G-III Apparel Group, LTD.

Welcome to the G3 Apparel Group second quarter fiscal 2020 earnings conference call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then 1 on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Neal Nackman, the company's CFO.

Thank you. Good morning and thank you for joining us. 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 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, non-GAAP net income per share, and to adjusted EBITDA, which are all non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning, and thank you for joining us. With me today are Sammy Aaron, our Vice Chairman and President, Wayne Miller, our Chief Operating Officer, Neal Nackman, our Chief Financial Officer, Jeff Goldfarb, our Executive Vice President, and Priya Trivedi, our Vice President of Investor Relations. Let's review the results of our second quarter. Our results were in line with our bottom line expectations and were led by continued outperformance in our wholesale business, which more than offset heightened challenges in our own retail operations. Second quarter net sales were up 3% to $644 million. Our second quarter wholesale net sales increased 8% to $589 million. Our second quarter non-GAAP net income per diluted share was $0.23 compared to $0.22 in last year's second quarter. Let me provide you some details on our own retail operations. By the end of this year, we will have eliminated over 140 stores, down from over 350 stores, which represents approximately a 40% decrease of our Bass and Wilson stores. We're being aggressive in finding a solution for the remainder of our own retail operations. In July, we engaged outside advisors to assist us with this process. Our own DKNY and Karl Lagerfeld stores reflected low single-digit positive sales comps for the quarter, despite the reduced traffic and high-volume tourist centers, which is where many of these stores are located. For the second half of the year, we anticipate performance benefits at DKNY and Karl Lagerfeld stores as a result of improved product and store design. We remain committed to eliminating the losses in our own retail operations as swiftly and as efficiently as possible. Before we get to our wholesale business, I'd like to provide you with an update on our sourcing operations and tariffs. For many years, we've emphasized our proficiency in our global sourcing capabilities and our strong vendor relationships. Our strength has always been to deliver great quality product that's priced competitively and delivered on time. As we've shifted production globally, we've historically moved with our longstanding vendors who've overseen new factory development. We believe that consistent management oversight and expertise are essential regardless of the country of origin. Four years ago, we sourced about 80% of our production from China. In spite of the fact that our overall business has grown dramatically, we estimate production in China will be down to less than 50% this year. Most importantly, we've done so with the comfort of knowing that we are in the right countries with the right partners. We believe we have significant additional sourcing opportunities outside of China over the next several years. Now let me address tariffs. As the risk of tariffs have increased over the past six months, we strategically accelerated inventory receipts from our suppliers which is reflected in our higher inventory balances as compared to the second quarter of last year. I just recently met with several of our largest Chinese vendors who continue to be extremely supportive in sharing the tariff costs implemented to date. Our ability to accelerate inventory receipts as well as obtain vendor support are expected to minimize the impact of tariffs on our financial results for this fiscal year. Looking ahead to next year, while the effect of trade negotiations and tariffs between the U.S. and China remains uncertain, we expect to be able to mitigate the impact of tariffs through continued expansion of outsourcing alternatives, obtaining further price concessions from our vendor partners in China, and implementing selective wholesale price increases where we deem appropriate. Our wholesale business remains a key driver of our results. Calvin Klein, our largest business and one of the dominant resources in the women's apparel market, had another solid quarter of growth. I'm also pleased to report that the extension of our partnership with PVH as a result of the new women's CK jeans license is off to a very strong start. Our partnership with PVH is something we do not take for granted. We appreciate The newly developed CK Jeans product line has garnered significant interest and generated a strong initial order book. Shipments will begin for this holiday season. We believe that we can build a substantial lifestyle women's CK Jeans business that will grow to $250 million in annual sales over the next several years. We continue to develop our product base to increase the diversification of our classification businesses. Over the last year, we developed an internal strategy to make denim a significant classification for the company. With the launch of CK Jeans, the expansion of our Tommy Jeans collection, and the future launch of DKNY Jeans, we will become a very important resource in the denim space. These denim initiatives with some of the world's most recognized brands will enable us to dominate the category. This is exactly what we've accomplished in our other classifications such as outerwear, dresses, performance, and women's suits. Moving on to our Tommy Hilfiger business, second quarter performance continued to reflect the strength of this brand and our product with with greater than 30% sales growth compared to the second quarter last year. The growth in the business was once again broad-based. We continue to find multiple ways to create product line extensions to appeal to a wider consumer. For example, within the Tommy Hilfiger sportswear business, we've expanded our distribution to Dillard's and Nordstrom's for this fall. We're excited by new developments in the Tommy Hilfiger jeans business. For spring 2020, we've created a completely new collection named Tommy Jeans, which will be housed in the jeans area in department stores and also be sold to better specialty stores. Featuring jeans with multiple fits and washes, as well as tops that are softer, this line is designed to appeal to a more casual and younger customer. We believe Tommy Jeans has the potential to be a significant growth area for us. Our team's strong execution and expertise in design, merchandising, sourcing, and selling are an integral part of the continued success of our Tommy Hilfiger business. Additionally, PBH's brand management expertise and compelling marketing capabilities have made Tommy Hilfiger a powerful global brand with far-reaching appeal. Our Karl Lagerfeld business had a good quarter, and we continue to experience traction in building this brand that we introduced to the North American market. We've positioned Karl Lagerfeld Paris with an elevated brand status, as well as expanding the lifestyle appeal of the brand to incorporate a more casual element. To honor Karl Lagerfeld's creative design legacy, the brand is launching a tribute to Karl, the White Shirt Project. Actors, models, fashion designers, and friends of Karl have been invited to create a version of his iconic white shirt. The line of shirts will be sold exclusively on Karl.com and Farfetch.com with all proceeds of sales going to charity. Our own DKNY and Donna Karan brands registered another strong quarter with greater than 20% sales growth compared to last year's second quarter. We're making good progress with our international distribution. We're now operating our own shops in Spain and Portugal in El Corte Ingles, one of Europe's largest department stores. Overall, for DKNY, We continue to create synergies and are looking forward to moving the brand's teams from their 120,000 square foot legacy office space to a newly designed modern and highly efficient 70,000 square foot space within the same building as G3's headquarters. On the DKNY marketing front, Building upon the success and momentum of last year's digital first 100% DKNY campaign, we're excited to elevate this year's fall campaign to feature a global megastar, Halsey. With roots in New York City, Halsey is a global power with endless talent as a singer, songwriter, and artist, making her an ideal match as a brand ambassador for the DKNY brand. Paulsy has a strong social media presence with over 36 million fans and followers across all social media platforms. The fall ad campaign will also include extensive media, digital, print, and outdoor placements in major cities throughout the world. Additionally, next Monday during the Heart of New York Fashion Week, DKNY will host a birthday party in Brooklyn to celebrate its 30th anniversary. The festivities will include a performance by Halsey. Licensing continues to be another great opportunity for the brand. It is an important profit driver and a great way to expand our global presence through the introduction of additional lifestyle product categories. This past quarter, We entered into a long-term exclusive global license for DKNY Intimate Apparel with world-class partner Comar, who has also been DKNY's sleepwear partner since 2008. Comar will transition the license from Hanes Brands in January 2020. Capitalizing on continued success of our DKNY home business, we also signed a license agreement for DKNY Furniture with Living Style Group, a leading pure play online furniture company, and are looking forward to the launch this fall. Based on all these initiatives and the strength of the order book, we're now anticipating DKNY Brand's wholesale net sales growth to be approximately 25% for this fiscal year. Our successful management Product development and distribution capabilities have set the stage for many years of meaningful growth for the DKMY brand. Lastly, in spite of the global tourist travel headwinds, Vilbracan, our status swimwear and resort brand, continues to perform well with mid-single-digit comp sales increases. We continue to expand the brand's footprint. This quarter, we opened four stores, including Las Vegas, Rome, and Capri, as well as two pop-up stores in Macau and Paris. Also this quarter, the brand launched a highly anticipated collaboration with Off-White, designed by Virgil Abloh, who also is the Artistic Director for Louis Vuitton Menswear. The collaboration sold out very quickly and gained significant global fashion press. We will continue to find creative ways to expand the awareness of this iconic status brand. Corporate-wide, online sales continue to be a focus for us. We see this as an opportunity to gain market share, ensure that our brands and products are well represented and showcased on our retail partners' websites, as well as our own. We will continue to invest in personnel and systems and the online space. I'll now pass it on to Neal for a detailed discussion for our second quarter results and our guidance for fiscal 2020. Thank you, Morris.