G-III Apparel Group, LTD.

Hello and welcome to the G3 Apparel Group third quarter fiscal 2020 earnings conference call. My name is Cheryl 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, you will be allowed to ask one question and one follow-up question. You can ask your question by pressing star then one on your touchtone phone. Please note that this conference call is being recorded. I will now turn the call over to the company's CFO, Neal Nackman. Sir, you may begin.

Thank you. Good morning. Thanks 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 the federal securities laws. Forward-looking statements are not guarantees. 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, Executive Vice President, and Priya Trivedi, Vice President of Investor Relations. This past quarter, we continued to achieve good growth in our wholesale business, notwithstanding the challenging retail and geopolitical environment. We exceeded our bottom line plan for the quarter as we maintained good momentum in our wholesale business. Our gross margins came in better than planned. Our merchants did a good job managing product costs. We benefited by accelerating inventory receipts ahead of tariffs and obtaining some great support from our vendor resources in China. Here are the highlights of our third quarter results. Third quarter net sales were up 5%, to $1.13 billion. A third quarter wholesale net sales increased 6% to $1.07 billion. A third quarter non-GAAP net income per diluted share came in ahead of plan at $1.99 compared to $1.88 in last year's third quarter. Now let me provide you with a brief update on our own retail operations. By year end, we will have eliminated nearly 150 locations or 40% of our Bass and Wilson store base as compared to just three years ago. However, as we've highlighted on our second quarter call, we're planning to move faster and deeper on store closures and remain committed to eliminating the retail losses as swiftly and efficiently as possible. We're working diligently with our landlords and external advisors to find an appropriate solution and believe we will have a resolution with our landlords by the time we report our year-end results in March. I look forward to updating you on our progress at that time. In November, we saw positive benefits from the new product assortments and store layouts we've implemented in both our DKMY and Karl Lagerfeld stores. Both brands experienced much improved store comp sales for November and had a strong Black Friday finish to the month. We're also seeing double-digit comp increase in the e-commerce business of both brands. We continue to feel good about the positioning and performance of DKNY and Karl Lagerfeld with positive year-to-date comps through the third quarter and productivity improvements I'd like to take a moment to talk about our supply chain and tariffs. We've always emphasized and we're real proud of our way of developing strong global resourcing and our vendor relations. We continue to lean on these relationships to accelerate the efficient and effective diversification of our manufacturing base. We estimate our China-based production will be approximately 50% by the end of this fiscal year from over 80% four years ago. We're also reallocating some of our experienced personnel in China to other parts of the world. As for tariffs in this fiscal year, as I previously stated, We're seeing the benefits of strategically accelerating inventory receipts ahead of the last round of tariffs implemented in September. As we place future buys, we continue to negotiate some major support from our vendors to maintain their level of participation of price concessions. We will also seek additional tariff mitigation from continuing our sourcing diversification and selectively raising wholesale prices. Now let us review our wholesale business, which had another strong quarter. Calvin Klein, which is our largest business, delivered another good quarter with net sales growth of approximately 11% as compared to last year's third quarter with strength across major classifications. We've built an incredible business with this brand and we remain a dominant resource in the women's apparel market. This quarter, we shipped out our first product for CK Jeans and have installed about 25 CK Jeans shops at Macy's, including one at their flagship Herald Square store in New York City. We're very pleased with the design and placement of the shop on the fourth floor. If you have a chance, I encourage those of you in New York City to visit the shop. The order book for CK Jeans is also off to a very good start with the product receiving great reception from retailers. Initial reads of the sell-throughs are encouraging. We remain confident that we can build a substantial lifestyle women's CK Jeans business over the next several years with the potential of reaching $250 million in annual sales. Our Tommy Hilfiger business continued on a strong growth trajectory with third quarter sales up approximately 20% compared to the third quarter of last year. We experienced quarterly growth that was broad-based across categories. This coming spring, we look forward to launching our Tommy jeans collection focused on a younger customer. Previously, part of the Tommy Hilfiger Sportswear line, we've now expanded the jeans collection which will be housed separately in the jeans area of department stores. The line will now also be sold to select specialty stores. We continue to grow our Tommy Hilfiger business both organically and through product line extensions. In addition to our established and growing business at Macy's, distribution has been expanded to Dillard's, Nordstrom's, and a broad assortment of specialty stores. The excellent brand management and marketing investments by our partner PVH continue to keep the Calvin Klein and Tommy Hilfiger brands relevant and top of mind for the global customer and help fuel the growth of our business. Net sales in our Karl Lagerfeld business were down for the third quarter due to fewer distribution doors compared to the third quarter of last year, primarily due to the door reduction taking place at Lord & Taylor. We're now working to further expand the distribution of Karl Lagerfeld product and are continuing to build the lifestyle appeal of the brand. We just signed a license to launch Karl Lagerfeld Paris bedding and bath products this spring with our long-term partner in the category, CHF Industries, with whom we've built a successful business for our DKNY and Donna Karan brands. This September, Karl Lagerfeld also launched Karl Lagerfeld X L'Oréal Paris, a make-up collaboration between the two iconic Parisian brands featuring limited edition elegant beauty products. The elevated brand and lifestyle status of Karl Lagerfeld positions it well for growth in the North American market. Our own DKNY and Donna Karan brands registered another solid quarter of 20% sales growth compared to last year's third quarter. This spring, we're expanding our distribution of the brand with several categories, launching in 100-plus stores at Dillard's. as well as further increasing the footprint in Macy's with additional doors. We're also developing a DKNY jeans line with an urban chic and edgy vibe to appeal to the consumer's more casual apparel needs. The line will have a soft launch for spring 2020 with a full launch expected for fall 2020. On the international front, besides our own sales growth in Europe, we're also expanding our business globally through our distribution partners in key regions. Continued growth, brand development, and marketing in these key markets is critical to driving global brand recognition. DKNY is currently being distributed in the Middle East, Russia, Indonesia, Philippines, Southeast Asia, and Korea. In China, we operate as a joint venture. We launched the fall 2019 brand marketing campaign for DKNY, which featured the global megastar Halsey. This marketing campaign, combined with the DKNY 30th anniversary celebration and its star-studded guest list, delivered elevated brand visibility and press across many media channels. DKNY continues to take a digital-first marketing approach across a multitude of social and media outlets. Further, the digital campaign is complemented with premium outdoor media placements in key cities across the globe. This marketing approach is working well. We saw a significant increase in traffic for the fall season. Our holiday campaign has already launched. Licensing is another important part of our DKNY and Donna Karan business profile. We've built a successful licensing business and continue to add additional lifestyle categories to introduce the DKNY and Donna Karan brands to a wider consumer. We've built a kids category through a license for apparel and footwear, both domestically and internationally. We've also built a growing bedding and bath license with our partner CHF Home, who's developed a robust distribution in the U.S. and Canada. Additionally, this quarter, our DKNY Furniture Licensee, Living Style Group, launched their DKNY line to great reviews by retailers. Given the year-to-date sales growth and the strengthened DKNY order book, We continue to believe that DKNY and Donna Karan Brands can achieve fiscal year wholesale net sales growth of approximately 25%. With our successful management, product development, and distribution capabilities, we remain well positioned to achieve many years of meaningful growth for the DKNY brand. In our team sports business, we recently signed a new three-year deal with the NFL. The new deal structure has terms that are more appropriately aligned to the size of the business today. We are pleased to continue our partnership with the NFL and look forward to building and growing the overall team sports business. Our status swimwear and resort brand, Vilbrecan, continues to perform well, registering low single-digit comp sales growth. We continue to expand the brand's footprint. We opened a women's store in Monaco as a complement to the men's store we already have. We also acquired the Vilbrecan business in Mexico from our former distribution partner and now operate nine retail stores and have an additional 12 points of sale in department stores in Mexico. In China, where we have two partner-operated stores, we just opened our first company-operated freestanding store in Shanghai. Outerwear, which is a key category in the quarter, had good sales considering the weather handicap we had compared to last year. We're positioned well for the balance of the fourth quarter as we are now seeing good sell-throughs and a pickup and reorders in the category aided by the colder weather. Overall at G3, we're keenly focused on capturing our share of growing online sales through our retail partners' sites as well as our own. Our marketing and planning teams work very closely with the digital teams of our retail partners to curate product assortments and optimize search engine results for our brands with the goal of driving higher sales and conversions. These results are also aided by significant marketing campaigns. I'll now pass it to Neal for a detailed discussion of our third quarter results and our guidance for fiscal 2020. Thank you, Morris.