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spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk06: Good day, and thank you for standing by. And welcome to the G3 Apparel Group third quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, company CEO Neil Nachman. You may begin.
spk05: 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 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 statement. In addition, during the call, we will refer to non-GAAP net income, non-GAAP net income prediluted share, and 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. Also disclosed in our press release for your reference are last year's GAAP and non-GAAP results by quarter. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.
spk19: Morris Goldfarb Thank you, Neil, and thank you everyone for joining us. In the third quarter, we delivered top-line results that met our expectations. Our strategy continues to deliver on key priorities to drive profitable growth for our shareholders. despite increasing macroeconomic headwinds, which softened consumer demand as the quarter progressed. Net sales for the third quarter were $1.08 billion, an increase of 6.2% compared to last year's third quarter net sales of $1.02 billion. Non-GAAP net income per diluted share was $1.35 in the current period compared to $2.18 in the third quarter last year. During the quarter, our higher inventory levels were due to our accelerated production calendar, which was in anticipation of longer supply chain lead times. As these lead times improve, we will continue to adjust our production and receipt calendars. Our inventory consists of current purchases and is guided by our order book. As expected, Our overall inventory position is now enabling us to immediately service the reorders for coats, dresses and other in-demand categories. During the quarter, our higher inventory levels resulted in storage and processing complications within our distribution centers that were above our expectations. This, alongside with port congestion, resulted in significant one-time charges of approximately 40 cents per diluted chair in the third quarter. These charges, along with elevated warehousing costs, contributed to our earnings being lower than our guidance for the quarter. We've secured additional third-party warehousing space, which should eliminate almost all of these charges in the future. Currently, Third-party warehouses make up approximately 70% of our total warehousing space. Now I'd like to discuss the extensions of our licensing agreements for the Calvin Klein and Tommy Hilfiger brands. They're an important part of our business. In our 8K5 last night, we announced staggered extensions by category beginning in January of 2024 and continuing through December of 2027 for these brands. Just to be clear, we do not expect significant reductions in sales, net income, and cash generation from these businesses for the next three years. These agreements will allow us time to accelerate our long-term strategic priorities and we will continue to direct resources toward our growth areas, including further leaning into building our own brands, continuing to acquire new businesses, expanding our private label business, and developing appropriate licensing opportunities. Currently, we've been pursuing a number of near-term initiatives across our existing owned and licensed brands and private label business, including category expansion, geographic growth focused on Europe, and digital expansion. We believe we can deliver growth because we've built a powerful foundation and have become a well-diversified company with expertise across a range of global brands with a broad range of price points for a broad range of customers, multiple points of distribution with strong retail relationships in North America and around the world with partners that include department and specialty stores, value retailers, wholesale clubs, digital pure plays, and marketplaces, in addition to our own omnichannel platforms. Dominance in designing, manufacturing, and sourcing across a broad range of more than 20 categories, including apparel, footwear, and accessories for women and men. A strong and growing geographic presence with leadership and offices in eight countries across North America, Europe, and Asia. and a well-developed flexible supply chain infrastructure with broad global sourcing relationships. Over the past five years, we've leveraged a strong balance sheet to focus on a brand acquisition strategy, which has evolved our portfolio to a significantly higher penetration of brand ownership. These brands are our most profitable sales because we do not pay royalty fees and they provide highly accretive licensing royalty income. Three of our recently acquired or launched brands, DKNY, Karl Lagerfeld Paris in North America, and the remaining global Karl Lagerfeld business have added a billion dollars in annual sales to our business. We see even greater growth ahead with these businesses and the rest of our own portfolio, including Donna Karan, Bill Burkhan, and Sonia Ricciel. A proven track record and diversified foundation has and continues to enable us to acquire or license and quickly scale brands by leveraging the resources that already exist in this company. We're confident in our ability to drive profitable growth and maximize shareholder value in the future, and we look forward to keeping you updated on our progress. Now I'll briefly update you on the progress we're making against our strategic priorities. Our first priority is to drive our power brands across categories. We're especially focused on driving our owned brands. From a category perspective, we continue to see strength across all of our divisions. With full ownership brands, we can now leverage newly created categories. Karl Lagerfeld Europe, for example, just introduced the full jeans category into their collection, and we plan on expanding the business by introducing it into North America next fall. We've also been able to drive higher AURs, which help offset significant inflationary pressures this year. A second priority is to expand our portfolio through ownership of brands and drive their licensing opportunities. Our current owned brands are led by DKNY, Donna Karan, Karl Lagerfeld, Bill Burkhan, and Sonia Ricciel. With full end-to-end control of these brands, we have and continue to grow them by developing new categories, increasing distribution, and digital penetration. We've also built strong marketing capabilities that continue to develop awareness and global recognition. Our own brands combined are expected to represent annual revenues of greater than $2.5 billion over time, while generating higher operating margins than the company's historic average. As brand owners, we have the ability to license out our brand names to best-in-class partners in categories that we do not produce. These agreements bring in a revenue stream that is highly accretive to our profit, currently generating $65 million annually. We have always actively worked with our licensees to build bigger and better businesses. Companies that operate exclusively under a licensor model are valued based on a low teams multiple of their revenue stream. With our own brands, we've created a strong licensing revenue stream already and see powerful opportunity to continue to build this profit center and enhance value for our shareholders. Our top-owned brands, DKNY, Karl Lagerfeld Paris in North America, and Wilbercan, also with the purchase of the entire Karl Lagerfeld brand, demonstrate a proven track record of building our own portfolio. As we look to the future, we continue to believe there is significant growth potential in the brands that we own. A strong financial position will enable us to acquire additional brands. We continue to prioritize the expansion of our revenue and profits through brand ownership. Our next priority is to extend our global reach by expanding our European-based brand portfolio. Amsterdam-based Karl Lagerfeld Europe continues to perform well Having launched the jeans category, as I previously mentioned, we're planning on bringing it to North America. We also made progress on key digital initiatives and are on track to open 12 company and partner-operated stores and shop-in-shops this fiscal year. Saint-Tropez founded Vilbrecan, our status swimwear brand's robust momentum continues with another quarter of strong double-digit growth and remains on track to register a record year of sales and profitability. It continues unique collaborations to address a range of customer segments, including streetwear brand BAPE Black and previously with Palm Angels and Off-White. Additionally, the brand has begun limited edition capsule collections featuring the artwork of acclaimed contemporary artists. Their latest collection is currently being exhibited in the Miami Art Basel. We completed the acquisition of the restaurant and beach club in the south of France and are currently rebranding it to the Villebrequin La Plage. The brand is also opening its first cabana club and new retail location in the totally renovated Boca Raton Beach Club this winter. Both advanced Villebrecan's leading luxury swimwear position by touching all aspects of beach loves and created an immersed customer experience and brand recognition. The Paris-based Sonia Ricciel, the European team relaunched with core categories and established a physical presence in Paris and New York. We also opened in major department stores, including Prantam in Paris, El Corte Ingles in Marbella, and Isitan in Tokyo. Since our Karl Lagerfeld acquisition, our existing European management teams are working to develop synergies to strengthen our European operations overall. Areas they're focused on include leveraging their vendor base and creating a unified backend structure for all of our digital businesses. Ultimately, this new infrastructure further develops our European platform and will allow us to continue expansion with any brand. Our next priority is to maximize omnichannel opportunities and leverage data. We've expanded our pure play presence and developed strong capabilities to drive demand on our retail partners' digital platforms with strong double-digit sales growth led by Amazon and our largest retail partners, Macy's. We've also increased sales with Zalando, Fanatics, Nordstrom, and Hudson Bay. We've started to develop our vendor direct shipping capabilities which provide additional opportunities to grow our digital business. The digital businesses of our own brands are in their infancy. They present a tremendous opportunity, and we believe that these businesses can grow to become significant contributors to our overall business over time. In our own retail operations, Karl Lagerfeld Paris had another solid quarter in North America with a significant rebound in traffic, fueling strong double-digit growth. DKNY remained challenged, mostly driven by the lack of tourists, primarily from China, in our European stores. We're well-positioned across both businesses to capitalize on holiday demand during this key selling period and remain focused on driving omnichannel growth wherever the consumer chooses to shop. In conclusion, having met top-line expectations for the quarter, we made progress on all of our priorities. We experienced some one-time logistical challenges that negatively impacted our results in the third quarter, which we believe are mostly behind us. As our bottom-line net income per diluted share was below our guidance and with some uncertainties ahead, we're adjusting our order book for the first fourth quarter and full year. I'll now pass the call to Neil for a discussion of our third quarter financial results, as well as guidance for our fourth quarter and full fiscal 2023 year.
spk05: Thank you, Morris. Net sales for the third quarter ended October 31st, 2022, increased approximately 6% to $1.08 billion from $1.02 billion in the same period last year. Included in our sales for this quarter were $55 million in sales of the Karl Lagerfeld business, which became a wholly owned subsidiary on May 31st, 2022. Accordingly, the results of the Karl Lagerfeld business were included in our results for the entire third quarter. Net sales of our wholesale segment increased approximately 5.5% to 1.07 billion from 1.01 billion last year. Net sales of our retail segment were $29 million for the third quarter compared to net sales of $26 million in last year's third quarter. Our gross margin percentage was 32% in the third quarter of fiscal 2023, compared to 34.2% in the previous year's third quarter. The reduction in gross margin percentage is attributable to the decrease in the gross margin percentage in our wholesale segment. The wholesale segment gross margin percentage was 30.7% compared to 33% in last year's comparable quarter. Our elevated inventory levels resulted in storage and processing capacity pressures within our distribution centers. We had been seeking and have now procured additional third-party warehouse capacity to handle our higher inventory levels. Going into the third quarter, we were not able to secure additional warehouse space in the timeframe we had planned. Several negotiations took longer than expected, And in certain situations, we did not want to enter into expensive long-term commitments for such capacity. The lack of additional space in our warehouses, along with port congestion and the logistical challenges related to trucking, all contributed to us incurring approximately $27 million of demurrage charges in the third fiscal quarter, resulting in a one-time 250 basis point negative impact to our gross margin percentage. Demurrage charges are paid to steamship carriers for delays in picking up freight from their terminals and were the most significant contributor to the decrease in our gross margin percentage for the quarter. We expect that the additional warehousing space we have now secured should eliminate almost all demurrage charges in the future. The gross margin percentage in our retail operations segment was 54.9% compared to 49.8% in the prior year's quarter. SG&A expenses were $240 million or 22.2% compared to $182 million or 18% of net sales in last year's third quarter. Warehouse costs increased significantly as a result of our higher inventory levels and the timing of receipts. SG&A also grew by approximately $30 million as a result of the inclusion of the acquired Karl Lagerfeld business in our results for the quarter. Looking ahead, we expect to continue to have elevated warehouse costs associated with higher inventory levels through the second quarter of next year. We also expect that the addition of the Karl Lagerfeld business in our results of operations will increase the percentage of net sales represented by SG&A expenses, as the Karl Lagerfeld business model includes a higher amount of direct-to-consumer business, which has a higher SG&A rate. Gap net income for the third quarter was $61 million or $1.26 per diluted share compared to $106 million or $2.16 per diluted share in last year's third quarter. Non-gap net income for the third quarter was $65 million or $1.35 per diluted share compared to $108 million or $2.18 per diluted share in last year's third quarter. Net income per share was negatively impacted by higher than anticipated demurrage costs equal to approximately 40 cents for diluted share. These charges, along with elevated warehousing costs, contributed to our net income per share being lower than forecasted. A full reconciliation of our GAAP to non-GAAP results are included in our press release issued last night. Turning to the balance sheet, our inventory was about two times last year's third quarter levels, which was a historical low base due to the supply chain issues and strong consumer demand that occurred last year. A better comparison would be to consider comparable wholesale inventory levels to the pre-pandemic third quarter in which we are up approximately 60%. Inventories are up primarily as a result of the increased shipping times, higher freight costs, and the pull forward of the production calendar. Our inventory increases are all from current purchases and will be viable into next year. We have already and will continue to temper our buying into next year to also take account of our inventory levels. We ended the quarter in a net debt position of $728 million compared to $238 million in the prior year. This increase is predominantly related to the Karl Lagerfeld acquisition, which we funded with cash on hand, as well as the increase in our inventory position. We had cash and availability under our credit agreement of approximately $440 million at the close of the quarter. We believe that our liquidity and financial position provide us the flexibility to take advantage of acquisition opportunities and invest in our future growth. We expect our availability to grow significantly as we normalize inventory levels. As for our guidance, For the full fiscal year 2023, we now expect net sales of approximately $3.15 billion and net income of between $147 million and $152 million, or between $3.00 and $3.10 per diluted share. This compares to net sales of $2.77 billion and net income of $200 million, or $4.05 per diluted share last year. On a non-GAAP basis, We expect net income for the full fiscal year of 2023 of between $142 and $147 million, or between $2.90 and $3 per diluted share. This guidance compares the non-GAAP net income of $208 million, or $4.20 per diluted share for fiscal 2022. Full year fiscal 2023 adjusted EBITDA is expected to be between $265 and $270 million, This compared to adjusted EBITDA of $350 million in fiscal 2022. Let me add some context around modeling of the line items. As a result of our third quarter results, we are now expecting that our full fiscal year 2023 gross margin percentage will be lower than fiscal 2022. For the upcoming fourth quarter, we continue to expect that our gross margin percentage will exceed the prior year's fourth quarter. For the full year, we expect SG&A to de-lever primarily as a result of the inclusion of the acquired Karl Lagerfeld business and higher warehousing costs. We are anticipating interest expense to be approximately $55 million, which includes approximately $7 million of non-cash imputed interest. We are estimating a tax rate of 24.5% after the inclusion of some discrete items during the year. We have not anticipated any potential share repurchases in our guidance. That concludes my comments. I will now turn the call back to Morris for closing remarks.
spk19: Thank you, Neil, and thank you all for joining us today. Our team remains steadfast in its focus on executing our strategy for long-term value creation. We continue to actively work on new initiatives to evolve our business for the future. and as always, deliver for our shareholders. Our diversification is a testament to the stable business model and solid foundation we've created, enabling us to navigate any environment. As we continue in the fourth quarter, our order book is strong and we're delivering on the balance of the holiday season. I'd like to thank our entire G3 organization and all our stakeholders for their continued support And wish everyone a happy holiday season. Operator, we're now ready to take some questions.
spk06: And thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. And once again, that is star 11 to ask a question.
spk07: And one moment for our first question.
spk06: And our first question comes from Edward Yerma from Piper Sandler. Your line is now open.
spk17: Hey, good morning, guys. Thanks for taking the question. I guess first, Morris, on the quarter, in terms of some of the demurrage costs, just so we understand a little bit better, so is there any impact to quality of inventory? Were there any flow issues associated with it? And then I guess as a broader, longer-term question, Morris, how do you think we should – How should we think about the longer-term organic growth profile and profitability profile of the remaining businesses once the PVS licenses are complete? Thank you.
spk19: Thank you, Ed. Thanks for your question. The demurrage and supply chain issues and quality of the inventory certainly deserves a solid response. If anything, our inventory is in tremendous shape. We implemented new quality control systems overseas that further enhanced our quality of product. In difficult times, COVID times, we found it difficult to transport inspectors from one location to another, which were normally done pre-COVID, and we put on the ground solid inspectors to make sure that We got what we bought at the very least, in most cases better than what we anticipated. So no issue on quality. The integrity of the inventory, number one, it's all new. It's freshly produced. It's freshly delivered. It's wrapped and ready to go, and it was anticipated on arriving early. with no interference on container space, transportation times, and anticipated delays at the port. So it worked better than we had anticipated. What had occurred is we misplanned our warehousing capacity. We searched for warehouses for the better part of six months, either warehouses that we would take control of or partnered with third-party providers. There were several deals, no less than four deals that were at the finish line ready to be signed that fell apart, unique situations in different parts of the country. So the lack of capacity caused some unexpected, a tremendous amount of unexpected demurrage and container charges. So that's really the inventory issue. It's the storage. It's not the scale of the inventory. The inventory was bought with good and appropriate intent. It flowed faster than anticipated. The time on the water accelerated, which further exacerbated our situation. But it's all great inventory that was anticipated for this time period. early spring inventory that sits there that's ready to go when the doors open at our retailers. There's all current inventory. Our levels of dated inventory, inventory that's greater than a year old, is at a record low. So there is not troubled inventory. This isn't inventory that's sitting in the store that is anticipated to move only when it's marked down. This is full price, great quality, anticipated and planned inventory. So I'm more disappointed in our miss in planning housing and moving the inventory than I am at the inventory level.
spk05: And the – Neil, respond to the – Yeah, with respect to the operating margin going forward, look, we've commented on this before. The brand that we own traditionally will run an operating margin that we would expect to be in the 15% to 20% zone. Our blend is down in the low double digits, around 10%. And of course, that's after we pay a royalty. So to the extent that we can continue to move the portfolio into brands that we own, we will continue to have elevated operating margins. And Certainly, about a third of the portfolio today is owned, so we're seeing that benefit. We still have some more room to go with the recent acquisition of the Karl Lagerfeld European business. I think we'll continue to see elevated operating margins on that business as we go forward, and that's where we stand.
spk19: So, coupled with that, addressing the organic opportunities, as you know, we bought DKY and Donna Karan. We bought We brought DKNY to market in record time. It's one of the most relevant brands to our sector today. We bought it in 2016 and with virtually no distribution in North America and created just an amazing brand out of it or reinforced the presence, the earlier presence of the brand. What we have on the shelf that we are now activating is Donna Karan. Donna Karan, there are very few brands in North America, certainly, that are known by their first name. There's Ralph, there's Calvin, there's Tommy, and there's Donna, and there's not very much more. So Donna is an incredibly well-recognized brand. We were not certain where we would market that brand, and this The current situation has brought us to bringing Donna Karan to market in the same sector that we best operate in. So you'll have more news to follow. This is the situation that just was signed on Tuesday. Negotiations started over two years ago, and not our doing, but the culmination that just uh got done on on tuesday um in a in a form that um was acceptable for us for you know the period of time uh we have transition time as i stated there's no concern about you know the next three years we're a responsive company and um we signed on tuesday on wednesday we started to work and get everything into play so you you can expect quick movement. You can expect marketing. We don't have a challenge of talent. We have the best talent in the industry housed here. We do not expect to make any changes. This is the operating army that we have that knows what to do. We execute quickly. We take on challenges, and we pivot when the world tells us So this is pivot time. This is the troops that are armed and ready to go.
spk16: Thanks so much.
spk06: And thank you. And if you'd like to ask a question, that is star 11. Again, if you'd like to ask a question, that is star 11. And one moment for our next question. And our next question comes from Will Gardner from Wells Fargo. Your line is now open.
spk08: Hey, guys. Good morning. Thanks for taking my question. Just a quick one. Can you guys remind us on the split of Carl, wholesale versus retail, what that split is?
spk05: Well, on the acquired business, we're about 60% DTC. So that's full price outlets and the e-com business. That's where the European-based business runs. Domestically, we are probably one-third of the business forecasted would be our outlet business.
spk19: If the split that you might be asking for is regions, geographic regions, it's equally split pretty much from Europe and North America.
spk08: And just, you know, with the licenses rolling off over the next couple of years, how are you thinking about investment in those licenses, you know, in that business and production and all that? How is that sort of, can you just frame out how you're thinking about that over the next couple of years?
spk19: So it's business as usual. These are brands that we are challenged to protect and reinforce and RETAIL PRESENCE IN, AND WE PLAN ON DOING THAT. SO WHAT'S ESSENTIAL IN PROTECTING THE POSITIONING, WE WILL ABSOLUTELY DO. WE HAVE BEEN GUARDIANS OF THE BRAND FOR OVER 15 YEARS. WE'VE DONE A FLAWLESS JOB IN BUILDING IT. IT'S SOMETHING THAT THIS TEAM IS EXTREMELY PROUD OF, DESERVEDLY SO, AND NOW WE WILL NOT we will not do damage to the brand as we transition the brand.
spk09: Fair enough. I'll pass it on. Thank you.
spk06: And thank you. And one moment for our next question. And our next question comes from Jay Soul from UBS. Your line is now open.
spk03: Mauricio Serna Hi, good morning. This is Mauricio Serna on behalf of JSOLE, and thanks for taking our question. I guess I wanted to ask about Karl Lagerfeld, the performance in the third quarter. You called out $55 million in revenue. I was wondering if that was within your expectation, or was that actually about that? And also, the number that you mentioned, $30 million or incremental SG&A, is that for the quarter or the year? Just wanted to make sure I understood that. And lastly, if you could remind us roughly how much do Calvin Klein and Tommy Hilfiger represent of your EBITDA, that would be very helpful. Thank you.
spk05: Sure. Thanks, Faith. Thank you for your question. The Carlisle European business operated slightly ahead of our expectations, more bottom line than top line. Their margins are right around the 10% level at this point. And we see that with some good potential to improve go forward. The SG&A that I called out for $30 million, that was just in the third quarter. And then with respect to the Calvin businesses and the Tommy businesses, it's about a billion and a half dollars of total business. And we really view that as an operating margin at about 10%.
spk02: Thank you very much.
spk06: And thank you. And one moment for our next question. And our next question comes from Paul Kearney from Barclays. Your line is now open.
spk13: Hey, guys. Thanks for taking my question. two parts. So can you just talk about the cadence of the licensing expiring? So we have the multi-year period, but is it... Paul, you're not coming through.
spk19: Paul, I'm sorry.
spk11: You hear me now?
spk19: Yeah, that's much better, please. Sorry about that.
spk11: Can you talk about the cadence of the licensing expiration? So we have the dates, but just in terms of sale size, is it equally weighted or is it more weighted towards the end? That's one. And then two, If you were looking to potentially fill that business with new license agreements, is that something that you have capacity to do before those expire, or should we be looking at it as you have to kind of bring on new business as the other ones go out?
spk19: Thanks. The earliest call it retirement date is a denim license with Tommy Hilfiger, which is insignificant in scale, and we have it replaced. Our ability to replace brands through license or acquisition is pretty vast. There are several non-competes that we've agreed to that for For strategic reasons, I prefer not to disclose, but there's a huge world out there, and the limitation is no more than three or four brands. And the capability that we have can bring on brands immediately, and the deal that we have is we can operate them simultaneously if they're not deemed to be competitive. The ones that are competitive, the situation is we can agree to them and we can launch them as we exit the PVH deal. And I'll give Neil the opportunity to respond on the depth of the calendar and the influence on our business.
spk05: So, Paul, thanks for the question. The 8K that was filed indicates all of the specific dates that fall off. We've mentioned that for the next three years, we're essentially intact. And you can see which businesses fall off. And then you can see the periods. Our plan is to replace these businesses. So rather than get into the specifics of how much dollars is going to fall off when, That's really not the way we're looking at it just yet. So I'd rather you not be focused on that.
spk04: Our concept is to replace these sales.
spk14: Thank you.
spk06: And thank you. And one moment for our next question. And our last question is going to come from Noah Zaskin from KeyBank Capital Markets. Your line is now open.
spk10: Hi, thanks for taking my questions. I guess first, just how do you see the promotional environment playing out relative to, you know, three months ago when you were looking out versus, you know, your expectations then? And then if you could just provide a little bit of color around the order book. And then lastly, just on the license declarations, just to dig in a bit more. If we think about the business in 24, 25, 26, are you planning the business for steady growth, you know, continuing through 23 onwards, you know, via replacement and owned opportunities, or are you contemplating kind of choppiness as the licenses roll off? Just any color on the kind of trajectory over the next five years or so would be helpful. Thank you.
spk19: So, Noah, let me try to respond to your question. As far as promotions, there are far less promotions and promotional activity than we anticipated. The retail sell-throughs are pretty strong, surprisingly. The retailers are holding price in our sector and there are no major giveaways. We are in the mid-tier department store business and not a major provider to the next tier of business. So promotions are not aggressive. As far as, I'll leave one open for Neil, but let me respond to the choppiness of the license. I can give you a story that really relates to my last response. We can operate multiple brands in classifications. So while we're exiting, it wouldn't be unique for us to sign on other brands or deliver other situations that would not grow our business for the next three, four years. The bigger question is the permanence and how effectively we replace the scale of the business that we will be giving up. We're pretty comfortable that we have a replacement formula which will disclose to the marketplace in the coming months. As I said, this is all new, not totally unexpected. Formulating a strategy is a work in progress that we will bring to you in the coming months. But we're energized, as I said before. We're ready to go. We have found the most difficult component in building a new brand is finding the right people. We have that done. We have the right people. There's not one bit of change that needs to be made. Scouting for talent in this environment that's acclimated to the culture that we have that will remain the same and it'll be reinforced with brand ownership, we have a tremendous advantage. It was much more difficult in creating and blending a culture when we acquired DKNY. This one, believe it or not, this is an easier process. Our talent, our capital, everything we need is in place to just march forward and do well, do well for ourselves and for the shareholder and certainly for our employees who have been incredibly loyal to our company. So we're armed and ready.
spk05: And, Noah, with respect to the order book, it's coming along. Certainly the fourth quarter is very much intact. Our first quarter spring book, we're actively working. We are seeing that retailers' appetites are, again, continue to be closer to buy time. So there is certainly some pressure there. And candidly, if you look at the past few years, you've got some very hard compares with respect to COVID, the turn on and off of ordering cycles. But we're very comfortable with what's being developed now, and we'll continue to develop that spring order book into summer.
spk20: Thank you, Noah. Thanks for your question.
spk06: Thank you. Thank you. And I am showing no further questions.
spk19: Thank you, Operator. And thank you for being part of our call. And hopefully we've explained some of the sensitivity in our business and wishing you a happy holiday. Thank you all.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. you Thank you. Thank you.
spk00: Thank you.
spk06: Good day, and thank you for standing by. And welcome to the G3 Apparel Group third quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, company CEO Neil Nachman. You may begin.
spk05: 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 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 statement. In addition, during the call, we will refer to non-GAAP net income, non-GAAP net income prediluted share, and 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. Also disclosed in our press release for your reference are last year's GAAP and non-GAAP results by quarter. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.
spk19: Morris Goldfarb Thank you, Neil, and thank you, everyone, for joining us. In the third quarter, we delivered top-line results that met our expectations. Our strategy continues to deliver on key priorities to drive profitable growth for our shareholders. despite increasing macroeconomic headwinds, which softened consumer demand as the quarter progressed. Net sales for the third quarter were $1.08 billion, an increase of 6.2% compared to last year's third quarter net sales of $1.02 billion. Non-GAAP net income per diluted share was $1.35 in the current period compared to $2.18 in the third quarter last year. During the quarter, our higher inventory levels were due to our accelerated production calendar, which was in anticipation of longer supply chain lead times. As these lead times improve, we will continue to adjust our production and receipt calendars. Our inventory consists of current purchases and is guided by our order book. As expected, Our overall inventory position is now enabling us to immediately service the reorders for coats, dresses and other in-demand categories. During the quarter, our higher inventory levels resulted in storage and processing complications within our distribution centers that were above our expectations. This, alongside with port congestion, resulted in significant one-time charges of approximately 40 cents per diluted chair in the third quarter these charges along with elevated warehousing costs contributed to our earnings being lower than our guidance for the quarter we've secured additional third-party warehousing space which should eliminate almost all of these charges in the future currently Third-party warehouses make up approximately 70% of our total warehousing space. Now I'd like to discuss the extensions of our licensing agreements for the Calvin Klein and Tommy Hilfiger brands. They're an important part of our business. In our 8K5 last night, we announced staggered extensions by category beginning in January of 2024 and continuing through December of 2027 for these brands. Just to be clear, we do not expect significant reductions in sales, net income, and cash generation from these businesses for the next three years. These agreements will allow us time to accelerate our long-term strategic priorities, and we will continue to direct resources toward our growth areas, including further leaning into building our own brands, continuing to acquire new businesses, expanding our private label business, and developing appropriate licensing opportunities. Currently, we've been pursuing a number of near-term initiatives across our existing owned and licensed brands and private label business, including category expansion, geographic growth focused on Europe, and digital expansion. We believe we can deliver growth because we've built a powerful foundation and have become a well-diversified company with expertise across a range of global brands with a broad range of price points for a broad range of customers, multiple points of distribution with strong retail relationships in North America and around the world with partners that include department and specialty stores, value retailers, wholesale clubs, digital pure plays, and marketplaces, in addition to our own omnichannel platforms. Dominance in designing, manufacturing, and sourcing across a broad range of more than 20 categories, including apparel, footwear, and accessories for women and men. A strong and growing geographic presence with leadership and offices in eight countries across North America, Europe, and Asia. and a well-developed flexible supply chain infrastructure with broad global sourcing relationships. Over the past five years, we've leveraged a strong balance sheet to focus on a brand acquisition strategy, which has evolved our portfolio to a significantly higher penetration of brand ownership. These brands are our most profitable sales because we do not pay royalty fees and they provide highly accretive licensing royalty income. Three of our recently acquired or launched brands, DKNY, Karl Lagerfeld Paris in North America, and the remaining global Karl Lagerfeld business have added a billion dollars in annual sales to our business. We see even greater growth ahead with these businesses and the rest of our own portfolio, including Donna Karan, Bill Burkhan, and Sonia Ricciel. A proven track record and diversified foundation has and continues to enable us to acquire or license and quickly scale brands by leveraging the resources that already exist in this company. We're confident in our ability to drive profitable growth and maximize shareholder value in the future, and we look forward to keeping you updated on our progress. Now I'll briefly update you on the progress we're making against our strategic priorities. Our first priority is to drive our power brands across categories. We're especially focused on driving our owned brands. From a category perspective, we continue to see strength across all of our divisions. With full ownership brands, we can now leverage newly created categories. Karl Lagerfeld Europe, for example, just introduced the full jeans category into their collection, and we plan on expanding the business by introducing it into North America next fall. We've also been able to drive higher AURs, which help offset significant inflationary pressures this year. A second priority is to expand our portfolio through ownership of brands and drive their licensing opportunities. Our current owned brands are led by DKNY, Donna Karan, Karl Lagerfeld, Bill Bracken, and Sonia Ricciel. With full end-to-end control of these brands, we have and continue to grow them by developing new categories, increasing distribution, and digital penetration. We've also built strong marketing capabilities that continue to develop awareness and global recognition. Our own brands combined are expected to represent annual revenues of greater than $2.5 billion over time, while generating higher operating margins than the company's historic average. As brand owners, we have the ability to license out our brand names to best-in-class partners in categories that we do not produce. These agreements bring in a revenue stream that is highly accretive to our profit, currently generating $65 million annually. We have always actively worked with our licensees to build bigger and better businesses. Companies that operate exclusively under a licensor model are valued based on a low team's multiple of their revenue stream. With our own brands, we've created a strong licensing revenue stream already and see powerful opportunity to continue to build this profit center and enhance value for our shareholders. Our top-owned brands, DKNY, Karl Lagerfeld Paris in North America, and Wilbercan, also with the purchase of the entire Karl Lagerfeld brand, demonstrate a proven track record of building our own portfolio. As we look to the future, we continue to believe there is significant growth potential in the brands that we own. A strong financial position will enable us to acquire additional brands. We continue to prioritize the expansion of our revenue and profits through brand ownership. Our next priority is to extend our global reach by expanding our European-based brand portfolio. Amsterdam-based Karl Lagerfeld Europe continues to perform well Having launched the jeans category, as I previously mentioned, we're planning on bringing it to North America. We also made progress on key digital initiatives and are on track to open 12 company and partner-operated stores and shop-in-shops this fiscal year. Saint-Tropez founded Vilbrecan, our status swimwear brand's robust momentum continues with another quarter of strong double-digit growth and remains on track to register a record year of sales and profitability. It continues unique collaborations to address a range of customer segments, including streetwear brand BAPE Black and previously with Palm Angels and Off-White. Additionally, the brand has begun limited edition capsule collections featuring the artwork of acclaimed contemporary artists. Their latest collection is currently being exhibited in the Miami Art Basel. We completed the acquisition of a restaurant and beach club in the south of France and are currently rebranding it to the Villebrequin La Plage. The brand is also opening its first cabana club and new retail location in the totally renovated Boca Raton Beach Club this winter. Both advanced Bill Burkham's leading luxury swimwear position by touching all aspects of beach love and created an immersed customer experience and brand recognition. The Paris-based Sonia Ricciel, the European team relaunched with core categories and established a physical presence in Paris and New York. We also opened in major department stores, including Prantam in Paris, El Corte Ingles in Marbella, and Isitan in Tokyo. Since our Karl Lagerfeld acquisition, our existing European management teams are working to develop synergies to strengthen our European operations overall. Areas they're focused on include leveraging their vendor base and creating a unified backend structure for all of our digital businesses. Ultimately, this new infrastructure further develops our European platform and will allow us to continue expansion with any brand. Our next priority is to maximize omnichannel opportunities and leverage data. We've expanded our pure play presence and developed strong capabilities to drive demand on our retail partners' digital platforms with strong double-digit sales growth led by Amazon and our largest retail partners, Macy's. We've also increased sales with Zalando, Fanatics, Nordstrom, and Hudson Bay. We've started to develop our vendor direct shipping capabilities which provide additional opportunities to grow our digital business. The digital businesses of our own brands are in their infancy. They present a tremendous opportunity, and we believe that these businesses can grow to become significant contributors to our overall business over time. In our own retail operations, Karl Lagerfeld Paris had another solid quarter in North America, with a significant rebound in traffic, fueling strong double-digit growth. DKNY remained challenged, mostly driven by the lack of tourists, primarily from China, in our European stores. We're well positioned across both businesses to capitalize on holiday demand during this key selling period and remain focused on driving omnichannel growth wherever the consumer chooses to shop. In conclusion, having met top line expectations for the quarter, we made progress on all of our priorities. We experienced some one-time logistical challenges that negatively impacted our results in the third quarter, which we believe are mostly behind us. As our bottom line net income for diluted share was below our guidance and with some uncertainties ahead, we're adjusting our order book for the first fourth quarter and full year. I'll now pass the call to Neil for a discussion of our third quarter financial results, as well as guidance for our fourth quarter and full fiscal 2023 year.
spk05: Thank you, Morris. Net sales for the third quarter ended October 31st, 2022, increased approximately 6% to $1.08 billion from $1.02 billion in the same period last year. Included in our sales for this quarter were $55 million in sales of the Karl Lagerfeld business, which became a wholly owned subsidiary on May 31st, 2022. Accordingly, the results of the Karl Lagerfeld business were included in our results for the entire third quarter. Net sales of our wholesale segment increased approximately 5.5% to 1.07 billion from 1.01 billion last year. Net sales of our retail segment were $29 million for the third quarter, compared to net sales of $26 million in last year's third quarter. Our gross margin percentage was 32% in the third quarter of fiscal 2023, compared to 34.2% in the previous year's third quarter. The reduction in gross margin percentage is attributable to the decrease in the gross margin percentage in our wholesale segment. The wholesale segment gross margin percentage was 30.7% compared to 33% in last year's comparable quarter. Our elevated inventory levels resulted in storage and processing capacity pressures within our distribution centers. We had been seeking and have now procured additional third-party warehouse capacity to handle our higher inventory levels. Going into the third quarter, we were not able to secure additional warehouse space in the timeframe we had planned. Several negotiations took longer than expected, And in certain situations, we did not want to enter into expensive long-term commitments for such capacity. The lack of additional space in our warehouses, along with port congestion and the logistical challenges related to trucking, all contributed to us incurring approximately $27 million of demurrage charges in the third fiscal quarter, resulting in a one-time 250 basis point negative impact to our gross margin percentage. Demurrage charges are paid to steamship carriers for delays in picking up freight from their terminals and were the most significant contributor to the decrease in our gross margin percentage for the quarter. We expect that the additional warehousing space we have now secured should eliminate almost all demurrage charges in the future. The gross margin percentage in our retail operations segment was 54.9% compared to 49.8% in the prior year's quarter. SG&A expenses were $240 million, or 22.2%, compared to $182 million, or 18% of net sales in last year's third quarter. Warehouse costs increased significantly as a result of our higher inventory levels and the timing of receipts. SG&A also grew by approximately $30 million as a result of the inclusion of the acquired Karl Lagerfeld business in our results for the quarter. Looking ahead, we expect to continue to have elevated warehouse costs associated with higher inventory levels through the second quarter of next year. We also expect that the addition of the Karl Lagerfeld business in our results of operations will increase the percentage of net sales represented by SG&A expenses, as the Karl Lagerfeld business model includes a higher amount of direct-to-consumer business, which has a higher SG&A rate. Gap net income for the third quarter was $61 million or $1.26 for diluted share compared to $106 million or $2.16 for diluted share in last year's third quarter. Non-gap net income for the third quarter was $65 million or $1.35 for diluted share compared to $108 million or $2.18 for diluted share in last year's third quarter. Net income per share was negatively impacted by higher than anticipated demurrage costs equal to approximately 40 cents for diluted share. These charges, along with elevated warehousing costs, contributed to our net income per share being lower than forecasted. A full reconciliation of our GAAP to non-GAAP results are included in our press release issued last night. Turning to the balance sheet, our inventory was about two times last year's third quarter levels, which was a historical low base due to the supply chain issues and strong consumer demand that occurred last year. A better comparison would be to consider comparable wholesale inventory levels to the pre-pandemic third quarter in which we are up approximately 60%. Inventories are up primarily as a result of the increased shipping times, higher freight costs, and the pull forward of the production calendar. Our inventory increases are all from current purchases and will be viable into next year. We have already and will continue to temper our buying into next year to also take account of our inventory levels. We ended the quarter in a net debt position of $728 million compared to $238 million in the prior year. This increase is predominantly related to the Karl Lagerfeld acquisition, which we funded with cash on hand, as well as the increase in our inventory position. We had cash and availability under our credit agreement of approximately $440 million at the close of the quarter. We believe that our liquidity and financial position provide us the flexibility to take advantage of acquisition opportunities and invest in our future growth. We expect our availability to grow significantly as we normalize inventory levels. As for our guidance, For the full fiscal year 2023, we now expect net sales of approximately $3.15 billion and net income of between $147 million and $152 million, or between $3.00 and $3.10 per diluted share. This compares to net sales of $2.77 billion and net income of $200 million, or $4.05 per diluted share last year. On a non-GAAP basis, we expect net income for the full fiscal year of 2023 of between $142 and $147 million, or between $2.90 and $3 per diluted share. This guidance compares the non-GAAP net income of $208 million, or $4.20 per diluted share for fiscal 2022. Full year fiscal 2023 adjusted EBITDA is expected to be between $265 and $270 million, This compared to adjusted EBITDA of $350 million in fiscal 2022. Let me add some context around modeling of the line items. As a result of our third quarter results, we are now expecting that our full fiscal year 2023 gross margin percentage will be lower than fiscal 2022. For the upcoming fourth quarter, we continue to expect that our gross margin percentage will exceed the prior year's fourth quarter. For the full year, we expect SG&A to de-lever primarily as a result of the inclusion of the acquired Karl Lagerfeld business and higher warehousing costs. We are anticipating interest expense to be approximately $55 million, which includes approximately $7 million of non-cash imputed interest. We are estimating a tax rate of 24.5% after the inclusion of some discrete items during the year. We have not anticipated any potential share repurchases in our guidance. That concludes my comments. I will now turn the call back to Morris for closing remarks.
spk19: Thank you, Neil, and thank you all for joining us today. Our team remains steadfast in its focus on executing our strategy for long-term value creation. We continue to actively work on new initiatives to evolve our business for the future. and as always, deliver for our shareholders. Our diversification is a testament to the stable business model and solid foundation we've created, enabling us to navigate any environment. As we continue in the fourth quarter, our order book is strong and we're delivering on the balance of the holiday season. I'd like to thank our entire G3 organization and all our stakeholders for their continued support I wish everyone a happy holiday season. Operator, we're now ready to take some questions.
spk06: And thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. And once again, that is star 1-1 to ask a question.
spk07: And one moment for our first question. And our first question comes from Edward Yerma from Piper Sandler.
spk06: Your line is now open.
spk17: Hey, good morning, guys. Thanks for taking the question. I guess first, Morris, on the quarter, in terms of some of the demurrage costs, just so we understand a little bit better, so is there any impact to quality of inventory? Were there any flow issues associated with it? And then I guess as a broader, longer-term question, Morris, how do you think we should How should we think about the longer-term organic growth profile and profitability profile of the remaining businesses once the PVH licenses are complete? Thank you.
spk19: Thank you, Ed. Thanks for your question. The demurrage and supply chain issues and quality of the inventory certainly deserves a solid response. If anything, our inventory is in tremendous shape. We implemented new quality control systems overseas that further enhanced our quality of product. In difficult times, COVID times, we found it difficult to transport inspectors from one location to another, which were normally done pre-COVID, and we put on the ground solid inspectors to make sure that We got what we bought at the very least, in most cases better than what we anticipated. So no issue on quality. The integrity of the inventory, number one, it's all new. It's freshly produced. It's freshly delivered. It's wrapped and ready to go, and it was anticipated on arriving early. with no interference on container space, transportation times, and anticipated delays at the port. So it worked better than we had anticipated. What had occurred is we misplanned our warehousing capacity. We searched for warehouses for the better part of six months, either warehouses that we would take control of or partnered with third-party providers. There were several deals, no less than four deals that were at the finish line ready to be signed that fell apart, unique situations in different parts of the country. So the lack of capacity caused some unexpected, a tremendous amount of unexpected demurrage and container charges. So that's really the inventory issue. It's the storage. It's not the scale of the inventory. The inventory was bought with good and appropriate intent. It flowed faster than anticipated. The time on the water accelerated, which further exacerbated our situation. But it's all great inventory that was anticipated for this time period. early spring inventory that sits there that's ready to go when the doors open at our retailers. There's all current inventory. Our levels of dated inventory, inventory that's greater than a year old, is at a record low. So there is not troubled inventory. This isn't inventory that's sitting in the store that is anticipated to move only when it's marked down. This is full price, great quality, anticipated and planned inventory. So I'm more disappointed in our miss in planning housing and moving the inventory than I am at the inventory level.
spk05: And Neil, respond to the... Yeah, with respect to the operating margin going forward, look, we've commented on this before. The brand that we own traditionally will run an operating margin that we would expect to be in the 15% to 20% zone. Our blend is down in the low double digits, around 10%. And of course, that's after we pay a royalty. So to the extent that we can continue to move the portfolio into brands that we own, we will continue to have elevated operating margins. Certainly, about a third of the portfolio today is owned, so we're seeing that benefit. We still have some more room to go with the recent acquisition of the Karl Lagerfeld European business. I think we'll continue to see elevated operating margins on that business as we go forward, and that's where we stand.
spk19: So, coupled with that, addressing the organic opportunities, as you know, we bought DKY and Donna Karan. We bought We brought DKNY to market in record time. It's one of the most relevant brands to our sector today. We bought it in 2016 and with virtually no distribution in North America and created just an amazing brand out of it or reinforced the presence, the earlier presence of the brand. What we have on the shelf that we are now activating is Donna Karan. Donna Karan, there are very few brands in North America, certainly, that are known by their first name. There's Ralph, there's Calvin, there's Tommy, and there's Donna, and there's not very much more. So Donna is an incredibly well-recognized brand. We were not certain where we would market that brand, and this The current situation has brought us to bringing Donna Karan to market in the same sector that we best operate in. So you'll have more news to follow. This is the situation that just was signed on Tuesday. Negotiations started over two years ago, and not our doing, but the culmination that just got done on Tuesday in a form that was acceptable for us for the period of time. We have transition time. As I stated, there's no concern about the next three years. We're a responsive company, and we signed on Tuesday. On Wednesday, we started to work and get everything into play. So you can expect quick movement. You can expect marketing. We don't have a challenge of talent. We have the best talent in the industry housed here. We do not expect to make any changes. This is the operating army that we have that knows what to do. We execute quickly. We take on challenges, and we pivot when the world tells us So this is pivot time. This is the troops that are armed and ready to go.
spk16: Thanks so much.
spk06: And thank you. And if you'd like to ask a question, that is star 11. Again, if you'd like to ask a question, that is star 11. And one moment for our next question. And our next question comes from Will Gardner from Wells Fargo. Your line is now open.
spk08: Hey, guys. Good morning. Thanks for taking my question. Just a quick one. Can you guys remind us on the split of Carl, wholesale versus retail, what that split is?
spk05: Well, on the acquired business, we're about 60% DTC. So that's full price outlets and the e-com business. That's where the European-based business runs. Domestically, we are probably one-third of the business forecasted would be our outlet business.
spk19: If the split that you might be asking for is regions, geographic regions, it's equally split pretty much from Europe and North America.
spk08: And just, you know, with the licenses rolling off over the next couple of years, how are you thinking about investment in those license, you know, in that business and production and all that? How is that sort of, can you just frame out how you're thinking about that over the next couple of years?
spk19: So it's business as usual. These are brands that we are challenged to protect and reinforce, RETAIL PRESENCE IN, AND WE PLAN ON DOING THAT. SO WHAT'S ESSENTIAL IN PROTECTING THE POSITIONING, WE WILL ABSOLUTELY DO. WE HAVE BEEN GUARDIANS OF THE BRAND FOR OVER 15 YEARS. WE'VE DONE A FLAWLESS JOB IN BUILDING IT. IT'S SOMETHING THAT THIS TEAM IS EXTREMELY PROUD OF, DESERVEDLY SO, AND WE WILL NOT we will not do damage to the brand as we transition the brand.
spk09: Fair enough. I'll pass it on. Thank you.
spk06: And thank you. And one moment for our next question. And our next question comes from Jay Soul from UBS. Your line is now open.
spk03: Mauricio Serna Hi, good morning. This is Mauricio Serna on behalf of JSOLE, and thanks for taking our question. I guess I wanted to ask about Karl Lagerfeld, the performance in the third quarter. You called out $55 million in revenue. I was wondering if that was within your expectation, or was that actually about that? And also, the number that you mentioned, $30 million or incremental SG&A, is that for the quarter or the year? Just wanted to make sure I understood that. And lastly, if you could remind us roughly how much do Calvin Klein and Tommy Hilfiger represent of your EBITDA, that would be very helpful. Thank you.
spk05: Sure. Thanks, Faith. Thank you for your question. The Carlisle European business operated slightly ahead of our expectations, more bottom line than top line. Their margins are right around the 10% level at this point, and we see that with some good potential to improve go forward. The SG&A that I called out for $30 million, that was just in the third quarter. And then with respect to the Calvin businesses and the Tommy businesses, it's about $1.5 billion of total business. And we really view that as an operating margin at about 10%.
spk02: Thank you very much.
spk06: And thank you. And one moment for our next question. And our next question comes from Paul Kearney from Barclays. Your line is now open.
spk13: Hey, guys. Thanks for taking my question. two parts. So can you just talk about the cadence of the licensing expiring? So we have the multi-year period, but is it... Paul, you're not coming through.
spk19: Paul, I'm sorry. You hear me now? Yeah, that's much better, please.
spk11: Sorry about that. Can you talk about the cadence of the licensing expiration? So we have the dates, but just in terms of sale size, is it equally weighted or is it more weighted towards the end? That's one. And then two, If you were looking to potentially fill that business with new license agreements, is that something that you have capacity to do before those expire, or should we be looking at it as you have to kind of bring on new business as the other ones go out?
spk19: Thanks. The earliest call it retirement date is a denim license with Tommy Hilfiger, which is insignificant in scale, and we have it replaced. Our ability to replace brands through license or acquisition is pretty vast. There are several non-competes that we've agreed to that for For strategic reasons, I prefer not to disclose, but there's a huge world out there, and the limitation is no more than three or four brands. And the capability that we have can bring on brands immediately, and the deal that we have is we can operate them simultaneously if they're not deemed to be competitive. The ones that are competitive, the situation is we can agree to them and we can launch them as we exit the PVH deal. And I'll give Neil the opportunity to respond on the depth of the calendar and the influence on our business.
spk05: So, Paul, thanks for the question. The 8K that was filed indicates all of the specific dates that fall off. We've mentioned that for the next three years, we're essentially intact. And you can see which businesses fall off. And then you can see the periods. Our plan is to replace these businesses. So rather than get into the specifics of how much dollars is going to fall off when, That's really not the way we're looking at it just yet. So I'd rather you not be focused on that.
spk04: Our concept is to replace these sales.
spk14: Thank you.
spk06: And thank you. And one moment for our next question. And our last question is going to come from Noah Zaskin from KeyBank Capital Markets. Your line is now open.
spk10: Hi, thanks for taking my questions. I guess first, just how do you see the promotional environment playing out relative to, you know, three months ago when you were looking out versus, you know, your expectations then? And then if you could just provide a little bit of color around the order book. And then lastly, just on the license expirations, just to dig in a bit more. If we think about the business in 24, 25, 26, are you planning the business for steady growth, you know, continuing through 23 onwards, you know, via replacement and owned opportunities, or are you contemplating kind of choppiness as the licenses roll off? Just any color on the kind of trajectory over the next five years or so would be helpful. Thank you.
spk19: So, Noah, let me try to respond to your question. As far as promotions, there are far less promotions and promotional activity than we anticipated. The retail sell-throughs are pretty strong, surprisingly. The retailers are holding price in our sector, and there are no major giveaways. You know, we are in the mid-tier department store business and not a major provider to the next tier of business. So promotions are not aggressive. As far as, I'll leave one open for Neil, but let me respond to the choppiness of the license. I can give you a story that really relates to my last response. We can operate multiple brands in classifications. So while we're exiting, it wouldn't be unique for us to sign on other brands or deliver other situations that would not grow our business for the next three, four years. The bigger question is the permanence and how effectively we replace the scale of the business that we will be giving up. And we're pretty comfortable that we have a replacement formula which will disclose to the marketplace in the coming months. As I said, this is all new, not totally unexpected. Formulating a strategy is a work in progress that we will bring to you in the coming months. But we're energized, as I said before. We're ready to go. We have found the most difficult component in building a new brand is finding the right people. We have that done. We have the right people. There's not one bit of change that needs to be made. Scouting for talent in this environment that's acclimated to the culture that we have that will remain the same and it'll be reinforced with brand ownership, we have a tremendous advantage. It was much more difficult in creating and blending a culture when we acquired DKNY. This one, believe it or not, this is an easier process. Our talent, our capital, everything we need is in place to just march forward and do well, do well for ourselves and for the shareholder and certainly for our employees who have been incredibly loyal to our company. So we're armed and ready.
spk05: And, Noah, with respect to the order book, it's coming along. Certainly the fourth quarter is very much intact. Our first quarter spring book, we're actively working. We are seeing that retailers' appetites are, again, continue to be closer to buy time. So there is certainly some pressure there. And candidly, if you look at the past few years, you've got some very hard compares with respect to COVID, the turn on and off of ordering cycles. But we're very comfortable with what's being developed now, and we'll continue to develop that spring order book into summer.
spk20: Thank you, Noah. Thanks for your question.
spk06: Thank you. Thank you. And I am showing no further questions.
spk19: Thank you, Operator. And thank you for being part of our call. And hopefully we've explained some of the sensitivity in our business and wishing you a happy holiday. Thank you all.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
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