G-III Apparel Group, LTD.

Good day and thank you for standing by. Welcome to the G3 Apparel Group third quarter fiscal 2024 earnings 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Neal Nachman, Chief Financial Officer. 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 security 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 recorded strong profitability in the third quarter, well exceeding our bottom line guidance. Our strong year-to-date results showcase G3's ability to successfully navigate challenging market conditions. Over the years, we have a proven track record of evolving to drive our business and to meet the needs of customers in an ever-changing landscape. Before I review our third quarter results, I want to take a moment to recognize all that we have done over the last 12 months since we announced the staggered license terminations of the Calvin Klein and Tommy Hilfiger brands. We noted that this change will allow us time to accelerate our long-term strategic priorities. Since then, we've delivered. We moved quickly to develop four new initiatives and have made significant progress with our existing business. Our new initiatives include the repositioning and expansion of Donna Karan, which will launch this spring in over 200 doors. We will build 150 branded shop and shops and develop new licenses to extend the brand's new positioning and reach. Our long-term license for Nautica and North America, beginning with jeans and expanding to a broad range of additional categories, is set to launch early next year in over 200 doors. We will quickly install 60 branded shopping shops. A master global license with the option to purchase Halston is expected to launch in the fall of 2024 with new positioning across a broad range of categories. We will also be a licensor of the brand, creating another income stream for us. And a multi-year license to produce outerwear for Champion that fits seamlessly into our already well-developed outerwear operations, with first deliveries available for fall of 2024. We've been able to secure these new initiatives rapidly as we're a vendor of choice for retailers with a strong balance sheet. Importantly, these plans are already underway and will result in new sales starting this spring because of the hard work of our design and merchandising teams led by Sammy Aaron. Sammy and his teams have done an incredible job capturing the DNA of each of these brands and authentically translating that into full collection by category in such a short period of time. The product looks great. Additionally, Jeff Goldfarb and his teams have successfully enabled us to quickly identify and develop new opportunities to expand our reach and impact. He secured a number of deals for the business, developed our global distribution partner network, and significantly grown our digital business. All this work demonstrates our ability to deliver to our shareholders, our partners, and our associates. I'm confident that we're moving in the right direction. As we continue to focus on new opportunities to evolve our business model, I'm pleased to announce that we've hired Dana Pearlman as Chief Growth and Operations Officer. In this newly created role, She will bring her impressive experience to drive innovation, optimize operations, and help identify new opportunities for G3. I'm confident that Dana's 20-year career with a strong track record of success in our industry will help us execute our go-forward plans. The team and I look forward to working with her when she joins us in January. Now turning to the results of the third quarter of fiscal 2024. Non-GAAP net income for diluted share was $2.78 compared to $1.35 for diluted share last year, well exceeding our guidance by 70 cents at the midpoint. Our outperformance was a result of several factors, including gross margins, which were meaningfully better than last year, exceeding our internal expectations. We moved through our inventory more profitably than planned, and benefited from further moderation in freight costs. We also lapped the bulk of last year's one-time logistics costs. As we worked through our inventory, we were able to obtain warehousing efficiencies faster than we expected. Our warehousing is now well aligned with our current and planned inventory levels. Importantly, we were able to avoid expected deleverage in SG&A which as a percentage of sales is now comparable to last year's third quarter. As a result, we delivered strong operating margins of 18% in the quarter as compared to 9% in the third quarter of last year. Net sales were $1.07 billion compared to $1.08 billion last year. While the retail environment has been challenging across the board with consumers facing inflation, as well as unseasonable warm weather, we feel good about our decision to focus on profitable sales. We did not need to chase additional promotional sales as we exceeded our bottom line profit expectations. The combinations of these factors resulted in missing our top line guidance yet we well exceeded our bottom line guidance. We ended the third quarter in a significantly better inventory position with total inventories down 34% to $592 million compared to $900 million last year. With pressures on supply chains having eased, we're placing inventory buys closer to need. This, combined with our lower inventory levels, are enabling us to turn inventory more efficiently and chase favorable sales trends. Looking ahead, this will enable us to realize additional warehouse cost efficiencies. We ended the quarter in a strong financial position with $840 million in cash and availability. This is after we utilized $100 million to pay down $75 million of debt and $26 million to repurchase shares. We have 10 million shares available in our buyback program. Now I'll provide an update on our strategic priorities. Our first priority is to drive our power brands across categories. Our performance this quarter continues to be led by outerwear, sportswear, dresses, and suits separate. across our key brands, DKNY, Karl Lagerfeld, Calvin Klein, Tommy Hilfiger, as well as Levi's. We also saw a nice pickup in handbags and team sports. We are a significant global supplier with a diversified distribution network across stores and digital channels from luxury and better department stores, specialty stores, and the off-price channels. We continue to be able to make quick transitions where necessary and manage inventory to deliver the right product at the right time to maximize profits along with sales. As we continue planning our transition with Calvin Klein and Tommy Hilfiger, our new Nautica and Halston brands, along with newly repositioned Donna Karan, will join DKNY and Karl Lagerfeld as power brands. We're comfortable that they will replace the top line and our bottom line as key growth drivers of our portfolio. They each bring a distinct point of view to our portfolio for a wide range of consumers with tailored distribution strategies and dedicated design teams. We continue to seize opportunities to expand these businesses and bring in additional brands that fit our long-term strategic vision. Shifting to our next priority, growing our own brands. Our own brands represented $1.3 billion in annual revenue last year, and they are on track to reach $1.5 billion this year. We believe we can grow these brands to over $3 billion in annual revenue over time and continue to direct more resources to this area. They are the most profitable businesses in our portfolio as we do not pay royalty fees, and they provide highly accretive licensing income opportunities. For the third quarter, our own brands, DKNY, Karl Lagerfeld, Donna Karan, and Vilbercan, registered another period of solid double-digit year-over-year growth as collections are resonating with customers. We're on track to earn $75 million in royalty income this year, which is highly a creative revenue stream. We will have four new fragrances with our partner, Interparfum. Carl Lagerfeld, DKNY, and Donna Karan will launch new scents next year. This past August, we introduced a brand extension for DKNY's Be Delicious, which has performed exceptionally well. Additionally, DKNY expanded into new license categories, including men's underwear and loungewear, rugs, and tech accessories, and we re-signed our South Korean territory license. Our marketing efforts this past quarter for DKNY highlighted the brand's inherent connection with New York City across multimedia campaigns. We acquired the total Karl Lagerfeld brand over a year now and are extremely pleased with its performance, which has been accretive from the beginning. The fall campaign focuses on a new Icon K handbag, and last month we launched a new holiday campaign featuring Karl's beloved cat, Choupette. Further, we brought the world of Karl Lagerfeld to life during European Fashion Week, through some high-impact global activities in Paris, Milan, Dubai, and Bangkok. These events resulted in over 200 social stories and 90 million impressions. Extending our global reach is an important priority. This year, our key international brands have registered solid sales growth. Karl Lagerfeld is expanding into new lifestyle categories with jeans, which targets a younger consumer and is a natural fit for the brand. The collection embodies Carl's confident self-awareness and the independent spirit of street art for both men and women across ready-to-wear, accessories, and footwear. We just opened our first Carl Lagerfeld jean store in Madrid, and it's off to a good start. To support the launch and engage with younger consumers, We took over nightclubs in Paris, Berlin, and in Madrid. We now have six unique Karl Lagerfeld branded lifestyle projects with more in the works. In addition to two hotels, one of which opened this year, we have agreements for four residential properties in Dubai, Lisbon, and two in Spain. Billbrecan further expanded its reach with franchise partners having opened two new stores in prominent beach vacation destinations, one at the Atlantis Hotel in the Bahamas and the other in Costa Navarino, Greece. The brand now has a total of 104 company-operated stores and 88 franchisee-operated stores. Further, Vilbrecan has three lifestyle projects, a beach club in Cannes, which opened this summer and is becoming a major success, Our Boca Raton Beach Club that opened last year, and today we're excited to announce that we just entered into a multi-year licensing agreement with a developer of a luxury lifestyle hotel in Florida. Expected to open in spring 2024, Villebrecan has designed the approximately 15,000 square feet combined indoor and outdoor rooftop pool deck, and restaurant, and will open a retail store. These beach clubs demonstrate the brand's power and the versatility to adapt our lifestyle concept to owned, franchised, or licensed opportunities for clubs, restaurants, and even hotels in the future. For both of these brands, hospitality has become a new opportunity for us. These initiatives provide additional income, drive significant global awareness, and enhance the status appeal of the brands. We've also laid a strong foundation for DKNY's international expansion with new partner stores. Thus far, five have opened this year, and we expect to open seven more by the end of next year. In September, DKNY introduced the first European design collection, which will launch in September 2024. The collection will feature a range of iconic streetwear and sports-inspired women's pieces. We hosted an exclusive press preview during Milan Fashion Week and garnered rave reviews, delivering over 18 million global press and social impressions. This line will launch in key European cities with exclusive partners like Harrods, Flannels in the UK, Renacente in Italy, Zalando will also become a key digital partner for the brand in Europe. Digital and omni-channel growth remains an important priority. We've continued to invest in our capabilities, including an increased focus and rapid expansion with the pure plate channel which has helped offset the moderation in traditional digital channels now that customers are returning to stores. This work has paid off with those sales increasing by 30% this year. Our Amazon business alone is up over 80% to last year. The speed at which they've grown makes clear how much runway we have with this channel. In conclusion, We ended our third quarter delivering non-GAAP earnings that exceeded our expectations and have done a great job successfully executing our strategic priorities. We feel it prudent to take a cautious view of our forecasted sales. We now expect fiscal 2024 net sales to be $3.15 billion based on the strong outperformance in the quarter which resulted in higher operating margins, we have the confidence to raise fiscal 2024 non-GAAP EPS outlook. We're raising our non-GAAP net income for diluted share guidance to be in the range of $3.90 to $4 compared to our prior guidance of $3.20 to $3.30. This compares to $2.85 in fiscal 2023. I'll now pass the call to Neil for discussion of our third quarter financial results, as well as guidance for the full year fiscal 2024. Thank you, Morris.