G-III Apparel Group Ltd (GIII) 2015 Q4 法說會逐字稿

Welcome to G-III Apparel Group fourth quarter and FY15 earnings conference call. My name is Lorraine and I will 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 non-GAAP net income per share and to adjusted EBITDA, which are both non-GAAP financial measures.

We have provided reconciliations of these non-GAAP financial measures to GAAP measures 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 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.

FY15 was another record year for G-III. Our wholesale business performed well. Our retail business achieved strong gains and built momentum over the course of the fourth quarter. This momentum includes the G.H. Bass business, now integrated effectively with our Retail Operations.

We've positioned our business well for growth in FY16 and beyond. Here our some of our operating highlights.

First, with respect to the fourth quarter, we grew sales by 9% to a record level of $514 million. Adjusted net income per diluted share was $0.98 in this year's fourth quarter. This was up 58% compared to $0.62 per share in last year's fourth quarter.

All of our wholesale categories performed well at retail. We managed our inventory well and we are in good shape going into spring. Our merchandising initiatives in our own retail businesses have been effective and drove solid comparable store sales in Bass and Wilsons in the fourth quarter.

Before I go into more detail about the fourth quarter, I'll provide you with a few highlights for the fiscal year. In 2015, we grew our full-year sales by 23% to $2.1 billion, nearly $400 million of growth. A little less than half of this growth was from our G.H. Bass acquisition and the remainder was from broad-based organic growth.

We maintained our profitability and grew our full year adjusted EBITDA by 27% to $187 million, compared to $146 million in the prior year. Our adjusted net income per diluted share was $4.54, an increase of 21% compared to the $3.74 last year. We are very pleased with these results.

Across the business, our teams continue to execute well in every key area, including design, merchandising, sales, operations, marketing and finance. As I've spoken in the past, our key differentiating characteristic that enables the kind of performance year in, year out, is our corporate culture. We do not make excuses and we will not accept failure.

We strive for operational excellence and make continuous improvements in everything we do. Importantly, the continuity of our management team, in many cases with more than 15 years employment with G-III, provides us with the ability to focus and execute well on our long-term strategic plans.

Let me take you through our businesses in a bit more detail. Outerwear, which is a relatively mature and highly diversified business for us, achieved plan for the year. We were pleased with the performance of each of our brands from men and women.

Standouts in the women's area were Calvin Klein, Andrew Marc, Kenneth Cole, Tommy Hilfiger, Cole Haan and Jessica Simpson. Standouts in the men's area where Calvin Klein, Tommy Hilfiger and Levi's.

Additionally, our Team Sports business also finished another good year. Outerwear inventories at retail are clean, which will be helpful when it comes time to plan the businesses for the 2015 fall/winter season this year.

Our sportswear business saw good growth again this year. Our Calvin Klein better sportswear collection and Calvin Klein active performance drove the majority of our growth and each are now in over 1,000 doors.

We did sacrifice some margin to meet our top line performance expectations in this environment, but the businesses remain healthy. Kensie, our contemporary sportswear business, performed to plan.

While sportswear can be a challenging category, we've executed well and developed a strong capability. We intend to continue to grow our presence in the category.

With our existing brands, we expect to see increased penetration in existing doors, supplemented by what we believe is a significant door count growth opportunity. We now do approximately $300 million in sales between Calvin Klein better sportswear, Calvin Klein active performance and Kensie sportswear.

Our dress businesses had another strong year and performed well in the fourth quarter. Calvin Klein continued to be the key dress brand in our mix. Eliza J was also outstanding. In addition, Jessica Howard and Jessica Simpson achieved their sales plans and both had increases in gross margins.

Lastly, our Vince Camuto dresses experienced growth in both sales and gross margin. We expect to have another strong dress year in 2015.

Our Calvin Klein women's suit business also had another very good year and our business in the category has grown to approximately $100 million. We will look to maintain our leadership position in this area, focus on margin with our existing business, and are considering rolling out other suit brands.

Our handbag and cold weather accessories business also wrapped up the year with good performance. We have grown this business to almost $100 million since starting it three years ago. We're just getting started and we are increasingly confident in our potential to double the business.

We now have 15 shop in shops and plan to increase that number to 45 by the year end. Our investment in shop in shops show a particularly high return in this area, in some cases by as much as a 30% increase in sales. In handbags and cold weather accessories, we also have an opportunity to deeper penetration, add doors and add brands.

Before we talk about our retail business, I want to take a few minutes to review our G.H.Bass wholesale and licensing initiatives. We believe these are meaningful opportunities. We've launched a new women's wholesale collection for this upcoming fall season.

You may have seen some blitz trade advertising recently in Women's Wear Daily. We've put together a great collection and we are getting great, encouraging responses from our retail partners.

On the licensing front, I'd like to mention that PVH has been doing a great job as our men's wholesale apparel licensee. Also, Overland, based in the UK has launched G.H. Bass shoes in Europe.

Bass shoes will be prominently displayed in Europe's premier retailers such as Selfridges and Harrods. Overland is excited about the potential of the business and is also looking into opening Bass retail stores in the near future.

In addition, we are excited to have just signed Genesco to be our US licensee partner for Bass, beginning in 2016, to design a distribute men's and women's wholesale shoes. Genesco is an outstanding company with a solid track record and we think this will be a great partnership.

The wholesale and the licensing opportunities with G.H.Bass are incremental to the retail opportunity, which is powerful. The G.H. Bass retail business, following a year-long process, is now completely integrated with the rest of our retail operations.

Comps were up 15.4% in the fourth quarter and have continued to be strong into spring. We have new leadership in place at Bass and our improvements to the assortment, revising price structure and promotional strategies are proving effective. We have more work to do, but there is a clear opportunity to revitalize this brand and create continued improvements in the brand's position.

Our Wilsons business was the genesis for our diversification into specialty retail, and similar to Bass, was in need of the same kind of attention to merchandising, pricing and promotion. Wilsons continues to demonstrate strength during a good fourth quarter with comp sales up 5.5%.

We are set up well for 2015. Wilsons wrapped up this past year with sales per square foot of approximately $387, up from $375 a year ago, and from only $250 when we acquired them in 2008.

We are focused on the execution of our strategic plan with Vilebrequin, our status resort wear business. Overall revenues were up 15% for the quarter, albeit low-single-digit comparable store growth in the US offset by Europe and Asia. The brand is healthy and we remain confident in our direction.

We are expanding the appeal of our men's business with additional technical fabrics and silhouettes, as well as products in other categories such as neckwear in the US and footwear in Europe, licensed to PVH and Overland, respectively. We also continue to work on developing the women's assortment, so it can become an important part of the overall business. We're excited about the future potential of Vilebrequin.

I'll reserve some comments for closing, and we'll now turn the call over to Neal for a closer review of our financial performance. Neal?

Thank you. For the full FY15, we reported net sales of $2.12 billion, an increase of 23% compared to last year's net sales of $1.72 billion. Net sales in our licensed product segments increased 13% to $1.29 billion from $1.15 billion. Net sales in our non-licensed product segment increased 32% to $452 million from $343 million.

Net sales in our retail operations segment increased approximately 68% to $499 million from $298 million in the prior year. Increased net sales in our licensed product segment were primarily driven by increases in the net sales of Calvin Klein products, most significantly, in our women's sportswear, women's outerwear, women's performance wear and dress lines, as well as increases in net sales of our Tommy Hilfiger, Ivanka Trump, Guess? and Cole Haan licensed product lines.

Increased net sales in our non-licensed product segment were primarily the result of an increase in net sales of private label products. The increase in net sales in our retail operations segment was primarily attributable to including a full year of net sales from our G.H. Bass business in the current year compared to three months in the prior year. We also had an increase in Wilsons net sales due to a combination of a higher store count and a comparable store sales increase of 3.9%.

The overall gross margin percentage for FY15 was 35.8% compared to 34% in the prior year. Gross margin for the licensed product segment was 28.7% compared to 28.4% in the prior year.

The gross margin percentage for the non-licensed product segment was 34.2% compared to 32.8% in the prior year. This increase was primarily attributable to improved gross margins of our Jessica Howard, Eliza J and Andrew Marc product lines, offset in part by the unfavorable impact from our private label programs, which operated at a lower gross margin than the segment's average.

The gross margin percentage for the retail operations segment was 46.4% this year compared to 49.5% in the prior year. The decrease in the gross margin percentage for our retail operations segment is primarily due to our new G.H. Bass business that operated at a lower gross profit percentage than the rest of our retail business.

Selling, general and administrative expenses for FY15 increased $131 million to 27% of sales from 25.6% in the prior year. This increase is primarily attributable to the additional selling, general and administrative expenses associated with our G.H. Bass business acquired in the prior year's fourth quarter. Excluding the impact of G.H. Bass, the increase in SG&A was driven by an increase in personnel and facility costs.

Personnel cost increased due to increases in personnel for staff, additional retail stores, an increase in headcount related to the expansion of certain product lines, and an increase in bonus accruals related to increased profitability. Facility costs increased as a result of the rent expense incurred for additional retail store leases opened since the prior year. In addition, we increased our use of third-party facilities to satisfy the higher shipping volume related to domestic sales.

Net income for the year increased to $110 million, or $4.97 per diluted share, from $77 million, or $3.71 per diluted share in the prior year. Included in our net income in the current year is $11.5 million of other income, which is equal to $0.43 per diluted share on an after-tax basis. On an adjusted basis, excluding other income in the current year, and excluding expenses associated with the acquisition of G.H. Bass and other potential transactions in the prior year, the non-GAAP net income per diluted share was $4.54 for the year ended January 31, 2015, compared to $3.74 in the prior year.

Our effective tax rate for the current year was 35.3%, which was lower than last year due to the tax treatment of certain other income realized during our third quarter. Excluding the tax rate on these other income items, our effective tax rate was slightly under 37%, which we expect will be similar for FY16. Regarding our fourth quarter, net sales increased 9% to $514 million compared to $473 million in last year's comparable quarter.

Net sales in our licensed product segment in the quarter increased 9% to $280 million from $257 million, primarily as a result of increased net sales in our Calvin Klein product lines, most significantly in our women's sportswear, women's suits and women's outerwear lines. Net sales in our non-licensed product segment increased 31% to $116 million from $89 million, primarily due to increases in private label sales. Net sales in our retail operations segment increased 12% to $175 million from $156 million in last year's fourth quarter, primarily attributable to the increase in Wilsons store count, as well as the same-store sales increases of 5.5% for Wilsons and 15.4% for G.H. Bass.

Our net income for the quarter was $22 million, or $0.96 per diluted share, compared to $13 million, or $0.62 per share in last year's fourth quarter. Our overall gross margin percentage for the fourth quarter was 35.7% compared to 35.2% in last year's fourth quarter.

The gross margin percentage for our licensed product segment was 23.6% in the fourth quarter, compared to 24.9% in the prior year's quarter. The gross margin percentage for our non-licensed product segment was 28.4% compared to 29% in the prior year's quarter, and our retail operations segment was 48.2% this year compared to 48.9% in the previous year's quarter.

Regarding our balance sheet, accounts receivable at our fiscal year end increased 24% to $199 million from $160 million at the end of the prior year. Our inventory at year end increased approximately 19% to $426 million from $360 million last year.

Inventory levels at G.H. Bass at the end of last year were still in transition and were sub-optimal. Compared to the end of last year, inventory levels at G.H. Bass increased significantly. However, excluding this transitional impact, our inventory levels increased approximately 9% which is consistent with our forecasted first quarter sales increase.

In FY15, we spent approximately $43 million on capital expenditures, primarily for leasehold improvements for new and existing retail stores, fixturing costs at department stores, the integration of the G.H. Bass business onto our distribution platform, and leasehold improvements at our corporate office. At the end of the year, we had no outstanding debt, and cash on hand of $128 million compared to a prior year net debt balance of $47 million, consisting of our revolving bank debt, our promissory note, less the cash on hand balance. In addition to the cash flow generated from operations, this reduction in debt was due in large part to the net proceeds of approximately $129 million from our June 2014 public stock offering.

In terms of guidance, for the fiscal year ending January 31, 2016, we are forecasting net sales to increase 12% to approximately $2.37 billion, compared to $2.12 billion in FY15, and net income to increase to between $116 million and $122 million, or between $5.05 and $5.25 per diluted share. That is compared to net income of $110 million, or $4.90 per diluted share, and $4.54 per diluted share on an non-GAAP adjusted basis in the prior fiscal year.

We are estimating a fully diluted share count of approximately 23.2 million shares, which includes the additional dilution from the 2014 mid-year stock offering. We are forecasting FY16 adjusted EBITDA to grow between 14% and 20% to a range of approximately $214 million to $224 million from $187 million in FY15.

With regard to the first quarter, ending April 30, 2015, we are forecasting net sales of approximately $406 million compared to $366 million in last year's first fiscal quarter. We also are forecasting net income between $1.1 million and $3.5 million, or between $0.05 and $0.15 per diluted share, compared to net income of $1.3 million or $0.06 per diluted share in last year's first fiscal quarter.

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

Thank you, Neal. Our financial, operational, and strategic performance in FY15 was excellent, and we remain positioned to grow, diversify, to enhance the level of our products and value, improve our margins and deploy capital effectively. Our industry continues to consolidate and we remain intent on capturing that opportunity.

As a large and very capable player across the industry, we have solid organic growth opportunities and we are an easy and forward-thinking Company to do business with. Beyond that opportunity, while we have no announcements today, I'd simply comment that we have excellent access to strategic capital and a strong and lengthy track record of successfully supplementing our organic growth with good fit acquisitions.

At this point, we consider efficient and effective integration of acquired businesses to be a core organizational capability. This has been a very effective path to drive value to our shareholders. In many ways, we believe that our dedication to driving value to our customers, brand owners and partners exists seamlessly with our intent to also maximize returns for our shareholders.

This is a comfortable position for us, as we are able to simply focus on running the best business we can. We are grateful for your support and recognition and we look forward to demonstrating our capabilities again in the year ahead.

Thank you. Operator, we are now ready for some questions.

Thank you.

(Operator Instructions)

Joan Payson from Barclays.

Hi, good morning. This is Bridgette Taylor on for Joan Payson. Thanks so much for taking my question.

Just on G.H. Bass, what are your accretion expectations going into 2015 and what sort of margin expansion are you anticipating for this business? And do you have any timeline for when that business can achieve double-digit margin levels?

We are definitely looking for a significant improvement in the G.H. Bass business. It operated at about a 43% gross margin this past year, so we will get some lift there. We will definitely have in accretive event for ourself this year.

Everything that we've seen, in terms of the way the business is performing, certainly in the fourth quarter, gives us confidence to know that we've turned the corner and are moving in the right direction. In terms of getting to double-digit operating margins, I think we've got a little ways to go before we can give you some more clarity (inaudible) on that.

Great. Just a quick follow-up. How big do you think the G.H. Bass women's wholesale business can ultimately be? And do you have any expectations for how much revenue it might represent going into this upcoming year?

The brand in women's apparel can be a $200 million business at wholesale without a great deal of difficulty. We've gotten great reception. We will be distributing in the back end of the third quarter this year. It's a little early for us to give you a number on what we expect this year.

Great. Thanks so much, and congratulations on the great quarter.

Thank you, Bridgette.

Thank you. Erinn Murphy from Piper Jaffray.

Great, thank you, good morning, and let me add my congratulations. Morris, since we've last talked, it sounds like there's been an opportunity at wholesale with Jones New York kind of winding down this spring season. Could you maybe just help us think about the landscape?

You've got some really powerful brands in your portfolio right now that could potentially vie for some of that space. How are you thinking about the opportunities at wholesale across some of your women's brands that are operating right now?

I guess the loss of Jones in the retail environment will definitely impact our business. We are picking up additional business at Calvin Klein.

The penetration per door is beginning to show nice increases, alongside of the fact that Calvin Klein was one of the best performers at retail. As the space became available, astute retailers are moving part of our assortments into additional space.

The additional brands that we have, and hope to have, will probably cover more space. We are not the only beneficiary.

There's some wonderful people in the industry that will prosper from the real estate that's afforded them. But we believe that we will get more than our share of commitment to grow our businesses from the retailers.

They are showing their true colors today. They are anxious for us to build another collection to supplement our business and there's. So we are likely to show our hand in the coming weeks, as to what we believe we can accommodate them with.

Great. That's helpful. And then, just maybe following up on Bridgette's question on G.H. Bass. From a bigger picture, Morris, how are you -- you've clearly expanded the platform really across different licenses. You've got an opportunity now to go to wholesale with footwear.

You've got the women's opportunity, which you just spoke to, and then, obviously, the men's opportunity you are working with, with PVH. When you take a step back, how big could this band be overall if you look out three to five years? And are there other opportunities that you see from a licensing perspective to either get into new categories or expand existing categories for the brand?

We believe that this can be a billion-dollar brand alongside of retail, men's apparel, the women's that we are launching, and the categories that we are beginning to license. The more successful we are on the retail and wholesale level, the better licensee -- the better quality licensee we are able to garner.

Genesco is a very strong entity to cooperate with. They are anxious get this started. They are about a year away from launching the brand. They will start showing in the third quarter of next year -- of this year, rather -- and begin shipping in February of 2016, and we believe that their involvement with G-III will make a big difference.

Our European licensee, also focused on footwear, is top-of-class in footwear in the UK. He's garnered space from premier retailers who are beginning to ship now. The early shipping that he's done has brought back reorders and price points are higher in Europe than they are here, and in spite of a currency issue and weaknesses in economies, he's showing signs -- good signs of success.

So we believe that there is -- all the classifications that are compatible with this will be licensed within next -- within the next nine months. There's an accessory opportunity, there is watches, there are belts, there is hosiery, there is swim. There's even an opportunity on fragrance.

So Jeff Goldfarb is on that now. It's his area and he's been meeting perpetually with new potential licensees.

So we have a big bet on this one. We believe that this will be an important component to our business, where we are doing a good deal of marketing, we have a major budget for the back end of this year to get the word out that we're back, and we are here to stay. So this is an exciting business for us.

Great. That's very encouraging. I guess, just a last housekeeping question for Neal. On the gross margin opportunity for Bass, I think at one point you talked about gross margin being similar to that of what Wilsons has achieved.

As the brand continues to expand and you mix wholesale and retail, have your expectations changed from a gross margin recovery perspective? Just help us think about how that should evolve over the next couple of years? Thank you.

Look, I think that it's only going to be helpful to what we can do in the outlet stores, to the extent that the brand gets stronger. So there certainly is and will be an increased expectation. We've got plenty of work to do to get there. Like I said, we are just north of 43% this past year in terms of gross margin.

We will move that up, I think, comfortably. We're thinking that this business in the outlet center should be very comparable to Wilsons, in that 50% range for gross margin percentage. But, I think that you are right, Erinn, that certainly as the brand gets stronger, that only means improved productivity, as well as improved margin potential in the outlet centers.

Great. Thank you, guys. Best of luck.

We're beginning to see a big difference as our product gets better, the first delivery of what we believe is the right product for Bass is occurring right now. This past year, it was a process of liquidating old inventory, it was doing patchwork on putting in inventory that was suitable for the store, but it wasn't the perfect assortment. We've worked simultaneously to repair the operational side of the business, as well as the product side.

We've hired a seasoned professional, Jody Gietl, who comes from New York & Company. He ran all of their outlet stores, and he reports to Bill Hutchinson, and the combination of the two, with some underpinnings of wonderful people are going to make this a good, strong, better margin business.

Great. Thanks you, guys, and best of luck.

Thank you, Erinn.

Ed Yruma from KeyBanc Capital.

Hi, good morning. Thanks for taking my question, and congratulations on a great year. Morris, if you look back historically to outerwear sales, and you think about the past three winters and, obviously, the strong sales results you guys have seen, how would you conceptualize how we should think about the industry growth rate going forward?

And I know you've indicated that inventories, I think, ended the season very clean. Do you think, actually, that retailers will now begin to buy units up where, I think, in previous years they really haven't? Thank you.

Thanks for your question, Ed. There are a couple of things.

What we realize is that weather is a factor, but it's not the only factor. In our industry, the tendency when you challenge your designers to create product is they'll take the easiest path. The hottest commodity gets the most attention, and the commodities that are less in favor are getting less attention.

So we took a position that we've shored both areas up this year. Wool did not end up very strong, but every woman has a couple of wool coats in her closet. We didn't give her a reason to buy.

We felt that we, as an industry -- not G-III alone -- we got lazy. We classified wools as possibly a pea coat or a [scuba] or a three-quarter length. But that's really not the answer.

The specialty of style, the fit, the uniqueness of what a coat could look like really drives the business. Yes, price is important, but it's not what necessarily is the only stimulus for a woman to go out there and make a purchase.

So our designs this year, on a commodity that ended up a weak, are off the charts. You walk through all of our divisions and your eye goes right to our wool assortment. So we have benefited on our early bookings from just a comfort level that our fashion is correct.

The easier pieces are -- the down piece of our business is very strong. There is some directional pieces that are driving the business, whether it's fabric, weight of fabric, color palette, the simplicity of creating a packable garment that's utility. All of this is driving our coat business.

So it's not necessarily how -- as I started with -- the weather factor, it's the fashion factor. We create outerwear that sometimes is worn indoors. A woman walks into a cocktail party, she doesn't take off her jacket.

So there are different weights and we are just getting better every day. We are one of the larger players, or we are possibly the largest.

We are not just sitting back with expectations that a retailer is just going to anniversary or give modest growth in their business. We are fighting for much greater than that. We want more space, we provide a reason why we should get that space.

So I can talk to you forever on the outerwear business. It's where we come from. We are all passionate about the outerwear business.

This is an outerwear Company that expanded into multiple categories and did it effectively. We have the same culture, the same do-not-fail attitude. You must succeed, and it permeates through the entire building.

Sorry, I was a little wordy for you, Ed.

No, no. It's all really helpful color, obviously, since it is such an important piece of your business. And I guess the second, maybe smaller piece of the business question I had, as it relates to VBQ in the US, how should we think about comps there?

Do you think you have hit some degree of maturity, and I know you have been also experimenting with some new styles and fits, I guess. Are there other adjustments you have to make to make VBQ a more addressable brand for the US consumer? Thank you.

I think you hit on what we have to do and we are doing it effectively. I was with our CEO this week, reviewing the future, and business is a little difficult. We understand why in parts of the world. The Russian community is a big fan of the brand.

The Brazilian community just as strong as the Russian community. And both those economies are not what they were. So there's some slippage. What we also have done is we've created another audience.

It's just not that guy that's got a little belly that wants the elastic waist. Some of the product that we're now not only showing, but retailing exceptionally well, are more tailored to a trimmer fit, a younger customer. And we are seeing a shift in business where we are garnering a different demographic on the core swim piece.

Women's -- this will, again -- this will be our first real show of what we're going to ship in women's. We had a change in design. We have a little bit more of an attitude that this is a dual gender, as well as a children's brand, and we are going to derive the benefit of all of it.

Our online business has not gone with the pace that it should have. We've made a change there. We expect some significant improvements in that area of our business.

Some of the locations that were signed by prior management we're adjusting. We are either selling some of the locations or simply leaving and refurbishing others. So it's a great management team.

The brand is world class. Again, the brand is described as being bigger than the business, and we are going to match the two up by broader assortments. We'll build -- within the next two to three years -- we will build a flagship that will showcase all the product that we do, and we are getting -- we are getting good wholesale distribution for the first time.

If you were to walk into Harrods, if you were to walk into Bon Marche and Galeries Lafayette you'd be amazed as to the amount of attention and the amount of space that they are giving to this brand. And we are doing the same thing in the United States with Neiman's and Sachs, and Bergdorf Goodman, and Bloomingdale's, and Nordstrom's. They are all devoting more space, adding door counts. So this brand is not tired. It's just waking up.

Great. Thanks so much.

Thanks, Ed.

Rick Patel from Stephens Inc.

Good morning, everyone, and I'll add my congrats on a terrific end of the year. A question on the new Genesco deal. Lots of inventory cleanup with the Bass brand this past year. But it seems like the new brand that G-III had designed and sold this past fall did pretty well.

So how should we think about the primary driver of this Genesco deal? Just given the fact that you seem to be doing a pretty good job on the design side out the gate by yourself.

And then, secondly, for Neal, I know it's far away, but can you talk about the financial ramifications of the new deal? I guess, how will the new arrangement have an impact on sales and gross margins as you start recording higher royalty fees?

The design elements that Genesco will implement in this business are basically improving on the heritage. Strangely, the heritage pieces weren't given enough love. That would be the Weejun and the Buck. The current licensee has done a nice job, but they're not in sync where we want this brand to be.

Genesco seems to be very much there and clearly Overland, as well. So some of the fashion is consistent with what it has been. But the last has changed, the make has changed.

The marketing behind this machine is becoming aggressive and Genesco shares that absolute passion. They are excited by this opportunity.

Their goals start with quality and the improvement in quality and their belief is that with quality your sales will grow. Their quality of factories is far different than what we currently have.

We use them and have used them, historically, to do some private label for our own stores. So they understand the brand. They understand our people and it's a perfect, perfect fit.

Beyond that, they are financially sound. They are able to service the demand that will be created by all the things that we plan on doing.

So this one -- this marriage is one that's likely to last, and we're seeing similar passion in the UK. The relationship we have with Stephen Palmer at Overland is a long one. Stephen has been part of G-III, at some point or another, for over 15 years.

We licensed Caterpillar from him. He had a large business, lost the license back to Wolverine and retooled with G-Star Raw, and the brand that we have just given him is perfect for what he needs to tuck-in for growth.

He has also taken on the challenge of doing some high-end Vilebrequin -- call it leisure footwear. So lots of opportunities. And I think we're kind of covered on all strategies, and we are taking this one -- taking this one slowly.

We've spent a good deal of time liquidating and positioning the brand, and now creativity, design, quality -- all of the factors that we knew were needed to improve on this business are being implemented.

Rick, in terms of royalties, look, it's a business that we're very happy to be in. It is one that doesn't come with a tremendous amount of expense. You do have to make sure that the brand is being advertised appropriately and defend your trademarks. But by and large, it's extremely lucrative.

We talked about the brand's potential at $1 billion. So you can really start to think about some very nice, significant royalty opportunities as that matures.

It's certainly not here for us this upcoming year, which is where our guidance is speaking to. But over time, we think there's an operating margin (inaudible) and a nice source of revenue.

That's terrific. Thanks for the color there. Then just hoping for little more info on the Bass deal becoming accretive for this year. You mentioned before that comps and gross margins are likely to be up this year. But how do you see SG&A?

Is this an opportunity, just given the investments that you had to make over the last year? And then as we think beyond calendar 2015, what you see as the primary EPS driver of the Bass business? Is that mostly about getting the retail comps to be higher, or do gross margins play a bigger opportunity, just given all the licensing potential you have there?

I think we have both opportunities. We're seeing -- if the world of Bass started in February, you'd be amazed to what we're accomplishing. Given the fact that we had 399 closed days because of weather in the month of February compared to 299 a year ago, our business was up 23% to comp with less traffic.

Our margin rate showed improvement, and the product is just getting right. This one does excite us. The opportunities for this year, we are not going to derive sensational income from licensing royalty. We're just at the early stage.

Some licenses have a start-up or a ramp-up time of 18 months. So you don't get the benefit right out-of-the-box. It takes a little time to mature it. If we look at our oldest licensee, which is PVH, PVH signed this license with us as we bought the brand from them.

The level of cooperation, as you might expect, between the two teams -- they operate as if they are one team. The men's business at Bass has been incredibly strong. It beat their plan.

Their orders, going forward -- I hate to speak for them -- but appear to be significantly better than last year. So they've done a nice job of creating -- they were the impetus for us to go into the women's business. They did a great job of creating men's product. They filled a void and are servicing it very well, and we believe we can at least match to what they are doing on the women's side.

That's great. Thank you very much.

Thank you.

(Operator Instructions)

David Glick from Buckingham Research.

Thank you, and my congratulations for a great year. I just wanted to clarify, Neal, I think you referred to Bass as potentially a billion-dollar brand. I'm not sure that I heard that correctly.

But you mentioned that women's apparel was $200 million. Obviously, there is a big opportunity in the productivity and retail, and you have men's sportswear and men's and women's footwear. Is that the objective here? I just wanted to make sure that I heard that right.

Neal is a little skittish when it comes to forecasting. I'll take the credit for the billion-dollar number.

Okay. Okay. Okay.

We currently have only 155 stores. So there is opportunity and growth through our retail. We can double the size of our retail over time.

As new centers and opportunities are there for us we'll expand our business. Beyond that, there is the growth that we are describing based on better quality, better pricing, better fashion. That will give us some growth impetus just on our own retail.

The rest of it is going to be derived out of the classifications that we are going to take on, which will primarily be the outerwear pieces, in both genders, and the women's collection of apparel. There's an opportunity to license multiple classifications, including home.

There's a big opportunity in the home sector for this. So if you add up what exists, and what is likely to be tacked on over time, I would tell you that $1 billion, that you are having me rethink it, is almost a conservative number.

Good, thanks for that color.

There's also an opportunity in kids. This is a great children's brand and we haven't touched on that yet. You need to remember, we are barely in this business for a year. We've moved rapidly, we've moved successfully.

We had a little bit of a glitch where we were aggressive in our planning for Q4. But all of it is matching up and there is still an international component to this business.

We've received calls from some very important people in Southeast Asia that are anxious to license the brand in many categories. We are not ready for them yet.

I'm seeing a lot of -- a lot more men's product out in various department stores. It seems like on the wholesale side that's where you maybe have got the earliest start and the most progress. Can you talk about the distribution that you expect and the potential in men's Bass sportswear for this year?

The only product that you are likely to see is really the men's. It's really the only product that was shipped.

Women's will begin to ship September/October of this year, which is faster than we had originally planned. We put together a collection of clothing.

I put this brand in the hands of an amazing couple that runs Bass -- I'm sorry, Kensie. They are overseeing the creative, the sourcing, the development of this product. Most of the creative will be done in Vancouver. These people are extremely talented.

They've added staff, they know how to source it, and the plan was to really launch this a little bit later. But everybody was excited with the progress that was being made, and we brought the product to New York to show our buyers for the last market and they were absolutely in awe -- I don't particularly like the term white space -- but they described this as the white space in women's apparel. Very excited by the opportunity.

So we will be in Dillard's. We will be in Macy's. There is no doubt that all the retailers that support us, and the ones that we support, as well, will give us an opportunity to show our product and retail our product. The opportunity is there for us.

Great. Thank you. Morris, a quick follow-up. You had mentioned, earlier, when talking about the opportunity created by Jones exiting women's sportswear that in the coming weeks, you may be adding a brand. I wasn't sure if that was through acquisition or something you are starting internally. I just wonder if you could clarify that?

And the also, in the past, you've talked about potential deal size being -- $500 million being a sweet spot, maybe up to $1 billion. Just wondering if that is still your current thought process?

The size of the deal is, yes, it's pretty consistent. That's our comfort zone, and that's not to say that we couldn't reach out further. But our comfort zone is between $0.5 billion to $1 billion level, also depending on the balance sheet that we would be acquiring.

So the growth, or I guess your question is what is our strategy for some of the Jones space. We are in the middle of several situations, none of which have crossed the finish line.

What we have a habit of doing is we look at several things simultaneously. As we all know, many pieces, or businesses, or opportunities fall away.

So our strategy is not to take on more than we can handle, but to look at quite a bit, to be selective and make the best deal for ourselves and our shareholders. And we are near a couple of opportunities that are there for us, and whether they are licensed or acquisitions, our desire would be an acquisition. But that's not to say if an appropriate license was there, or a combination, if a partnership was there, we would concede our absolute wish which was to acquire brands and just take part of a brand or a license that's favorable to us.

Okay. Very good. Thank you very much. Good luck.

Thank you, David.

Thank you. Our next question from John Kernan from Cowen.

Hey, good morning, everybody. Congrats on another great year.

Thank you.

Neal, your guidance is implying double-digit top line growth this year. Can you help us understand the drivers of that by brand and channel? And give some color around what you are expecting in terms of gross margin and SG&A rate for the year?

As I look at the two big pieces of the business, John, I would tell you that it's probably pretty comparable, both in terms of wholesale and retail. We're probably looking for a pretty similar increases in both sides of the business. In terms of operating margin improvement, we are forecasting some operating margin improvement, and I think that's going to also come from both the gross margin, slight improvements in both gross margin and the SG&A.

When we think about the Bass business, we've got lots of room in terms of gross margin improvement, as well as SG&A leverage. A little less room in terms of improving the gross margin performance of our wholesale business. It did perform extremely strongly this past year. We're up in the high-single-digits in terms of operating margin improvement.

So as sort of a recap of the whole thing, I think we will have balanced growth across the business and we'll see some nice improvements in terms of both gross margin, as well as SG&A.

John, I think I'd like to add that we are all focused on what might be considered our new toy, and that would be Bass. What we're not focusing on is everything that's still left on the table for us at Calvin Klein.

This brand, although it is our largest business, and one might look at it and say where are you going to go with this? The opportunity with Calvin Klein is endless. There's not a classification that we are not projecting good growth in for the coming year.

Surprisingly, and I think I touched on it earlier, it doesn't necessarily have to be that there is another brand to replace Jones New York. There can be an existing brand that just has gotten so good and so broad at what they do, that they are able to garner a disproportionate amount of space and the amount of the budget that's out there for growth.

The focus, again, as we described earlier on areas that seem to be matured, is better design -- design at Calvin Klein in each classification is best-in-class, dress designs are as good as they get. When you think you've reached the limit, you shop the next collection and you say, oh, my God, how did it get better?

When you look at our bag business, all we need is more space. We have great product. Our battles today are trying to create more space to display all the great stuff that we do.

Our suit business, we are doing amazingly well with it. We have, again, a solid design team. We have a fan base at retail that is supporting it and we clearly dominate that area. We brought that area back to life.

Coats, there's not very much that I can say about coats that I haven't said. It's design, it's price, it's quality, it's cooperation from your vendor base. We have it all for Calvin Klein. If you were going to look at this Company, a big percentage of our growth is still available through further development of Calvin Klein.

All that is very helpful. Just wondering if we could step back a second and talk about Calvin Klein more broadly. I know the categories you operate in, there's been a lot of impressive top line growth.

But outside of that, in some of the other categories globally, things have been a little bit slower and tougher. Any comments on where you think the Calvin Klein brand, as a whole, is in its lifecycle globally?

Globally, in its lifecycle, I think they've got a long way to go. This brand will survive and will prosper.

There's nothing that one could guarantee about a hiccup. A hiccup might occur based on an environment, based on a change in management or design, but, and maybe it's just a little bit of time that cures it all.

This is an amazing brand that's owned and operated by an amazing company. So our belief -- we are making a big bet that this brand is here forever. Hopefully, the team that's currently running it is there forever. They are highly competent.

I guess I might be hearing your concern about the Warnaco piece that was acquired. That was acquired, it's just taking a little longer than expected to integrate the company. We've had those issues. We continue to have it. We over planned for Bass this fourth quarter, but we're fixing it. And the same goes for PVH.

Okay. That's all very helpful. Thank you.

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

Thank you very much for hearing our story and I wish you a good day.

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