've signed, and we have many more that we believe we will be signing for the brand. PVH is doing the men's apparel. They are shipping, literally as we speak, an initiative to Macy's for 300 doors showcasing the men's apparel piece.

We will generate income from licensing revenue from PVH. And we've signed a very unique license for footwear with the UK-based firm called Overland. Overland is, in my opinion, one of the premier footwear wholesalers in Europe. And they're taking this initiative very seriously.

We plan on taking the women's apparel and developing a strong collection in-house. And there are several other categories that we've seen a good deal of interest to sign licenses for. So, you'll see some major changes over the coming months.

All right, that's great to hear. Then I also have a question on sourcing costs going forward. Cotton prices have come down a lot this summer. I'm curious what this means for your business in terms of the margin opportunity next year. If you can highlight just how much cotton represents perhaps as a percentage of your cost of goods that would be very helpful. And if you can also highlight if we do see a benefit next year around which quarter would we see that flow through?

Cotton is not an important commodity for us. If we go back to Bass, the first thing that resonates for me, Bass might be the area of our business that would use a fair amount of cotton and it's not a very big component to our business. So, the impact would be negligible. Our down business, which is a big component to our overall outerwear business, we should see a margin enhancement for the future. The price of down has come down. As we begin to plan our business for next year, I think the opportunities are significant for enhanced margin for the coming year in the down business.

Thanks guys. Good luck this fall.

Our next question comes from Ed Yruma from KeyBanc Capital Markets.

Hi, good morning, and congratulations on an outstanding quarter. Morris, you mentioned that there was some early receipts of outerwear. From a modeling perspective or flow perspective how should we think about the implications for the balance of the year, given the seasonality of that business?

I can only give it to you by comparison. Our outerwear business year to date is a little bit stronger than it was a year ago. We get an early read from Nordstrom's in their anniversary sale.

One of our items, actually it was a Kenneth Cole item, was possibly the best outerwear piece in the sale. That's a strong indication. It gives us comfort in the classification that we produced for the catalog that will prove out to be a good classification for us for the future. And our business at Macy's is showing strength compared to last year. So, we're comfortable that we're on the road to having a good season.

Great. And there seems to be lots of discussion in the industry about weakness in women's sportswear. I know both Calvin and Kensie had solid quarters. As we think about those businesses going forward are you concerned about inventory levels at retail? And how do you expect to outperform what looks to be a very struggling subsector? Thank you.

We're generally that Company that achieves in a struggling environment. We know that we have challenges. We believe that we can enhance our design, which we're doing currently for Calvin Klein to help the sell-throughs. Design quality and pricing is a key component to how you might perform. We can control those.

We can't control weather. We can't control the economic environment. But we do everything that is humanly possible to insulate ourselves from failure. We're just that Company that figures it out. And if we're down a path that proves out to be a path that is not profitable, we make our changes immediately. We're still small enough where we can react and respond and correct the path that might not be the suitable path for a season.

So, we're comfortable with both our sportswear brands. And, Ed, you are right. It is a tough classification, and it's challenging. Deliveries are constantly flowing and you need to ensure yourself that your old deliveries are selling through as fast as humanly possible to make room for new deliveries. And we do that. We have people on the floor. We spend enormous amounts of time analyzing pricing, the flow of product, the presentation of product. And the combination of all of it seems to work for us.

Great, thanks so much.

Our next question comes from Joan Payson from Barclays.

Hi, good morning and congratulations on the great results. Just in terms of the top-line growth, you've had very strong organic growth in the first half of the year, and it looks like full-year guidance implies some deceleration in the back half. Could you maybe talk a little bit about what's driving that?

What happened in the second quarter, a little bit of accelerated shipping on the outerwear side. And we're kind of responding to it. We don't want to be too aggressive. We believe we had a really good second quarter.

But we're still in the early stages of our business cycle. A big percentage of our outerwear business is done in fourth quarter. We have a large dependency on fourth-quarter sales to the stores and sell-throughs at the store level.

When we look at some of our other businesses, we look at Bass, Bass is a level business throughout the year. And if you look at Wilsons and you look at our outerwear business, it's skewed quite heavily toward November and December sales. And our visibility is just not clear enough today to respond in more aggressive form.

But we're comfortable that we're in really good shape for the year. Our order book is strong. And the quality of the orders are very good. So we arrive at what we believe is a fair estimate for the remainder of the year.

Okay, great. And then on the promotional side could you just talk a little bit about the promotional environment in the quarter, maybe what you've seen in August since then? And then you did mention the clean inventory position right now. Is there a way for us to think about the inventory increase or what it would have been excluding GH Bass? And also if just the overall marketplace is better positioned on inventory.

Just taking the last part of the question first, I indicated that the increase in inventory without GH Bass is about 16%, which is certainly more in line with the forecasted sales growth.

Addressing the promotional component of our business, we're highly dependent on department store margins. And when business is tough the tendency is a retailer responds with creating a unique promotion to drive business. As the foot traffic is not what retailers expect it to be, they tend to promote product and try to bring foot traffic in.

But everybody's goal is to maximize margin and come out with a profitable year. Yet one does what one needs to do when there is no traffic. We believe that there's nothing unique about this year. We believe that the promotions that are planned are all acceptable. And we believe that margins that we will attain and the department stores will attain will be very acceptable to the market.

Great, thank you.

Our next question comes from Eric Beder from Wunderlich Securities.

Good morning. Let me add my congratulations on a solid quarter. Could you talk a little bit about some of the newer initiatives like Ivanka Trump? Where do you see that going? How has the acceptance of that rollout been for you?

I'll start with Ivanka herself. She's an amazing partner, she's very much engaged in the process. She does her appearances as she needs to, and she's eager to help in any form that's necessary.

We shipped dresses. The dresses did okay. No different than when we launched Calvin or Guess? or any one of our brands. We found some items that were exceptionally good and we found some that weren't. So, what we do is we expand the areas that were good and we eliminate the ones that were bad, and we build a collection the second time that's better than the first time.

Our coats have yet to be shipped. We will be shipping this month. We're proud of what we've created. The order book is strong. It's different. It's got its own DNA. It's different than the rest of what we do in the Company. And we're conformable that it will be a strong brand on the selling floor in the coat area.

And we shipped a little bit of swim wear that did quite well. So, the brand is still on track, we believe, to break $100 million in business over a short period of time. We're very happy with the association. We're happy with the brand and the brand is widely accepted by our retail customers.

Thanks. In terms of dresses, we're now entering the second season for dresses, usually it's not as strong as first half of the year. How do you look at the dress business for the back half of this year? And could you give us how are you thinking about it for next year in terms of growth prospects?

The dress business has had -- this is not the second year. This is the third or fourth year of solid good dress business. And what we've done historically is we have combinations in our licenses of suits and dresses.

As dresses become less desirable -- which we haven't seen a slowdown at all. We're doing so many different fabrications, we're doing pontees, we're doing knits and they're stronger today than they were a year ago. We don't see a slowdown at all.

What we're working at hard is the design to be different and deliver a different collection every eight weeks, is a major feat and we're doing it. We've shored up our design. Our design travels, to both to find creative and to work on production overseas, more aggressively than in any other classification that we do. And I don't believe there is a slowdown.

Dresses have been here forever. I think the solution is design, fabrication and just being pure to the brand that you're producing. So, I don't really see or have a concern for the dress business slowing down.

I guess what we have done as a Company is we've become less volatile in any one classification than ever before. We've shored up our business where today we can say we're an all-encompassing apparel company. You've got to remember, Eric, we were a leather company, then a coat company, then maybe a dress company, then maybe a little sportswear, then maybe also a retailer. And, today, we're proficient in every area. So, I no longer have a concern for one classification slowing down.

Okay. And, finally outerwear, you mentioned that you've had some strong initial orders. What has your thought process on inventory? Are you going to chase on the outerwear? What are you plan and thoughts on how you're going to manage the outerwear inventory going forward?

Outerwear is one of the areas that we can respond quickly. We have relationships with our factories where they take the burden of risk on owning piece goods and they respond incredibly quickly in that area. They've had a lot of experience with us. They've never gotten hurt.

We put ourselves in what one might classify in the chase mode in the coat area on a regular basis. We have a fair amount of inventory to go through. We're comfortable with the level that we're at. And we have the ability of addressing unique sales that might occur.

So, it's, again, an area that we're very comfortable with. We can contract and we can expand almost at will.

Great, thank you and congratulations again.

(Operator Instructions)

Our next question comes from John Kernan from Cowen.

Good morning, guys. It just sounds like Vilebrequin had the best comps out of all your retail business. Can you remind us of the brand extension efforts you have going on there, along with where you are on the profitability curve for that brand? I think it used to operate at double-digit operating margins. I'm just trying to understand how much it is contributing to your profitability at this point.

The numbers that you see on Vilebrequin go through -- they have a different year end -- they go through June so you don't have the visibility of July and August. It was okay. We're pleased with it. I wouldn't classify it as our best area. We've got a lot of work to do in Vilebrequin, as well. We're pleased with it.

If we look at the scale of Vilebrequin as a whole it's maybe less than 5% of what the total Company does. So, the impact of its earnings currently are not sensational.

The brand is amazing. The management team that is running the brand matches the brand. They are also amazing.

What we're working on is the solution for the ready-to-wear. We're also licensing several classifications. We have a footwear license in Europe with the same end that has Bass. PVH is launching in a soft way some very unique, very high-end ties that will retail at Bergdorf Goodman and Neiman Marcus park us and Saks. So, the visibility of the brand will increase dramatically over time.

But to focus on its current earnings would be inappropriate. We are expanding our door count. We are buying back some of our franchisees in different parts of the world for different reasons. Some are under capitalized. This is an initiative we started the day we bought the Company.

So, it takes a little while, but simultaneously with refining the organization and the structure of the stores, we're building great products. Again, we give you visibility as we have it. And I think you'll see better product in ready-to-wear in the stores this coming year, and that will make an impact to the stores, and maybe a little bit more so for GIII as a whole.

John, just to add in terms of the operating margins of the business, what we've said is Vilebrequin last year was about a mid single-digit operating performer. This year we expect it to be a high single-digit operating margin performer. And prospectively we think this brand, being in the luxury space, will be probably one of the higher operating margins in the business in the 15% to 20% range ultimately when it's at maturity.

Okay, that's really helpful. And then just for further clarification on Bass, particularly in the fourth quarter, I believe it lost $2 million to $3 million last year in the fourth quarter. Given that the new product is starting to flow through the stores, what's your expectation for profitability for Bass in that fourth quarter?

Again, I don't think we broke that out last year and we're not breaking it out this year, John. It was a somewhat neutral event to us last year. And this year we're certainly expecting the profitability to be strong as our initiatives start to take hold in this year's fourth quarter.

Okay, thanks.

Our next question comes from Jim Duffy from Stifel.

Thanks. Good morning. Very nice results on the wholesale business. A handful of questions for you. Trends in the outlet centers that pressured the comps, was that a factor of traffic or conversion?

It was clearly traffic. Conversion rate has gone up. Part of the take down actually, if we look at Wilsons -- I'll deal with Wilsons independently of Bass for the moment -- we have about 25 stores in mall locations today.

And if I were to give credit to Wilsons I would tell you that the outlets performed okay. The miss was really in our mall locations. We had an initiative for testing malls to see if they were expandable. We saw an opportunity to open hundreds of stores in regional malls.

And as of, I would say, July/August, we weren't feeling that was the approach that we were going to take for the future. We weren't getting good reads and the miss was mostly attributed to the miss in malls. As of late, I will tell you, again, as new product hit the stores at Wilsons, even the mall stores are doing much better. So, we're still under review as to what we do with those stores.

The outlet centers, we're doing okay. The product mix -- again I encourage you to walk into a Wilsons and see the difference year after year. We're very proud of the product. We're proud of the organization. And the miss was clearly the mall locations and foot traffic. And that's improved. As of August, I stated earlier, the month of August we saw a 6% comp increase.

Good to hear. Morris, with respect to Bass you called out new Bass product and its early influence. Can you elaborate some on the product strategy to improve the line in merchandising?

Sure. It's an entire environment that we're creating. In the past it was almost a free-for-all as to what the merchants were able to buy and put into the stores. And today, if it doesn't have the Bass DNA, the marching orders are you just don't buy it.

The apparel is consistent with the brand image. The footwear will be consistent. And the accessories, most of all, will be appropriate for Bass. We cleared out and marked down all the accessories that were in the store. And what we put in was a wall of socks, we put in luggage, we put in some travel product, we put in small leather goods that were appropriate for the brand.

And what we're seeing clearly in the travel area, the luggage area, is about a 130% increase over last year in comp sales. What we're seeing in overall accessories is about a 40% comp increase. Those businesses aren't very large but they are sufficient enough to have an impact on the business.

The struggling pieces are where we still don't have an impact in the store. So, footwear isn't right for what we believe the brand stands for, and clearly the apparel isn't.

We step back a moment because we weren't able to design in a timely fashion the men's apparel. We bought it from PVH. That product has hit and we see a definitive difference in the performance of men's versus women's, so we're very happy with the progress.

The women's side of it will be skewed a little top heavy on the coat area because G-III as a company has the skill set to accommodate the coat side easily. And we're transitioning into a more appropriate sportswear collection in women's for the brand. So, by fourth quarter, should be able to walk into a Bass and say -- Oh, now I understand what he's talking about. We will get there.

There's a high demand at wholesale for this brand. We've had many calls with great interest for when we're going to launch the wholesale side of women's. And we've had calls for licensing the brand in many different classifications. This is a good acquisition for us.

Okay. Final question -- with the recent M&A commentary you've expressed more interest in global businesses. How are you thinking about the infrastructure needed to support overseas expansion? Is that part of the acquisition agenda to acquire an overseas infrastructure foundation?

If I were acquiring something that was overseas, the organization would be essential. We have an organization in Europe currently that manages the Vilebrequin business. But it doesn't transition into a management team that would handle the brands that we have in mind.

If we were to acquire an American brand that was staffed here and managed here, I would tell you we are not ready to expand into Europe. That wouldn't be an immediate initiative, but it would be an important component to the brand that would give us the opportunity when we thought the timing was right. It is not right for us today.

Thanks, that's all I have.

Thank you. Our next question comes from Mike Richardson from Sidoti & Company.

Yes, good morning and thanks for taking my questions. I just two quick ones for you. First, can you give us an idea of how inventory levels are at retail? And have you seen any change in buying patterns from your retail partners? And I'm just curious as to what share count you're assuming for the balance of the year. Thanks.

We believe that inventory levels at the department store level are going to be managed a little tighter than usual. Their task is similar to us, to manage inventory appropriately and get better sell-throughs and better turn on their inventory, and not to pressure the organization into markdown initiatives that hurt margins. So, I think the retailer is playing a little closer to the vest in their inventory levels. Fortunately for us, we have some brands that are in high demand and work a little bit contrary to the department store needs.

In terms of share count, Mike, you've got the share offering of 1,725,000. You could add that to your Q3-Q4, and then a proportion of that for the full year. And then there will be some additional dilution. For the full year we're probably just north of 22.5 million.

Okay, so add 1.7 million to the second quarter?

To the Q3-Q4 prior-year figures plus some additional dilution.

Okay, thanks guys.

Our final question comes from David Glick from Buckingham Research.

Yes, thank you. Morris, you mentioned the improvement in the outlet traffic in August. I'm just wondering if that's something you're seeing across retail. You mentioned inventories are tied and I'm just wondering if there's more of a reason to be optimistic from direct-to-consumer and department store trend for the back half. Thank you.

We saw better traffic throughout for the month of August. We saw better sell-throughs. It's a little bit of a relief. I can't tell you that June and July were banner months for us. But it's great to see, as new product hits, traffic did perk up, sell-throughs are quite good. And it's not all driven by promotional business.

When the foot traffic isn't there, the stores tend to try to promote product. As foot traffic is there, the promotions are a little bit different and there's not a thirst to turn your inventory overnight. The foot traffic really is a good indicator of how stable your inventory is and how you value your inventory or you're told to value your inventory. So, I'd say that there's a good improvement in foot traffic.

Great, thank you. Good luck in the second half.

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

Thank you all for spending some time with us this morning and thank you for your interest in our Company. Have a good day.

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