G-III Apparel Group Ltd (GIII) 2016 Q3 法說會逐字稿

Welcome to the G-III Apparel Group third-quarter FY16 earnings conference call. My name is Corey 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 Wayne Miller, Chief Operating Officer. Mr. Miller, 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 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. As a reminder, all share and per share data have been adjusted to give retroactive effect to the two-for-one split of our common stock, effective on May 1, 2015.

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

Good morning and thank you for joining us. Here 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're pleased to report a really good third quarter. Our sales and profit growth is the result of a powerful, strong brand portfolio, great execution, and our market leadership position across a range of categories. We grew net sales to $910 million, up 12% compared to last year. The increases were broad-based. Our adjusted EPS for the third quarter reached $1.85, up 20% compared to $1.54 last year. We are excited by the progress we've made on a number of important growth initiatives that will help us sustain a strong pace of sales and profit growth in FY17 and beyond.

Before I detail the quarter and update you on our new business initiatives, I'd like to comment briefly on our short-term outlook which we have updated to reflect primarily the impact of abnormally warm weather this fall and the soft retail traffic levels in outlet centers. We now expect to see full-year adjusted EBITDA to increase between 22% and 28% to $227 million to $238 million compared to $186 million last year. Our revised guidance for adjusted EPS is now $2.65 to $2.80 per share. This is projected increase between 17% and 24% compared to the $2.26 we reported last year. While the weather is going to make for a tougher coat season this year, it is manageable. We expect to end the season with clean inventories and acceptable margins, both for us and for our retail partners.

Our expectation for full-year double-digit top line growth, with nearly twice that rate on the bottom line, continues to show a very healthy Company. We continue to see meaningful sales and profit gains and have many continued opportunities across our businesses. We designed and delivered excellent fall product across the board. Our dress, suits, sportswear and handbag businesses are performing really well. The dress business is strong for us. We're gaining market share with our existing brands as well as from new power brands in our portfolio. We are the leader in the dress category and we will build on this position.

I would note a few highlights. Calvin Klein dresses, now in over 1,300 doors, are performing very well with strong, consistent selling, contributing good margin for both our customers and for ourselves. Eliza J, a Company-owned brand, had another great quarter. Penetration is up to 700 total doors and the business is up over 40% from last year. Eliza J is the number one dress brand at Nordstroms today.

Vince Camuto is also a standout performer, now in over 500 doors, with sales growth exceeding 50% over last year. We're excited for our new spring launch of Tommy Hilfiger dresses, which will be in more than 400 department store doors. This will be another meaningful growth dress business for us. Calvin Klein suits and suits separates continues to be a standout performer. It is now in over 1,200 doors and will be in over -- will be over $120 million in net sales for us this year. Women's sportswear had a good quarter. This is the single largest retail category and remains a solid growth driver for us. We shipped well in the third quarter.

Calvin Klein Better Sportswear is in 1,000 doors where we continue to install shop-in-shops for our best doors. We're up to 144 doors versus 102 last year. Calvin Klein Performance Wear is now in 1,300 doors. These are well-established businesses that are still growing. We are building the foundation for our G.H. Bass Women's wholesale sportswear business and we fixtured more than 150 doors. We're developing good exposure as well as building strong product and brand awareness. As a final sportswear highlight, we made the first shipments of Karl Lagerfeld Sportswear. I'll come back to the plans we have for this brand in a moment, but the initial consumer reception was excellent.

Our handbag business is still nearly all Calvin Kleins but not for long. We will be up 30% to $100 million this year with Calvin Klein and are looking forward to building this category. This is a huge opportunity for us over the long term. We expect handbags to be a key category for Karl Lagerfeld. Our initial Lagerfeld handbag shipments have gone quite well and we're already in 150 doors. Footwear is also a big growth opportunity for us. We're very enthusiastic about our upcoming first quarter launch of Karl Lagerfeld Footwear. We're going in to approximately 200 department store doors. The scope of the Karl Lagerfeld opportunity we have, also will be implemented through our multi-category infrastructure.

With the power of a brand like this, with this kind of legacy, we can be aggressive and stake claim to floor space in the department store environment. We're working simultaneously on Karl Lagerfeld Outerwear, Sportswear, Dresses, Handbags and Footwear and as a joint owner of the brand, we're also pursuing licensing deals for other categories. It is our belief that the Lagerfeld initiative is going to demonstrate just how powerful our platform has become. Ivanka Trump enjoys strong recognition and our mission for that brand is to also utilize our multi-category infrastructure for broad-based growth.

Our Team Sports business is having a great fall season, led by NFL product, as well as strong increases in NHL and colleges. We're especially pleased with our Hands High collaboration with Jimmy Fallon which has been featured on national TV, in stadiums, on billboards throughout the major cities in the United States. Wilsons had a comp store sales decrease of 12% in the third quarter. Year-to-date comps were down 4.5%, with over 60% of total volume in coats. The unusually warm weather and reduced outlet traffic particularly in tourist markets impacted Wilsons significantly.

We're looking for improvement as the weather normalizes and we're generally satisfied that we have the right assortment for holiday, which is our most important time of the year. G.H. Bass comps were up 4% for the quarter and 14% year to date. While weather and tourism are also having an effect, we continue to see a very good performance in the apparel assortment. In other news relating to Bass, our expanded e-commerce platform will be fully in place by the first quarter of next year. We've started from a small base with Bass online sales but we expect to double the volume this year. This newly expanded site will help us capture the online demand.

On the licensing front, the Bass Men's Collection, under license to PVH, is now in over 700 doors and our partners at Genesco, who are launching the new Bass wholesale shoe collection for this upcoming spring, have done a great job and will be in over 200 department store doors. We have also recently licensed men's and boy's tailored clothing. We expect to invest in marketing G.H. Bass next year as our licensing business expands. The development of the G.H. Bass brand remains one of our most powerful long-term opportunities.

Vilebrequin has also felt the effects of soft tourism spending here in the US as well as the macroeconomic challenges in Europe. Our comp store sales were down in the high-single digits for the third quarter. We've managed the business appropriately. We're maintaining strong margins and kept inventories in good shape. We remain optimistic about Vilebrequin's future.

I'll reserve some additional comments for closing but will now turn the call over to Neal Nackman. Excuse me. Neal, I must apologize, has a terrible sore throat so Wayne Miller will take over for Neal Nackman.

Thank you, Morris. Net income for the third quarter ended October 31, 2015, was $87.2 million, or $1.87 per diluted share compared to $80.6 million, or $1.76 per diluted share in last year's third quarter. Included in our net income in the current quarter is approximately $1 million of other income, equal to $0.02 per diluted share, which consists of the reduction of the estimated contingent consideration payable in connection with the acquisition of Vilebrequin.

The prior year's third quarter other income was approximately $12 million, or $0.22 per diluted share, and primarily consisted of payments for the sale of the rights to operate Calvin Klein Performance stores in Asia, including the sale of the Company's interest in the joint venture that operated Calvin Klein Performance stores in China.

A gain in connection with the reduction of the estimated contingent consideration payable in connection with the acquisition of Vilebrequin and a gain with respect to the early extinguishment of debt at a discount, constituting a portion of the consideration for the acquisition of Vilebrequin. On an adjusted basis, excluding these items in the current and prior year's quarter, non-GAAP net income per diluted share was $1.85 for the quarter ended October 31, 2015, compared to $1.54 in the prior year's third quarter.

Net sales for the third quarter ended October 31, 2015, increased 12% to $909.9 million from $812.3 million in the same period last year. Net sales of wholesale operations increased 11.8% to $807 million from $722.1 million, primarily a result of increased sales of Calvin Klein licensed products, with the largest increases occurring in handbags, women's outerwear, dresses and women's suits. In addition, we had increases in the sales in our Team Sports licensed products, Ivanka Trump licensed products and private label programs and started shipping our G.H. Bass wholesale product for the first time.

Net sales of our retail operations decreased 4.2% to $124.7 million from $130.1 million in the third quarter, primarily due to a decrease in same-store sales of 11.8% for Wilsons compared to the same period in the prior year. This decrease is mainly due to unseasonably warm weather and a decrease in sales at locations that are frequented by international tourists. This decrease was offset in part by an increase in G.H. Bass same-store sales of 4.2%, compared to the same period in the prior year.

Our gross margin percentage was 37% in the three-month period ending October 31, 2015, compared to 36.3% in the prior year's period. The gross margin percentage in our wholesale operation segment was 34.7% compared to 32.8% in last year's quarter, driven by increased margins in our Calvin Klein product lines.

The gross margin percentage in our retail operations segment was 45.9% compared to 44.7% in the prior year's quarter which was driven by improved performance at our G.H. Bass stores.

Total SG&A expenses increased $191 million in the quarter ended October 31, 2015, from $176.4 million in the same period last year. This increase is primarily due to increases in facility cost, personnel costs and advertising costs. Our effective tax rate in the quarter was 37% compared to 35.3% in the same period last year. Our effective tax rate last year was lower due to the tax treatment of certain other income realized in the period. We continue to expect that our normalized effective tax rate will be approximately 37% for the full year.

Regarding our balance sheet, accounts receivable increased to $537 million from $450 million at the end of the prior year's third quarter. Inventory increased approximately 17% to $510 million compared to $436 million at the end of the third quarter last year. We spent approximately $34 million on CapEx through the third quarter this year and expect the full year's capital expenditures to be approximately $40 million, primarily due to fixtures and costs of department stores as well as leasehold improvements for new and remodeled Wilsons, G.H. Bass and Vilebrequin stores.

During the quarter, we also invested approximately $25 million for our 49% ownership in Karl Lagerfeld North America. Our bank debt, less cash balances on hand, increased $117.5 million from $104.7 million at the end of last year's third quarter. We announced today that our Board of Directors have re-approved and increased a previously authorized share repurchase program. There were 3,750,000 shares available under the prior program which the Board has increased to 5 million shares. We remain focused on continuing to implement successful business strategies and creating value for our shareholders. The share repurchase program approved by our Board reflects confidence in our business.

Lastly, I will discuss our guidance for the full FY. For the full FY ending January 31, 2016, we are continuing to forecast net sales of approximately 20 -- $2.4 billion. This would result in increase of approximate 13% from the $2.1 billion of net sales in FY15. We have revised our forecasted net income to be between $124 million and $131 million compared to our previous forecast of between $129 million and $134 million. We are now forecasting net income per diluted share between $2.67 and $2.82 compared to our previously forecasted range of between $2.78 and $2.88.

Our revised guidance compares to net income per diluted share of $2.48 in FY15. Forecasted non-GAAP net income per diluted share is expected to increase 17% to 24% to between $2.65 and $2.80 compared to non-GAAP net income per diluted share of $2.26 in FY15. The non-GAAP net income per diluted share excludes items resulting in other income of $0.02 per share in FY16 and of $0.22 per share in FY15. We are estimating a fully diluted share count of approximately 46.5 million shares for FY16.

We are now projecting adjusted EBITDA for FY16 to increase between 22% and 28% to between approximately $227 million and $238 million compared to adjusted EBITDA of $186.6 million in FY15 and from our previous guidance of adjusted EBITDA of between approximately $237 million and $245 million.

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

Thanks, Wayne. We've become one of the strongest companies in our industry. We're pleased to have reported a very good third quarter. An important part of our skillset is the ability to make decisive, accurate decisions that maximize the opportunity, both for us and for our customers, basically in any environment. Even with the revision to our forecast, this will be another record year and we're positioned with powerful growth initiatives as we move into FY17. We will continue to drive growth across a range of categories and brands in our portfolio. We expect to continue to grow organically and are positioned well to make appropriate acquisitions.

Karl Lagerfeld is a great example of both, as are G.H. Bass and Vilebrequin. Calvin Klein is another example of our ability to partner and drive value for a well-established brand. From a starting point of only $36 million in 2005, this year we will do over $900 million, up 15% from last year's $785 million with this great brand.

We believe that we are still in a phase of our overall development where strong top and bottom line annual growth is in our plans for the next several years.

Thank you, operator. Let's open it up for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question is from Erinn Murphy from Piper Jaffray. Erinn, your line is open.

Morris, I was hoping you could talk a little bit more about the guidance. A number of moving parts in the guidance, clearly the EPS moving down but you did hold sales. So maybe two parts. On the gross margin, what are you implying in the range for the fourth quarter?

And then on the sales, clearly, there's some confidence in other parts of your portfolio despite having a bit of a soft start to the quarter with outerwear and some of the trends you're seeing in retail. So maybe speak to what gives you that confidence to maintain the full year.

There are two elements to it. One is retail, our own retail, and the other is wholesale. And they're both on a course to achieve top line growth, the growth that we have forecasted. We have major percentage of our inventory today is not coats. It's sportswear, dresses.

It's the elements of footwear entering into our business and so is handbags. We're currently proportioned well in our inventory to achieve what we've set out to achieve.

We don't see very much of a problem in moving our inventory. Our order book supports it. We're managing markdowns well and we believe that we can achieve the top line goal that we've set.

On the retail front, the biggest part of Wilsons business, which is the -- I guess I'd describe it as more of the problem than Bass is, because it's driven by outerwear and we had a difficult third quarter with Wilsons. We see that opening up as weather improves in regions of the country.

We're seeing major improvement so it's not a product issue. We've modified our inventory as we saw a change. So we're on track to achieve both margin and top line, as we have forecasted.

Okay. That's helpful. Maybe just for Wayne on that gross margin for the fourth quarter, how should we be thinking about what's implied in your guidance?

My deal with Wayne is that I would take questions even though I can't -- I wouldn't do the speech.

Okay. Thanks, Neal.

So the -- look, I think we're going to have a little bit of gross margin pressure. I think that's kind of what we've anticipated in the guidance for Q4. We do go into the quarter with some heavier outerwear inventories and we're going to want to move them. That's really some of what we have built into our guidance right now.

Okay. And then I guess just on the outerwear piece, Morris, you referenced this already, but you said it's manageable. Inventory should be clearing by year end. Are you -- from retailers, are you seeing cancellations or are you just adjusting orders intra-season to account for maybe the lower demand profile. Just help us think about what the relationship or the conversations are with retailers right now to clean up that business.

We saw a change in the third quarter. We anticipated some cancellations and the same as retailers. We had product that we directed differently overseas. We either had our factories hold piece goods or began to sell off inventory early on to accommodate some of the cancellations or the pushbacks that we were getting.

We have a staff of planners that evaluate the retailer's business on a daily basis. As we get information, we process it and we respond. So we've been responding to seasonal fluctualities since early October.

Okay. And then just last question, just on the buyback. Could you just remind us when the last time was that you guys bought back stock? Should we assume with today's announcement of increasing the authorization, does that mean you'll be in the market given where the stock price is currently? Thanks.

The last time we bought stock was about four years ago and the anticipation is if we see that our resources are better spent on buying our own stock, we'll spend it. Today's not the day that I'm going to make that decision or the Board will make that decision. But we're -- I guess we're armed to go.

Got it. Great. Thank you guys and best of luck.

Thank you, Erinn.

Our next question comes from Ed Yruma from KeyBanc Capital. Ed, your line is open.

Hi, good morning. Thanks for taking my questions. I guess first on the markdown reserve, when you see weak sell-throughs like you do, do you take the markdown in the quarter and reserve against it. And can you -- I know you haven't talked about guidance for next year but could you talk about how much of the change in markdown reserve might occur in the first quarter?

Well, Ed, the way we do that, is with -- for most of our businesses, we've actually got negotiated markdowns when we close our quarter. The only one that sort of lapses is the outerwear in this third quarter and for that, and for this quarter what we do is we try to make an estimate of what we think the full year's markdowns will be and that's what we've provided as we do shipping in the third quarter. So the last part of your question, in terms of carryover into the first quarter, no, we would not -- we would expect that we would have fully accrued by the end of the year the actual outerwear markdowns for the year, for the full year.

Got it. You guys obviously had some positive commentary about dresses, sportswear, accessories. The department stores have obviously had some fairly weak commentary and discussion about having inventory levels. How do you feel about your inventories in the channel on your non-outerwear business?

Our inventory is appropriate in non-outerwear businesses. We're best-in-class in pretty much all the classifications that we're shipping. Our dresses are outperforming the department. We're best, actually, in most of our accounts.

Our dresses are performing best and suit separates is the same way. You might be reading that dress or suit business is not doing well but if you dissect it and evaluate it by resource, you'll find that our brands are doing extremely well.

The Handbag business has grown and continues to show signs of dramatic growth going forward. We've grown our Calvin Handbag business 30% this year, with good margin for both us and the retailer. The reserves are appropriate.

The sell-throughs are stellar and we're pleased with the season. I think what we're looking at right now is some climatic changes and a little bit of a blip for us in retail because of lack of tourism in our key stores. So short of that, we're fine.

On the coat side, I think I would like to add that generally, historically, coats are our best margin classification, for our retailers margin out extremely well and they're doing fine right now. We're reserved -- we believe we're reserved appropriately for the future and along with cancellations, some of what we've accrued for givebacks goes away.

Cancellation doesn't come for free. So we have good retail partners that do understand partnership.

And then one final follow-up. Just to carry into the last question or the last questioner. In terms of the share buyback, you guys did an opportunistic capital raise, a little over a year ago, I think with the intention of using it for acquisitions. I guess, at this point, has your thought process around acquisitions changed vis-a-vis share repurchase? Thank you.

No, not at all. We're still very aggressive in seeking appropriate acquisitions. We spend a good deal of time looking at quality companies and they don't all cross the finish line.

We're not going to make a foolish mistake on negotiating either a fair price, a fair deal or for a good brand, not necessarily in those -- in that order. But we are -- we're active in that area, no less than we were a year ago. But if the opportunity today is to buy back stock because we see great value in our own equity, we'll do that.

Great. Best of luck this holiday.

Thank you.

Our next question comes from Rick Patel from Stephens. Rick, your line is open.

Good morning, everyone. Congrats on executing well in a tough environment.

I'm hoping for a little bit more detail on inventories being up more than your anticipated sales growth. So is there a way to dissect how much of that represents growth in existing categories and brands versus new ones that you either launched recently or will launch this spring?

So Rick, we really haven't given out that level of detail but you're absolutely right that to the extent that we step into new businesses, there actually is always a disproportional load in inventory to get those things up and running. Look, overall, our inventories are up 17%. We're forecasting the fourth quarter to be up about 15%.

As I said before, the outerwear inventories are obviously ones that we're the most sensitive to right now, only because we've had such an unusual start to the season in terms of weather. But we think that on balance, our goals are certainly to move our inventories at the end of the year to be more in line with the sales increases that we will expect going forward.

And I think recently Macy's announced plans to close around 40 stores. I think these are supposed to be underperforming locations. But I'm sure there's still distribution points of yours. So can you talk about the negative impact you think this could have on 2016 results and what kind of headwind we should be baking in from a modeling perspective?

The closure of the 40 stores has a positive impact on us, not a negative impact. Those are the poor performing doors and those are the doors that when there's a vendor participation that's needed, it's generally to support the poor performing doors.

So as Macy's eliminates the underachievers, we're fine with it. In our effort to be a good partner to Macy's, we take on the challenge of doing well in their A stores as well as their B stores and their D stores are more of a challenge.

Great. And then lastly, can you just talk a little bit more about the Hilfiger opportunity? I'm curious if there's any way to frame how much this launch could be over the long term. And is it safe to assume that the overarching strategy here is to extend this brand to new category licenses beyond dresses or do you think it's going to remain focused in dresses for the foreseeable future?

Well, currently, we have a coat business, both men's and ladies. And we've just signed a dress business. To give you the scale of the coat business in Tommy Hilfiger at Macy's today, on the men's side, it's running pretty much neck-in-neck with Calvin Klein.

The size of the business and obviously, the demand for the brand seems to be equal to that of Calvin Klein. On the dress side, the classification side of the business in dresses has been very strong for us as a resource. We know how to make dresses. We know how to make the best dresses at the best price.

And now, given another power brand, we're very hopeful that this is a brand that can either come in number one or number two in our portfolio. And as far as the future, we're always talking about trying to get other classifications. So currently, what we are talking about are the dress side of Tommy Hilfiger and coats.

And the women's coat business is just entering into its own. It was a late arrival for us. This is -- this brand will pick up steam next year. In a tough coat environment, we've grown that brand and we anticipate at least a 25% growth in the women's coat business for next year.

Thank you. Hope everyone has a great holiday.

(multiple speakers) Let me qualify it.

And our next question comes from Joan Payson from Barclays. Joan, your line is open.

Hi, good morning, everyone. Could you talk a little bit about the broad environmental challenges in the department, mid-tier department store channel in particular? Does that affect how you think about expansion into that channel and does it influence at all how you think about the plan for 20% EPS growth for FY17 and beyond?

What we look at generally is the strength of what we have to offer to an environment that is not growing aggressively. And what we believe is we have some very dominant brands that in difficult environments take a senior position.

So at the department store level, if you're going through a difficult time you tend to eliminate the low tier of your brand performance or brand importance and historically what's happened is we've grown in difficult times with our power brands. So having several power brands in our portfolio gives us a strong belief that we're going to prosper in the coming years with retailers, with the mid-tier department store sector.

So we're not overly concerned about it. We're doing all the appropriate things. You build good product at a good price and you deliver it on time and you're a good partner to your customers. You tend to win and historically we have won.

If I look back at the periods of G-III that were important to the growth, they were difficult periods of time for overall retail. So I think the strength of our balance sheet and all the wonderful things that we do with product will enable us to grow.

Great. And you touched a little bit on the M&A opportunity. But has the environment and some of the pullbacks in valuation influenced the M&A capability or opportunity at all in your ability to be acquisitive?

Unfortunately, I think valuations for us have changed as well. Where we were trading at a different multiple and there might have been the thought of using our stock as a currency, today I would tell you I wouldn't look strongly at that.

So valuations, assuming that we stayed -- we stayed at the valuation we traded at and the rest of the world changed their valuations down, it would be a better world for us. But we're looking at opportunities. Valuations are fair. We're not looking to steal a Company.

We're looking to find a strong brand with good management that has opportunities that are consistent with what we look for. A lot of it I've just described to you, just being a dominant brand that can sustain difficult times. So they're out there and we'll find them. And if not, there's an amazing amount of growth that's left in this company or that we can achieve organically.

Great. And then just my last one is on GH Bass and Karl Lagerfeld since I think you've already begun selling those through. Just if you could talk about the consumer reception to those so far.

The consumer reception for Karl Lagerfeld at both Dillard's and at Lord & Taylor and The Bay have been exceptionally good. Our sportswears has done well. Our handbags, which are barely in the stores for two weeks, are doing well. And the best is yet to come.

This is our first delivery into the stores and we've got great real estate. We have customer support. Both the retailer and the consumer recognize the importance of this brand. And we're aggressive in building it.

What we achieved that's was a little bit more difficult in the past is we garnered some amazing talent from people like Ralph Lauren and Michael Kors and Jones New York where these companies were looking to streamline their labor force or they eliminated divisions of their business. We were lucky enough to get that talent.

So we've got great talent on board that's doing nicely in building collections and selling into the department store and managing the business. So we're very pleased with the Lagerfeld business. The Bass business, we have a licensee on the men's side, which is PVH.

In a tough environment, they are beating plan in men's. Their buildouts look great. If you have a chance, go to Herald Square. I'd encourage you to look at it. So they're helping us build this brand and for the first time, we're collecting royalties from them, which is not a bad thing.

We launched the women's side of Bass. We've built out 150 doors. We're in Dillard's. We're in Macy's. We're in Lord & Taylor. And we're learning the brand. The first deliveries were just okay. We weren't extremely pleased with the performance, but as usual, we fix the pieces that need to be fixed.

Genesco is the licensee for the footwear piece of our business at Bass and they are -- they're a best-in-class provider of footwear. What we're doing right now is we're liquidating some of the inventory from a prior licensee whose last month as a licensee is this month and Genesco takes over for future distribution.

We have some strong initiatives in place for Bloomingdale's. All the department stores are on board to buy the product from Genesco which was a different story a year ago. And we're building an aggressive advertising campaign as we speak. The brand is very, very much in demand so as we match up the product to the demand, I think we're going to have a very good year with it.

Great. Thank you and happy holidays to everyone.

Thank you, Joan. Same to you.

Our next question comes from Eric Beder from Wunderlich. Eric, your line is open.

Good morning. Congratulations on the quarter.

Thanks, Eric.

When you look at licensing categories you're in and the expansions you've done, do you want to find even more -- how aggressive are you going to be looking for other licenses in key categories like handbags and sportswear going forward or is it goal to buy more of that product in terms of the brands?

Well, we're launching another handbag brand, a very important handbag brand, which is Karl Lagerfeld. So the fact that we have lots of runway left with Calvin Klein and we now have an equity stake in Karl Lagerfeld, we have two power brands to build on. That's an awful lot.

The -- historically, our model in the outerwear business, we would look at outerwear brands and say if we can sign on brands that can do $30 million in wholesale sales, we've got a pretty good model if we have 8 or 10 brands. The coat business really caps out. I can't think of very many brands that do $100 million in wholesale sales.

I can think of many handbag businesses that do $300 million to $500 million in sales and I think in our hands we have the potential with two brands to build sizable businesses. So we're not aggressively looking for small pieces of business, the $30 million range of businesses to tack on as licenses.

And again, our first goal is to acquire brands if we can afford them and if they're right, I'd rather own than rent in this environment. And we, again, speaking to the size of classifications, we have sportswear initiatives that are in the same scale as the handbag businesses can be. We're growing our Calvin business every year.

We've -- we're north of $150 million in sales in Calvin Sportswear and we believe that Karl Lagerfeld has got the ability, again, of being a very large business. So we're not necessarily tackling small initiatives to add onto our portfolio. Yet if a large initiative came around, yes, we would consider it strongly.

Great. When you look at the Bass business, I know you had double-digit comps in the first half and Q3 was a little bit less than that. When you look at that, do you still feel very confident that you can get back to the level and get it to the level of success in terms of profitability and sales per square foot that you had at -- or have at Wilsons?

Oh, yes, very much so. I think it will be better. It's a heritage brand. It's much more recognized. I think the problem that we have at Bass is that we haven't gotten the footwear right yet.

We're in the middle of -- we're kind of in the middle of an old licensee where we've bought product from for our own retail stores. We've hired new management to develop footwear. We've aggressively sought out a resource structure to support the needs.

We're making a much better quality shoe for the future. If you look at the performance in Bass for the apparel, the apparel in our Bass stores is comping up north of 25% to last year. The footwear is more the issue and I think we've solved that problem. So we've got a little bit of a weather issue.

Our boots are not selling the way they need to. But the fact that we've gotten the quality right, we've gotten the styling right and we've built a resource structure going forward gives me great confidence that we're on track to build an important brand. As soon as we get that done, we'll build several flagships to showcase what we would like our retail customers to buy.

Great. Thank you and congrats and good luck on the holiday season.

Thank you. Same to you.

Our next question comes from David Glick from Buckingham Research. David, your line is open.

Thank you. Good morning. Either Wayne or Neal, I just wondered if you can give us a better sense for what your assumptions are in the fourth quarter for retail? Obviously, third quarter you talked this through.

Just wondering how much improvement you're assuming and what the range of outcomes you're expecting, maybe some recent trends will be helpful, just so that we can be able to assess how conservative or not you're being on the retail side of your business for the holiday.

Yes, David. Look, for Wilsons we're in low to mid single digit comps is what we're looking to achieve. November has still not been bullish for us just yet. But that's kind of what our initial assessment is.

And for the GH Bass, we're in the high single to low double-digit comps for the quarter and that certainly seems very achievable based upon, really, if you go back to the fourth quarter of last year, we were at [2015] comp. We're in double-digits for all but this past third quarter.

And you're seeing some improvements there in November?

Yes.

Okay. And then just a follow-up question. I'm just wondering -- you've kind of given us some color around the environment. Are you seeing any adjustments for spring of 2016 in terms of your order book? And given all your growth initiatives, whether it's Bass, Karl Lagerfeld, Tommy Hilfiger dresses, CK, et cetera, is this still a business that you think can generate double-digit revenue growth?

I'll answer the last question first. Yes, we believe that it can generate double-digit growth for the next few years. We don't see an issue with it. We -- we're not fans of pointing fingers at the weather, but I don't think I have a choice right now. Right now the issues that we're faced with are weather related.

They're not product related. I think it's quite an accomplishment to achieve what we have, being the dominant coat manufacturer in the United States. So I still believe that there's still double-digit growth left in this Company and our first quarter should be fine. We're not ready to give you that yet, but there's a good deal of excitement in our showrooms on a daily basis.

They're riding new launches. They're riding comfort power brands that we have. And we'll have a good first quarter and we're going to anticipate, I believe, when we get to it, we'll forecast a reasonably good 2017.

Great. Thank you. Good luck in the holiday quarter.

Thank you, David.

Our next question comes from John Kernan from Cowen. John, your line is open.

Good morning, guys. Congrats on executing in a tough environment. I just wanted to get your opinion on if you see any parallels to 2011 when, really, was the last time weather was this big of a headwind to retail.

I know there was some margin pressure in the third and fourth quarter and a little bit into the first quarter of that fiscal year. But then margins inflected after that. So is it really just getting you through next year in terms of the markdowns and re-establishing the gross margin expansion trajectory you've been on in the past?

Number one, our business in 2011 was much larger on the coat side. Today, we're barely 40% coats. And we have a different mix of brands. Some of the brands that we had in that time period are no longer part of the portfolio.

Part of the advantage, sometimes in licensing, is as you see diminishing brand, you do have the opportunity to, as the license expires, to terminate the brand. So we've had several. One was Sean John, the other was Nine West. It was a -- we've got a couple of others that are in the same vein.

What's happened over time is we've become much stronger in -- it's a lesser dependency as a percentage of our business and greater strength in the power of the brands that we support. So we believe we're really well-positioned for the future and sometimes, a very famous man once told me that sometimes history is your enemy.

So I think what we look at is what we can achieve for the future and build -- just build better product, all the things that I've been saying on this call. There's very little that needs to be done to correct the quality of our product, the design of our quality -- of our product, the sourcing structure. I'd say that I'm very, very proud of what's been achieved and those are the consistent components that you bank on for growth.

That's helpful. Just on the retail gross margin expansion, the past few quarters has been impressive in the face of a difficult environment, so can you help remind us where GH Bass is in the -- what inning it's in terms of margin recovery. I know that margins are depressed relative to where you think they can go and where they've historically been. So where are we in terms of the GH Bass operating margin recovery cycle?

We're looking in the mid-40%s now. We think there's room to get up to the 50% level for GH Bass. Look, some of our improvement is that we are still coming off of some weak comps. And one of the things that has also happened is we really haven't, in this environment, in dropping price on -- at the Wilsons business, we found it hasn't been stimulating sales.

The Wilsons gross margins have really been maintaining themselves as well. The combination of both of those is really what's been keeping the retail gross margin percentage up.

Okay. That's helpful. And then just one last question. Just given the initiatives around share buyback and potential acquisitions now that the stock's pulled back a little bit, maybe it's not quite as attractive a currency. Can you help us understand where your cash balance will be at the end of the year and what your free cash flow this year will look like given that it seems there will be somewhat of a working capital drag with inventory through the fourth quarter? Thank you.

Look, the Company is very, very strong from a cash standpoint. I estimate our free cash flow is in the mid-$60 million. We'll end the year with -- last year, we ended with $130 million. We'll end up higher than that even with the working capital growth that we have.

So essentially when you look at our Company, we really are a debt free Company. We borrow for about four months during the year, during peak, during peak working capital needs. The other eight months of the year, we're positive cash.

If you averaged it all out, we're probably just around a zero in terms of accrued debt level. So when you couple that with a revolving credit line of $450 million and the working capital that we've got, we've got hundreds of millions of dollars of availability in just our Company alone.

Okay. Thank you.

And our next question comes from Liz Pierce from Brean Capital. Liz, your line is open.

Thanks. Good morning everyone. Nice job on a tough environment. Morris, I'm curious on the department store, particularly on dresses and suit separates and sportswear.

As I look at some of the floors, and I totally see what you're saying in terms of your taking market share and some of the lesser brands are being kicked out. It seems to me that there are fewer and fewer of those lesser brands. I was just trying to square that in terms of where the opportunity continues to come from on some of the bigger brands.

Not only have the lesser brands lost some space, some of the power brands have lost some space. So when a power brand loses space it's a lot of space. And some of that becomes allocated to us as long as we perform.

And we are performing. We're outshining pretty much any -- you speak about dresses specifically, you just cited. We're outperforming pretty much any of the power brands. So there's a willingness from the department stores to give us more space as we can create more product.

And as we speak to the less important brands, there's still a launch of new opportunities that department stores try to give diversity of product to and when they don't achieve, they do get eliminated. And I've seen quite a few new brands on the floor that I don't believe are achieving their goals and there's a chance they get eliminated as well.

But nonetheless, in a difficult environment, we're growing our dress business. We're growing our suit business by over 20% this year. We're growing our handbag business. All of that coming in difficult environments where we're all seeing slow growth at the department store level, yet we're achieving double-digit growth in most of our categories.

Okay. That's helpful. And then in terms of the Jimmy Fallon, is that something that you feel, based on the response, do you see your ability to take that into different channels, distribution channels, et cetera, into specialty or is that just locked up at a particular distribution segment?

No, no, we have Jimmy Fallon as a license in Hands High that can cross channels. It has men's and women's and it has the ability of doing kids in some of our licenses. So we've been very fortunate to have Jimmy Fallon work with us and present to the leagues and colleges; his idea, not our idea, his idea that we're executing and it's working well.

Our orders for Spring and Fall of 2016 are very strong. We launched carefully. We launched in Dick's and at Lids and Fanatics and the Stadium Shops. That's the only place you're really able to find the Hands High product for our launch. But going forward, it's much, much broader. Our order book is filling up nicely for the Hands High brand with Jimmy.

Great. Thanks and best of luck for the holiday.

Thank you very much, Liz. Thanks for your question.

We have to further questions at this time. I will turn it back to Management for closing remarks.

Thank you, everybody, and have a great day and a great holiday.

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