G-III Apparel Group Ltd (GIII) 2016 Q1 法說會逐字稿

Welcome to the G-III Apparel Group first quarter FY16 earnings conference call. My name is Jeanette, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Neal Nackman, CFO of G-III Apparel. Neal 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 document 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 diluted 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 and Chief Executive Officer, Morris Goldfarb.

Good afternoon, and thank you to everyone 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 are pleased across the Company to have begun the new fiscal year with an outstanding quarter. I am very proud of the focus on execution that permeates every area of our Business. Our culture here, as many of you have become to appreciate, refuses to accept less than excellent results.

We have begun this year by exceeding our plan, and we have the confidence and visibility in our Business to increase our guidance for the year. In the first quarter, we grew our total net sales by 18% to a new record level of $433 million for the first quarter, compared to last year's $366 million. The increase was driven by excellent wholesale performance across a range of categories.

For our customers, we have distinguished ourselves as a leader, category by category. Our results also reflect our continued turnaround and strong comparable-store sales at G.H. Bass, which we acquired in November of 2013. G.H. Bass is our latest acquisition that has expanded our opportunities for us to create value for our shareholders.

We reported net income per diluted share of $0.15 in the quarter, compared to $0.03 per share in the first quarter last year. As a reminder, all of our per-share results in both years reflect a 2-for-1 stock split that took place May 1.

In our wholesale business, our sales growth was broad-based, and our margins were strong across all major categories. There is no magic to our performance here. We execute each and every season. We capture strong sell-through rates, booked reorder businesses, and relative to our peers and to our prior year, had less need for markdown and promotional support.

Particularly for our department store customers, we're the best performing vendor in most of our categories. We are demonstrating that value is not driven solely by price. We drive value with great brands, great design, high-quality product, and compelling, well-merchandised assortments.

Not only did we have a strong first quarter, but we have built an order book that gives us visibility for a sustained momentum, as we've moved into summer and then into fall. Our ability to achieve this kind of performance is not only due to the outstanding brands we have partnered with, especially Calvin Klein, but also many others, both licensed and owned. In addition, we are diversified across many categories and tiers of retail.

It also has to do with the fact that our performance reflects our culture. Simply put, regardless of the direction the wind is blowing, at G-III, we get the job done.

Let's take a look at some more details in our businesses. We are, without question, the most important supplier of dresses today. Calvin Klein dresses, now in over 1,200 doors, has annual sales of approximately $[155] million at wholesale, and had a strong first quarter. Eliza J, our owned brand, continued its strong selling, and doubled its volume in the first quarter from last year. It is now in 800 doors.

Vince Camuto is in over 500 doors, and also had a solid quarter. Lastly, Jessica Howard, in almost 1,600 doors, had a very good shipping and selling quarter at retail. We are already the leader, but we have plenty of growth opportunities still ahead of us in dresses.

In sportswear, perhaps the most difficult women's category to do consistently well, we had a solid performance. We saw the largest increase in Calvin Klein activewear performance, which is now in 1,400 doors, and has annual sales in excess of $100 million at wholesale. Our Calvin Klein Better Sportswear business is in over 1,000 doors. It has annual sales of $150 million at wholesale, and is on track to have another really good year.

Our Kensie contemporary sportswear, in over 1,200 doors, is doing well, and should have a good year. Our overall sportswear performance business is on track for another year of good sales and profit growth.

Handbag and cold-weather accessories continue to become an increasingly important category, and is a $100-million-plus business for us this year. Here, too, we saw a strong first quarter. We are now in over 800 doors with Calvin Klein handbags.

Our fixtured shop program, which we have identified as a key strategy and a high-return investment for the major doors in this category, continues to gain market share. In many cases, we see a 30% to a 40% increase in selling when we install a hard fixture handbag shop. We currently have 15 in place, with plans for 34 by year end.

Cold-weather accessories is now in over 600 doors, and is expected to exceed 1,000 doors for fall selling season. Handbags and cold-weather will be a strong contributor to growth this year.

Our women's suits separates business showed excellent strength in the quarter. Our Calvin Klein product is now in over 1,200 doors, and we expect to have annual sales of over $100 million this year. We continue to be the number-one vendor, and have a number of exciting brands beyond Calvin Klein that will help us continue to invigorate and grow this business for our department store customers.

We are pleased with the continued development of Ivanka Trump sportswear, dresses, and coats. We expect Ivanka product to show strong growth in its second full year of business with us. I am confident that this brand fills a void in the market, and we have high expectations for what it will mean to us over the long term.

We also expect a strong year from our team sports business. We should surpass $100 million in annual sales this year, while generating strong profits. We are aggressively pursuing new opportunities in this area.

In the outerwear category, as you know, the first quarter is something of a clean-up quarter. Inventory at the end of the season was in good shape in all channels across our assortment of brands. This should bode well for the upcoming fall season, which is booked well so far.

I'll turn to our specialty retail business in a minute, but I'd like to take a few minutes to discuss G.H. Bass wholesale and licensing initiatives. In addition to a great retail business opportunity, this is a brand that can support significant presence at wholesale. We've started with G.H. Bass women's sportswear wholesale, with a sportswear wholesale launch. This is going very well. We'll be in over 200 doors for the fall season.

With respect to licensing for G.H. Bass, PVH, our men's apparel licensee, is currently selling G.H. Bass in over 1,000 retail doors. The product is performing well, and the door count is increasing. Overland, our [shoe] licensee in Europe, has also had a good launch, with product in key retailers such as Selfridges and Harrods. We are very excited to be working with Genesco, a new US men's and ladies footwear licensee.

In our G.H. Bass retail concept, we drove a first-quarter comp-store sales gain of 17% for Q1. This is our first full quarter of year-over-year comparisons, and we are pleased with the pace of the improvements. We have comprehensively integrated the G.H. Bass operations. We have cleared the legacy inventory out of the system, and we're now flowing strong new product into the stores.

We are focused on a broader repositioning initiative for the brand, with refreshed stores, and also with a strong digital footprint, and an expanded eCommerce presence which will launch later this year. We believe there is plenty of room for growth in Bass over the next several years, and we are confident that this will be another textbook case study of our ability to seamlessly integrate operations quickly, leverage a brand, and create value for our shareholders through acquisition.

Wilson certainly is such an example. While our first-quarter comp sales for Wilson's were flat, this is within the range of what we expected. The big months for Wilson's lie ahead in the second half of the year, and we're confident that Wilson's is positioned for another good year.

Vilebrequin is an acquisition of an excellent brand that we expect to create long-term, sustainable value for our shareholders. We now have over 80 company-owned stores, up from 60 when we bought the company in 2012. Vilebrequin's first-quarter performance was consistent with the overall luxury status environment, which is a bit challenged with significant currency swings impacting the international tourist around the world.

Retail comps globally were down by high-single digits. That said, we're seeing some improvements besides the environment, and over the last several weeks, our new collection has been well received and comps have turned positive. We believe that bodes well for the summer season, which is very important for the brand.

I'll reserve a few comments for closing, but I'll now turn the call over to Neal Nackman, our Chief Financial Officer, for a closer look at the numbers for the first quarter.

Thank you, Morris. Please note that all share and per-share data have been adjusted to give retroactive effect to a 2-for-1 split of our common stock effected on May 1, 2015.

Net income for the first quarter was $6.8 million or $0.15 per diluted share, compared to net income of $1.3 million or $0.03 per diluted share in last year's first quarter. Net sales for the quarter ended April 30, 2015, increased 18% to $433 million, from $366 million in the same period last year.

During the first quarter, we changed our segment reporting to more accurately reflect the way we manage our Business. Accordingly, we will now have two segments: wholesale operations and retail operations. The wholesale operation segment consists of our former licensed products and non-licensed product segments, and includes sales of products licensed by us from third parties, as well as sales of products under our owned brands and private label sales. The retail operation segment consists primarily of our Wilson's Leather and G.H. Bass stores, as well as a limited number of Calvin Klein Performance stores.

Net sales of wholesale operations increased 24% to $352.5 million from $285.1 million, driven by increased sales of Calvin Klein licensed product, primarily in the women's performance wear, women's suit and dress lines, as well as increased net sales of Eliza J and Vince Camuto dresses, and Ivanka Trump product. Net sales of retail operations increased 8% to $102.5 million from $95 million, primarily due to an increase in Wilson store count, as well as a same-store sales increase of approximately 17% for our G.H. Bass stores, compared to the prior year's quarter.

Our gross margin percentage was 35.7% in the three-month period ended April 30, 2015, compared to 35.5% in the prior year's period. The gross margin percentage in our wholesale operation segment was 30.4%, compared to 30.1% in last year's quarter. The gross margin percentage in our retail operation segment was 46.2%, compared to 46.7% in the prior year's quarter.

Total SG&A expenses increased to $137 million in the quarter, from $122 million in the same period last year. This increase is primarily attributable to increased personnel costs, facility costs, and advertising expenses, which are primarily associated with increased retail store count, increased shipping volume, and required advertising associated with the growth in sales of licensed products.

Regarding our balance sheet, accounts receivable increased to $209 million from $145 million at the end of the prior year's first quarter. Inventory increased approximately 15% to $371 million, compared to $323 million at the end of the first quarter last year. Inventory levels at G.H. Bass at the end of the prior year's comparable quarter were still in transition, and were lower than normal. Excluding the transition to our increased G.H. Bass inventory, our inventory levels increased approximately 5%, which is consistent with our forecasted second-quarter sales increase.

We spent approximately $8 million on capital expenditures in the first quarter this year, and expect the full year's capital expenditures to be between $35 million to $40 million, primarily due to leasehold improvements for new and remodeled Wilson stores, G.H. Bass and Vilebrequin stores, as well as fixturing costs at department stores.

At the end of the quarter, we had no outstanding debt, and cash on hand of $86 million, compared to a prior-year net debt balance of $60 million, which consisted of our revolving bank debt and promissory notes, less our cash on hand at the time. In addition to the cash flow generated from the 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.

Lastly, I will discuss our guidance for the full fiscal year and the second quarter. For the fiscal year ending January 31, 2016, we are forecasting net sales of approximately $2.4 billion. This would result in an increase of approximately 14% from the $2.1 billion of net sales in FY15.

We are increasing our forecasted net income to between $123 million and $128 million, compared to our previous forecast of between $116 million and $122 million. We are now forecasting net income per share of between $2.66 and $2.76 per diluted share, up from our previously forecasted range of between $2.52 and $2.62. Our revised guidance compares to net income per diluted share of $2.48 in FY15, and non-GAAP net income per diluted share of $2.26 in the fiscal year ended January 31, 2015.

We are estimating a fully diluted share count of approximately 46.5 million shares, which includes the effect of our 2014 mid-year stock offering. We are forecasting adjusted EBITDA to grow between 21% and 25% to between $225 million and $233 million, compared to $186.6 million in FY15.

With respect to our second-quarter guidance, we are forecasting net sales to increase to approximately $470 million in this year's second quarter, an increase of 11% from the $424 million of net sales in the comparable quarter in the prior year. We are forecasting net income between $6.9 million and $9.3 million, or between $0.15 and $0.20 per diluted share for the second quarter, compared to net income of $6.2 million or $0.14 per diluted share in the previous year's second quarter.

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

Thank you, Neal.

I hope it's clear to you that we're off to an excellent start to our year, and that our results are sustainable. We have good momentum, and believe our performance, particularly relative to many other vendors, makes G-III part of the solution for our customers, particularly department stores.

In addition to our ongoing expectation of strong wholesale business, we are expecting momentum to continue to build in our specialty retail businesses. Wilson's is positioned well for its key season, Vilebrequin is fundamentally healthy in a tough luxury goods market, and we are making rapid progress with G.H. Bass, which should continue to have double-digit comp growth and good margin improvements in the coming quarters.

We will remain focused on striving for further excellence throughout our Company. We're pushing hard to make FY16 another outstanding year of growth, operational improvement, strategic progress, and strong value creation for all of the partners in, and shareholders of, the Business.

Thank you. And, operator, we are now ready to take questions.

(Operator Instructions )

Erinn Murphy, Piper Jaffray.

Great. Thank you. Good afternoon, and just a fantastic quarter for the team there. I guess, Morris, first off, you talked about confidence in the second half and just visibility that you have on the order book. Could you just share a little bit more about what you're seeing right now, that kind of support that underlying confidence?

Well, number one, our order book right now is quite strong. It's a little bit ahead percentage to our plan relative to last year.

So we are comfortable that our business is going to be strong. Our meetings with retailers as recent as today -- today is a big market day -- has got a great deal of encouragement attached to it.

The conversations that we have had with our retail partners is indicative of a belief, a strong belief that business for third and fourth quarter are going to drive the year. Clearly, some of our retail partners had a difficult first quarter, and their bet is that it's all redeemed and retrieved in third and fourth quarter. And our bet is very much the same.

We are excited by the fashion creations that we have. Pretty much throughout our building, in all our brands, we have -- we've created a focus on not accepting a weak classification.

All that we've done is added design to make sure a weak classification turns into a strong classification, and it's exciting our customers, and it's working. Our order book reflects it. The margins that we are able to get for the product that we're creating is a little bit better than it has been historically, and the tests that we have out there lead us to believe we're in the middle of a very good year.

That's good to hear. Thanks. And then, I guess on the Wilson's business comping flattish. I recognize that kind of in-line with your internal plan. Just maybe walk us through how you see that business trending throughout the balance of the year?

Is flat kind of the new normal for you guys? Or is there something that you're doing strategically or from a product mix perspective that should start to see that, and [inflect] from a comp perspective?

The issue at Wilson's currently is -- number one is, this is the softest period of time for Wilson's, which is pretty much two-thirds of an outerwear business, and a third of accessories and handbags. So the expectation is not very large. The percentage that we do in the quarter is not significant.

The concern to some degree is the foot traffic that flows through some of our larger outlet stores, Orlando and Sawgrass, and maybe a little bit of Woodbury Commons, where we're seeing a slowdown as expected. As we've all heard from retailers and wholesalers, that anything that is connected to tourism and currency, the footfall is clearly off.

So that's what we're reading in Wilson's. Our bigger stores that are in those centers are reflective of the business.

Our May business, I might add -- I can give you a little bit of visibility on May for Wilson's is up 5%, and our Vilebrequin business for May is up. And, again, Bass, is trending better than the 17% that we tracked in the first quarter. So we're trending close to 25% in an increased -- in comp increases for the month of May.

So I think we're okay for the year. Our product in all of those retail concept is something that we are proud of.

A year ago, we had a concern for some of the Bass product. We were going through cleansing of the inventory, and the support inventory that we had to fill the void was essentially there, because it was available. It wasn't all right.

Today if you walked into a Bass store, you'd see a comprehensive collection that really fits into Bass. And Wilson's, the same and Vilebrequin, also the same. We just dropped a new delivery for Vilebrequin, and the impact literally overnight on new delivery is excellent, both in the United States and the rest of the world.

So I hope that answers your question a little bit, Erinn.

No. Absolutely, thank you. And I guess, just last, a clarification question for Neal. On the restatement -- I do apologize if I missed this -- are you just simply collapsing the licensed and non-licensed business and keeping retail? Or is that Calvin Klein performance retail piece of business, was that in license and it is now being classified in retail? And then, where is the Vilebrequin going to fit in this new structure?

Right. So your first suggestion was the right one, Erinn.

Okay.

We are really just simply collapsing the licensed and non-licensed businesses together. So for modeling purposes, it should be very simple for you. The elimination stays exactly the way it was. The only inter-company sales we had were from those segments to the retail operations, so the elimination entries stay the same. And the Vilebrequin business was always in with our non-licensed business, and that's again collapsed with the licensed, into the wholesale operations.

Okay. Thanks for that. I'll let someone else jump in. Congrats.

Thank you.

Ed Yruma, KeyBanc Capital Markets.

Hi. Good afternoon. Thanks for taking my question, and congrats on a great quarter. Morris, as you think about the first quarter, how much of the relative outperformance was due to potentially lower outerwear kind of markdowns and cleanup, versus kind of what you would consider as kind of more organic growth that was booked in the quarter?

Now, this was not necessarily an improvement on markdowns in outerwear. Those markdowns are accrued through a longer period than the first quarter quite honestly, and we ended up quite clean at the end of the year.

The real reflection is really the performance of sportswear and dresses in all our areas. The contribution that we had to make in first quarter, to help the department stores move the product was minimal, compared to the past. So it's better performance in our seasonally appropriate product, not an improvement on dated product.

Got it. You also had a major competitor that exited the market in Jones, I guess. Kind of what has your success been, in either claiming some of its former space? Or in your opinion, just kind of getting maybe a share that was up for grabs?

Well, the competitor that has walked away from the business, or is transitioning out of the business is leaving open some real estate that we are trying to make accommodations for. We don't plan on leaving that real estate empty. We're fighting for it in many ways, expansion of our own existing brands, and we're on the lookout for brands that are appropriate for that real estate, and the department stores are cooperating with us.

We see a little bit of a build on the backend of the year. The orders are a little bit more aggressive. The depth of inventory in individual doors is increasing. That's been our mantra, regardless of having competition or not.

When our inventory is right, the depth of inventory within an individual door is the battle that we fight for. And today, with proven results, we are winning the battle. Our improvements, particularly in Calvin Klein, are where we get expansion of the SKU count and depth of inventory, and we dominate the space. We get larger space, and the formula works well.

Excellent. And one final follow-up question, I know it's harder to tell Neal since you guys have kind of merged into your systems, but how should we think about the financial applications of Bass for the year? Thanks.

Well, like we've said before, this is a year for significant improvement in G.H. Bass. We saw it start in the fourth quarter of last year, with double-digit comps. We continued that in the first quarter.

We are anticipating that. As we just mentioned, that we were very strong in the month of May. We continue to expect good double-digit growth, and we will move that business, from really a detractor to us last year, to a positive result for this year.

And how positive is that?

No. We're not quantifying specifically, Ed, but it will be a -- it is a significant increase from last year's significant loss.

Excellent. Thanks so much, guys.

Thank you, Ed.

Rick Patel, Stephens.

Good afternoon, everyone, and I'll add my congrats on the terrific quarter. Can you talk about the handbag business? It seems like some of the aspirational luxury players out there are becoming more and more promotional, but you still seem to be doing really well.

So have you had to implement changes around pricing or markdowns support in order to compete? And what gives you confidence that you can continue to do well in accessories, given the increasingly promotional marketplace out there?

We've clearly picked up market share. We've expanded our assortment of products. We've expanded our design capabilities. And the last thing that I would respond to really, is the markdown assistance, I guess that you referred to.

We've been operating cleaner than ever. Our product is selling through very well. We -- as we've -- you have to remember, we were only in this business a short period of time, and really in record time, we learned it well. We know how to build the assortment. We know how to deliver it. We know when to deliver it, and we know how to price it, and we help our retailers with a markdown cadence that's appropriate for the product that we ship.

And all of that pretty much adds up to a resource that's deserving of greater market share, and we're getting it. All the doors that -- pretty much all the doors that we are in, show tremendous improvement over prior year. We look at sell-throughs, and quite honestly I am amazed to see week after week, how the improvements kind of resonate through that area.

Great. And then, a question on the changes you've implemented at Bass. So very strong comps there since the fall. Seems like the product is where you want it to be. But has your vision overall been completely implemented at this point, or does it still remain a work in progress in some areas?

Well, what we have done is we've worked hard at cleaning up, let's call it, the back of the house. We've worked hard at staffing appropriately. Both the field, the store personnel, as well as the merchants and the leaders of the area, have pretty much all changed.

So they walk at a faster pace, they think at a faster pace. They've been given freedom and support to build the brand that we absolutely believe in, and we're showing our belief in.

What we haven't really done yet, you haven't seen the marketing that's going to support this yet. There is been virtually no marketing that has been done to support the brand, other than several ads in [D&R] /womenswear.

But we have an aggressive campaign. We just finished the shoot, and this shoot will support both the retail and the wholesale initiatives that we have.

PVH is really the only -- the only wholesale product that is out there. They -- as you know, they licensed the brands from us in men's sportswear, and currently, they're in over 1,000 doors, and the space is growing for them. They've shipped a nice product, it's retailed well, and we are supporting them with more marketing. And based on what we saw through their wholesale initiative, we decided that it was time to launch sportswear on the women's side, and the product looks absolutely great.

It's in line with what my expectation was. And right out of the box, we have orders for over 200 department stores that have not had the brand on the women's side. So we're excited by that potential.

The European licensee has done a fine job of building products, a little different than what the been distributed in the states in footwear. It's a little bit upscale -- a little more upscale than what the state's product, and it's performed exceptionally well. The reorders flow-through everyday.

So we're excited by the added feature of getting distribution globally that was never there before. And we have interest. Pretty much every day, there is somebody knocking on the door for an opportunity to license the classification under Bass.

So we've created a buzz, as one would say for the brand. And I guess, the buzz will permeate a little further, when we get wholesale product into the couple of hundred stores that we plan on distributing this year.

Thanks for all the details. Good luck for the rest of the year.

Thank you.

Thanks, Rick.

Joan Payson, Barclays.

Hi. Good afternoon, and congratulations on a great start to the year.

So in terms of the wholesale -- the 24% wholesale revenue growth that you posted in the quarter. It sounds like trends were pretty strong across the board, amongst different brands and categories. But which of them would you say outperformed the most versus the initial plan?

Well, strangely, the one that you would sit back and say, that may be we have pretty strong penetration would be Calvin Klein, but I would tell you that Calvin Klein outperformed the rest. Proudly, I would tell you that we have a company brand called Eliza J, which is a dress brand that we recently expanded into outerwear, and we'll expanded even further into other classifications.

But Eliza J is in -- I'm told in Nordstrom's, it's the number one dress brand. It's a very -- it's a brand that we work hard at making quite unique and quite special in our assortment.

So we have a plan that's almost double that of last year, and we believe we're going to achieve it. So with that, another dress brand for us is Vince Camuto, and our performance there is stellar as well.

So there are very few pieces that I could point to that I'd give you that are disappointing. But the highlights I believe are Calvin Klein, maybe Eliza J, Vince Camuto, and Jessica Howard as well, our moderate dress business.

Okay, great. And for the Calvin Klein brand overall, I think it finished last year with around $750 million to $800 million in revenue, somewhere in that territory. And you usually provide us, I think we a number of different targets by category. But how are you planning the collective growth for the brand this year?

We will -- hopefully we'll celebrate a $1 billion brand. So we have a plan that is north of $1 billion for Calvin Klein. And our order book performance and the support that we believe that we have from both our licensed store, as well as the retailer, leads it me to believe that we are going to get there. So we're probably talking 15% to 20% increase in the brand.

Okay. Great. And that just one follow-up in terms of your guidance for the full year. It looks like you're raising the full-year EPS by more than the upside to the quarter. And I was just wondering if it's related more to second quarter trends that you're seeing right now, or more to the back half? And if it has more to do with the G.H. Bass business, or the rest of the business excluding Bass?

Yes, Joan, I think it's a function of us having a lot more clarity in terms of our wholesale order book, a lot more comfort with how our Bass business is performing. So it really is just one more quarters smarter, and a more developed wholesale order book that helps us refine the projections.

Okay, great. Thank you, and have a good afternoon.

Thank you, Joan.

(Operator Instructions)

John Kernan, Cowen and Company.

Good afternoon, guys. Congrats. [Manny] talked about how strong your performance was this morning, and he wasn't kidding.

So just if we could circle back to G.H. Bass, I think you've laid out a plan for this become $1 billion brand, which includes north of $200 million in women's wholesale. I know there is a big launch this fall. So how fast can this wholesale business ramp towards $200 mark? And any progress that you could give us, on terms of taking this brand a $1 billion plus?

Well, first of all, I heard you say that this is going to be a big launch this fall. So let me step back a little bit. It's going to be a soft launch this fall.

We have 200 doors that we're excited about shipping, but the number that's going to be associated with that is not going to move us significantly. The $200 million at wholesale is a very achievable number. And I believe we get there -- between four and five years, we should have a $200 million wholesale business. There is great support for it.

I don't use the term whitespace often, but this brand does address the whitespace in women's. And what we've done is we've taken a team of fashion people that are responsible for a contemporary brand in our business, the Kensie group. And they've taken on the challenge of putting a twist to this lifestyle casual brand, that's about life at leisure, and putting a very feminine twist to it.

It doesn't have the manly twist that generally is associated with this product mix. So I think we have a look at that's somewhat different than what has been out there, and we're excited to get the product shipped.

The early shippings should give us a good indication. That'll happen in late August, early September, and we have some shops that we are going to be building out. There is a Herald Square shop. There is -- Dillard's is very supportive of the brand. Bon-Ton is supportive.

So you'll see the brand out there. It will be very obvious to you, and you'll probably be -- you'll probably look at me, and tell me that $200 million number is a low number. So we are excited by it.

We have opportunities for the first time that permeate through the product that we're going to be making and shipping, licensed product. And we're proving out our thesis of outlet stores does work, integrating the back end of Bass into Wilson's is working extremely well. Management teams are perfect for what we're trying to achieve so you can still hold me to the $1 billion number.

All right. We'll hold you to that. And just changing topics here, any additional thoughts on the acquisition front? And are there any particular categories that look appealing to you? And I guess, Neal, what would be the upper bounds of leverage on the balance sheet that you'd look to take on, if the right acquisition came up? Thank you.

So the right acquisition is one that is an important lifestyle brand. One that either has strong management team that's in place, and building product that needs additional distribution, additional sourcing, and additional financing. That would fit well in our assortment.

But it doesn't really matter whether it's men's or women's, or if it's focused on accessories. I think we've proved out that we can take on a challenge. We've even been taken on footwear, with Bass as a challenge and have succeeded.

So it can be pretty much any classification of apparel we feel comfortable with. If it adds the right metrics that fit the profile of what we're looking at, and that it can be a standalone brand that we can build from inception. So there are several different areas that we can look at, and we are looking at.

We don't ignore what we have. We've got plenty of organic growth that'll take us a good distance. We have opportunities that we are looking at now, and it just takes time to find the right deal, and to close on it.

John, in terms of leverage, there is no magic number that we associate with that. Certainly, the Company is very under-levered at the moment. We're really only borrowing now in the peak season.

We are looking to generate significant amounts of EBITDA. We've been generating nice free cash flow for the last three years. We expect to continue that. So as we continue to be out in the marketplace, and look at opportunities, the Company's balance sheet is only getting stronger, and we don't see limitations from a financial standpoint to stepping into the right acquisition.

Okay. That's helpful. Thank you.

Thank you, John.

Jim Duffy, Stifel.

Thanks. Hello, everyone. Very encouraging trends in the Bass stores. Morris, I was hoping that you might be able to speak in more detail around specifically what it is that's resonating so well? Are you indeed seeing improvements in traffic, or is the high teens comp just better conversion?

Well, it's not traffic. It's conversion, but it's caused by better product, our -- the major increases are coming out of apparel. We're showing comp increases in the apparel segment that are not far from 50% comp increases. Footwear comps are strong, needs a little better refinement, we're working on that.

And it's a better execution, better people, better systems, and just a focus on getting it right. There is still plenty of room left for improvement. We seem to be on the right path.

And with Wilson's, you used to speak about sales per square foot productivity. Can you share, relative to the Bass stores where you stand on a sales per square foot basis, and what you see as the opportunity?

Yes, Jim. We've picked up the business, and we were in the probably around the [$225]. We're up around [$240] per square foot now, Certainly with the kinds of double-digit comps that we're looking for, we're looking for good improvement this year. We have not put a number on where we think we the top out, or what the total potential is, but we see lots of good room for growth, in terms of the productivity.

Great. And then, Neal, is there a way to think about the leverage potential on that comp improvement?

Well, not necessarily by formula, Jim. But we see no reason why this business isn't a double-digit operating margin type business. So we expect for this year, to get improvement, both in gross margin, several hundred basis points in gross margin over the prior year, as well as a couple hundred points of improvement, in terms of the SG&A leverage. So that should move us from a negative, to certainly a low positive operating margin for this year. But we see this business as a low double-digit operating margin business for us, when it's being done right.

Very good. Great to hear. Thank you.

Eric Beder, Wunderlich.

Good afternoon. Let me add to your congratulations for a solid quarter. Could you talk a little bit about the Ivanka Trump line, and how do you see that continuing to expand in the next few quarters and few years?

The Ivanka Trump brand is doing well. We made a strategic error last year. We weren't prepared to launch the brand with sportswear. So we launched it with a classification called suit separates, and the product really needed to be exposed appropriately in sportswear.

So we retool -- our dresses sold well, our coats sold well. What did not sell well our first season was suit separates, and suit separates is a classification that we as a company own, we're best-in-class. So we, with that knowledge, we took a shot.

We thought that we would -- we'd bring the brand out with separates as the lead. So today, if you were to shop the area, you'd clearly see an amazing collection of Ivanka sportswear that's been well-received, and is being shipped as we speak.

So we've cleaned up the problem on the suit separates. The dresses have booked well, and the coats is expanding -- the coat area is expanding, and our margins are very good with the brand. We're excited about the brand.

Can you look -- at the handbag business, you have Kensie, you have Calvin Klein. Would you want to take on additional licenses potential for that segment to grow it even more? Or is it really just only going to be on -- through acquisitions that you expand that out?

We never negate an opportunity. We look at it, and the strategy -- or let's call it the preference. The preference is really not to license.

But if the opportunity came up for an amazing brand that lent itself to just further expansion of the handbag business, we wouldn't hesitate. We'd license it.

But we're on the search for a brand that we can do many things with. The best thing for us is acquiring a brand that we can do all classifications with, and have an equity stake in it. So we believe we'll find it.

And that doesn't stop us from a meeting with people that can provide us with opportunities through licensing. We still do that. We do that every single day.

And finally, you talked about the M&A criteria. Do you want primarily domestic or international, or is that not a key differentiator when you're looking at buying a brand now? Thank you.

Our competencies really lie domestically. So I'd respond again, my preference would be a domestic situation, where a brand that we could distribute, and would be recognized in the states. But that wouldn't keep me away from an opportunity that might exist in Europe, or any other part of the world.

But we do have our preference. The preference is we, don't fool ourselves. We know that our strength really is designing, marketing, and distributing product in the United States.

Okay. Thank you.

Thank you, Eric.

David Glick, Buckingham Research.

Yes. Thank you, and Morris, I'll add my congratulations to you and the team.

On the -- speaking of licensing, I've been watching the developments around the Jones New York sale, and wondered if there were opportunities? There were certainly some sort of legacy strengths from a classification perspective in general, whether it's suits, or dresses, obviously outerwear. Are there some licensing opportunities potentially there, that could help augment your growth?

No. For some undisclosed reasons, we are not interested in Jones as a brand. It's a brand that we won't participate with. We won't license any of their assets.

Okay. And then, a question for Neal on the gross margin front. Obviously, Q1 was probably largely a function of the mix of wholesale versus retail. How do you see the gross margin playing out for the year that's embedded in your plan, relative to the performance on the gross margin line in 2014?

Yes, David, I would tell you that we had, similar to the slight improvement that we had in Q1, that's probably the type of improvement that we are looking at for the whole year. Not a year, where we see anything dramatic happening as far as gross margin improvement, but we would hope for some slight gross margin improvement for the whole year.

Okay, great. And then last question, now that the outerwear bookings season is behind you. Obviously, it's less important as a percent of total of your business as other businesses grow, but still very important. Where did your order book end up, and what are the categories within outerwear that you think can continue to grow the business after a couple good seasons?

Our order book is ahead of last year. Our plan is ahead of last year. The classifications that are strong, are no different quite honestly than last year. The down business is booked very well.

The wool business -- I focused on something a little earlier, I guess, on another question, where we took a classification that wasn't the strongest last year, and we designed into it. And the designs that we came out with are just superb.

We believe the product that we created across all our brands that are driven by the wool fabrication are going to re-invigorize the wool business. We have a full leather business that's very strong.

We have a cotton business that's emerging, a little stronger than it's been historically. It seems to be a little bit of a trend.

And disappointingly, the leather business is weaker than I'd like it to be. And for those of you that don't know, the roots of this Company are the leather business. So that's -- it wasn't a big business last year, and it certainly won't be a big business this year.

Great. Thank you very much. Good luck.

Thank you, David.

I show no further questions at this time. I will now turn the call back to Morris for closing remarks.

Thank you all for listening in, and thank you for your questions. Have a good day.

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