G-III Apparel Group, LTD.

Good day, and thank you for standing by. Welcome to the G3 Apparel Group first quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Neil Nachman, CFO. Please go ahead.

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 statements. In addition, during the call, we will refer to non-GAAP net income, non-GAAP net income for diluted 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. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Thank you, Neil, and thank you everyone for joining us. We had a good start to the year. In the first quarter, our team worked hard to successfully navigate what remains a challenging environment where we exceeded both our top and bottom line guidance. For the first quarter of fiscal 2024, net sales were $607 million, above our guidance by approximately 45 million. Non-GAAP net income per diluted share was 13 cents exceeding the midpoint of our guidance by 23 cents. As expected, gross margins were significantly better than last year's first quarter. We made strong progress right-sizing our inventory position by reducing future buys to account for the product that we're carrying. We sequentially decreased inventory from last quarter by $80 million and ended with balances up approximately 15% to last year, or up 8%, excluding the acquired Karl Lagerfeld inventory. Further, as port congestion and lead times have normalized, we adjusted our warehouse space appropriately. Importantly, we expect this trend to continue throughout the year, driven by freight costs moderating and not needing to anniversary significant logistical costs, primarily incurred in last year's third quarter. We ended the quarter in a strong financial position with approximately $800 million in cash and availability, including returning $17 million to our shareholders through stock repurchases. Our balance sheet continues to provide us with the flexibility to invest in future growth. Last quarter, we announced two new substantial opportunities, which include the Spring 2024 repositioning and global expansion of Donna Garan and a long-term license for Nautica in North America. We've already begun executing against them. Today, we're pleased to announce a new licensing agreement for the Halston brand as a third new initiative. We've entered into a 25-year agreement with Excel brands to design and produce all categories of product with the option to buy the brand at the end of the licensing term. As the master licensee for Halston, we have the ability to sub-license additional lifestyle categories that we do not produce, providing another share of licensing income. First deliveries are expected for fall of 2024. Halston is an American heritage brand with a rich legacy of glamorous designs across a range of price points. Currently, the brand is sold through a number of distribution channels with a focus on top tier department stores and live streaming. With our best in class design and merchandising teams, retail relationship, and distribution expertise across stores and digital platforms, will make the brand more widely available to consumers across a broad range of touchpoints. At G3, we're known for our success with American heritage brands and believe there's tremendous opportunity to grow Halston by leveraging our proven model to unlock its potential. I look forward to sharing updates with you as we make progress on bringing this exciting brand to market. Development for Nordica and Donna Karan is well underway. We've spent time studying the archives of these brands to ensure we create lines with authentic brand messages while broadening their appeal. Product development and merchandising are foundational strengths of our company, and our experienced teams are moving quickly. For Nordica, we're hard at work bringing the spring 2024 jeans line to life. Having built highly successful and differentiated jeans businesses for Calvin Klein, Tommy Hilfiger, and DKNY, we're confident in our approach to Nautica jeans. With a strong understanding of the architecture of this category, we're creating a line that we believe will be successful from the start. With Donna Karan, we're leveraging the brand's classic contemporary and elevated feel and working to broaden its appeal to a wider consumer base. The collection looks incredible, and the initial response from our retailers has been positive. The new Donna Karan, Nautica, and Halston opportunities, along with our focus on our strategic priorities, will continue to drive growth for the company. Our strategic priorities remain drive our power brands across categories, further expand our portfolio through ownership of brands and their licensing opportunities, extend our global reach, maximize omnichannel opportunities by leveraging data, and continue to scale our private label business. Now, let me update you on some of our progress this quarter. Our power brands, DKNY, Karl Lagerfeld, Calvin Klein, and Tommy Hilfiger outperformed our expectations. Our results were led by dressier categories, including dresses, sportswear, and suit separates. Consumers are responding to our latest product offerings across all of our distribution channels. Our diversified expertise enabled us to pivot quickly to these categories from athleisure which has declined in demand. We continue to be able to make quick transitions where necessary to deliver the right product at the right time. Owned brands are a key strategic priority for us. This includes a focus on DKNY, Karl Lagerfeld, Donna Karan, and Wilbercan, as well as our other owned brands, which continue to perform well and represented an aggregate of $1.3 billion in annual net sales last year. This year, our own brands are expected to generate approximately $1.5 billion in annual net sales. Our team is focused on these businesses through expansion across categories, distribution channels, geographic regions, digital penetration, and new licensing opportunities. These brands have strong resonance and significant potential to grow while generating higher operating margins than the company's historic averages. Our North American DKNY and Karl Lagerfeld Paris businesses exceeded plan and are off to a good start to the year. DKNY has shifted much of its marketing efforts to a digital-first approach, focusing on both performance and brand awareness campaigns. The brand continues to build relationships with influencers across all key social platforms and participated in the second annual Metaverse Fashion Week in March. Last month, Vogue and the Metropolitan Museum of Art hosted the annual Met Gala, the largest and most prestigious event in global fashion. The event celebrated the opening of the museum's new exhibition, Carl Lagerfeld, A Line of Beauty, which revisits Carl's extraordinary career at Chanel, Fendi, Chloe, and his own Lagerfeld brand to explore his impact on fashion and culture. It's a great honor for Carl Lagerfeld, and we're thrilled that our brand is central to all of the activities. The celebrity-studded gala was widely watched with spectacular red carpet arrivals. Many celebrities wore Karl Lagerfeld, including Academy Award actors Michelle Yeoh and Jared Leto, in addition to Amber Valletta, Cara Delevingne, and Carla Bruni Sarkozy. To capitalize on the significant Met Gala press and activities,