G-III Q4 Earnings Conference Call: Full Transcript

Operator: Welcome to the G-III Apparel Group's Fourth Quarter and Full Year 2016 Earnings Conference Call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Neal Nackman, Chief Financial Officer. You may begin. Neal Nackman: Chief Financial Officer: Thank you. 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 per share and to Adjusted EBITDA, which are both non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release and on our website. I will now turn the call over to our Chairman, President, and Chief Executive Officer, Morris Goldfarb. Morris Goldfarb: Chief Executive Officer, President and Chairman: Good morning and thank you for joining us to discuss our fourth quarter and full year results. With me today on the call are Sammy Aaron, our Vice Chairman; Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; and Jeff Goldfarb, our Director of Strategic Planning. Fiscal 2016 was another record year of growth, operational success, and strategic progress for GIII. Of course as you know, warm weather and soft traffic made for a very difficult retail environment in the fourth quarter. Our fourth quarter sales increased by 3% to $527 million versus last year's $514 million. This was roughly $50 million below our forecast. The shortfall was entirely related to lower outerwear sales in both our wholesale and retail business businesses. Our adjusted net income per diluted share was $0.17 per share compared to $0.49 in the fourth quarter last year. This was $0.21 below the low end of our previous guidance. The profit shortfall reflects lower than forecasted wholesale and retail sales in outerwear as well as higher discounting and promotion of outerwear. I'd like to provide some full year highlights. We grew full year sales by 11% to a record of $2.3 billion. We grew our full year Adjusted EBITDA in fiscal 2016 by 13% to a record $210 million. Similarly, our non-GAAP net income grew by 12% to a record $113 million and adjusted EPS for the full year grew 8% to $2.44 per share. Beyond the good annual financial performance, we captured a number of important initiatives across multiple categories with powerhouse brands. We've dramatically expanded the range and size of our growth opportunity. We expect to see positive sales and profit impact from our deals with Karl Lagerfeld and Tommy Hilfiger to accelerate into the back half of the year. Longer term, we believe Tommy Hilfiger and Karl Lagerfeld represent a $1.5 billion annual revenue opportunity for G-III. We're pleased that our consistent execution and great products has continued to reinforce our leadership position in the industry. We work hard to be accretive for our customers and consumers and to be a reliable and trusted partner. We made that evident in the context of a tough fourth quarter for retail in general and for outerwear in particular. We work with our customers effectively and collaboratively and ended the season with manageable levels of inventory, both for them and for us. Even so we are planning prudently and have a reduced outerwear plan for fiscal 2017 versus fiscal 2016. We see strong growth in every other category this coming year and believe it is prudent to protect the expectation of relatively secure diversified growth in sales and operating profit from the kind of seasonal risk we've just experienced. The balance of our wholesale business is on a great trajectory following a solid holiday performance. To be clear, our understanding is that this was not very common this past year. Our performance in a wide range of categories has continued to set us apart from the pack. We think this superior performance gives us good momentum and a competitive advantage for this upcoming year. Now let's discuss in more detail how each of our businesses are doing. This past holiday, our dress, sportswear, performance, handbag and women's suit businesses all continued to sell through well and their margins remained strong. Team sports also had an excellent fall and holiday season. Let's put numbers to each of these businesses. In dresses, we had net sales of approximately $390 million this past year. We see good opportunities to sustain a double-digit rate of top-line growth in the dress category. Calvin Klein, Eliza J, Vince Camuto, and Jessica Howard dresses were stand-out performance this past year. For fiscal 2017, Tommy Hilfiger dresses has just launched for spring and we expect to quickly establish a strong position for Karl Lagerfeld dresses as we build our successful launch this past fall and holiday. In sportswear and performance, we had net sales of about $350 million in fiscal 2016. We are pleased with these results but at the same time, this is a single digit category in the industry. At $350 million, we are only at the beginning stage of our long term opportunity. So far our success in the sportswear and performance business has primarily been driven by Calvin Klein. We are now poised for major growth expansion and diversification across a number of brands including what we see is the tremendous opportunity with both Tommy Hilfiger and Karl Lagerfeld. We think sportswear and performance is likely to be our largest as well as our fastest growing business. Handbags has been a great business for us this year in which we achieved approximately $100 million in net sales. Tier 2 we are in the early days of a long term plan in a very large category. Thus far our business is essentially all with Calvin Klein. We like the sales opportunity we see in handbags, the margins we are achieving and the breadth and depth of expansion opportunities. This is another key brand building category for our Lagerfeld strategy and we are pleased to have launched Karl Lagerfeld handbags this past holiday season. We are confident that like dresses and sportswear, handbags is a strong double-digit growth business for us. Women's suit's and suit separates was about a $120 million business for us this past year. We've done a good job of leading this category for key departments to our customers with a range of brands. This year, we have some really great catalysts to cement our leadership position in the category. We will launch Tommy Hilfiger women's suits in the second half of the year, Karl Lagerfeld women's suits will also be available this August. We believe that having three great brands; Calvin Klein, Tommy, and Lagerfeld, will enable us to further dominate this category. Again, our expectation is sustainable and strong double-digit growth. Team sports had a great year led by NFL and the launch of Hands High by Jimmy Fallon this past holiday season. We have a great business with expanding rights and again we see strong sustainable growth for us over the next several years. There is great excitement in our organization for all these businesses. To have the opportunity to create a worldwide resurgence of the Karl Lagerfeld brand is something special. To have the opportunity to help greatly expand and iconic brands like Tommy Hilfiger in North America is equally powerful. There is also tremendous energy around the ongoing turnaround of G.H. Bass, a stoid authentic American brand. More in a moment on G.H. Bass. Wilson's fourth quarter and full year comp sales were disappointing at a negative 12.4% and 7.6% respectively. Clearly the warm weather this winter season impacted outerwear sales which is key to the business. We also saw softness in our tourist driven outlet locations. We are looking closely at how we can continue to evolve the business and regain the profitability Wilson's had achieved prior to this fiscal year. We have realigned our Wilson's management organization and recently hired a talented Chief Merchandizing Officer. We are working on re-assorting and re-balancing our product mix for the upcoming fall holiday season as well as launching new branding initiatives both in our stores and online. G.H. Bass had comp sales increases of 8% and 12.1% in the fourth quarter and full year respectively. Here too we have taken steps to improve our profitability. We have more work to do in our footwear assortments as we are now beginning to produce in our own -- where we are beginning to produce our own shoes. We also are working hard to capture what we view as an untapped e-commerce opportunity. We're also cognizant that beyond our approach of greater store productivity in the stronger online business, we have a great brand in G.H. Bass that is not constrained to its own stores. G.H. Bass has potential in retail, wholesale, and licensing, both here and abroad. We have a great licensing partnership already in place with PVH, Overland, and Genesco, and we are working aggressively on new licensing and wholesale initiatives. We are also looking closely at some meaningful international distribution partnerships both for wholesale and for retail. Turning to our Vilebrequin business, it is fundamentally sound that the brand remains healthy. Even so our reported results are off from last year. Our European business has been hit by the macroeconomic and political environment over the past year. In addition, the stronger US dollar impacted sales in our US stores as international tourism spending declined. With regards to what we can control, our team is doing a great job with respect to product innovation and this will help the business globally regardless of the environment. Our real estate portfolio is excellent. We still see the same long term opportunities to the brand. I'll reserve some comments for closing. I will now turn the call over to Neal for a closer review of our financial performance. Neal Nackman: Chief Financial Officer: Thank you. For the full fiscal year 2016, we grew net sales by 11% to $2.34 billion compared to last year's net sales of $2.12 billion. Net sales of our wholesale operations segment increased 12% to $1.9 billion from $1.7 billion, primarily as a result of increased sales of Calvin Klein products with the largest increases occurring in women's suits, handbags, dresses and performance wear. In addition, we had increase in sale of Ivanka Trump products, Eliza J dresses, and our team sports products and private label programs. Net sales in our retail operations segment increased 3% to $514 million from $499 million due to an increase in same-store sales of 12% for G.H. Bass offset in part by a comp decrease of 7.6% in Wilson's as compared to the same period in the prior year. Our gross margin percentage was 35.8% in both 2016 and fiscal 2015. Gross margin percentage in our wholesale operations segment improved to 30.9% compared to 30.1% in the prior year. The gross margin percentage in our retail operations segment was 46.1% compared to 46.4 % in the prior year. Selling, general, and administrative expenses increased to $629 million with 26.8% of sales in fiscal '16 from $572 million or 27% in the prior year. This reflects greater cost for personnel, facilities, and advertising. Personnel cost increases were attributable to staffing additional retail stores, the expansion of certain product lines, and for bonus accruals related to increased profitability. Facility cost increases reflect greater rent expense for additional retail store leases opened since the prior year. In addition, we increased our use of third-party shipping facilities to satisfy the higher shipping volume. Advertising cost related to the increased net sales of license products as well as greater cooperative advertising pursuant to many of our license agreements. Our effective tax rate was 36.2% in the current year compared to 35.3% in the prior year. The lower rate in the prior year was significantly impacted by certain non-recurring transactions recorded in other income in the prior year that were not subject to income tax. We are anticipating a 37% tax rate in our outlook for fiscal year '17. Net income for the year increased to $114 million or $2.46 per diluted share from $110 million or $2.48 per diluted share in the prior year. Included in our net income in the current year is approximately $1.1 million of other income, equal to $0.02 per diluted share which primarily consistent the reduction of the estimated contingent consideration payable in connection with the acquisition of Vilebrequin. The prior year's other income was $11.5 million or $0.22 per diluted share and primarily consisted of three items. First, payments for the sale of rights to operate Calvin Klein performance stores in Asia, including the sale of the Company's interest in the joint venture that operated Calvin Klein performance stores in China. Second, a gain in connection with the reduction of the estimated contingent consideration payable in connection with the acquisition of Vilebrequin, and lastly, a gain with respect to the early extinguishment of debt at a discount constituting a portion of the consideration paid for the acquisition of Vilebrequin. On an adjusted basis excluding these other income items in the current and prior year's full results, non-GAAP net income per diluted share was $2.44 for fiscal 2016 compared to $2.26 for fiscal 2015. Regarding our fourth quarter, net sales increased 3% to $527 million compared to $514 million in last year's comparable quarter. Net sales in our wholesale operations segment in the quarter increased 1% to $399 million from $397 million. Net sales in our retail operations segment are consistent with the prior year to about $175 million in each period. Our consolidated gross margin percentage for the fourth quarter was 33.9% compared to 35.7% in last year's fourth quarter. The gross margin percentage for our wholesale operations segment was 24.7% in the fourth quarter compared to 25% in the prior year's quarter. The gross margin percentage for our retail operations segment was 45.9% compared to 48.2% in the previous year's quarter that was due to increased promotional activity in that segment. SG &A expenses increased $17.6 million to 30.2% of net sales from 27.5% we have increases in payroll cost and third party shipping, advertising and design expenses all of which support our overall growth. SG&A increases were impacted by new initiatives related to our launch of Karl Lagerfeld products. Tommy Hilfiger dresses and NGH bass wholesale initiatives. Our net income for the quarter was $8 million or $0.17 per diluted share compared to $22.2 million or $0.48 per diluted share in last year's fourth quarter. Regarding our balance sheet. Accounts receivable at fiscal year-end increased 13% to $222 million from $196 million at the end of the prior year. Our inventory at year end increased approximately 14% to $485 million from $426 million last year. This is about 5 percentage points above our forecasted first quarter sales. This increment is attributable to excess outerwear which we are holding for this coming for. While despite of some working capital we do not expect the negative impact on our margin in the upcoming season. In fiscal 2016, we spent approximately $42 million on capital expenditures primarily for fixturing in key department store doors as low as leasehold improvements for a new and remodel Wilson's, G.H. Bass and Vilebrequin stores. We were also invested approximately $25 million for a 49% ownership in Karl Lagerfeld, North America. At the end of the year we had no outstanding debt and cash on hand of $133 million compared to our prior year cash on hand balance of $128 million. Regarding the guidance. For the fiscal year ending January 31, 2017 we are forecasting net sales increased approximately 9% to approximately $2.56 billion compared to $2.34 billion in fiscal 2016. We expect net income to increase between $120.5 million and $124.5 million or between $2.55 and $2.65 per diluted share as compare to net income of $114 million or $2.46 per diluted share and $2.44 per diluted share in non-GAAP Adjusted basis. We are assuming a fully diluted share account of approximately $47 million shares. We are forecasting fiscal 2017 Adjusted EBITDA to grow between 9% and 12% to range of approximately $228 million to $236 million from $210 million in fiscal 2016. With regards to the first quarter ending April 30, 2016, we are forecasting net sales of approximately $475 million compared to $433 million in last year's first fiscal quarter. We also forecasting net income between $0.1 million and $2.4 million or between $0.00 and $0.05 per diluted share compared to net income of $6.8 million or $0.15 per diluted share in last year's first fiscal quarter. The first quarter will also be impacted by additional expenses related to our new initiatives. The sales impact from new initiatives, will accelerate in the latter half of the upcoming year. That concludes my comments and I will now turn the call back to Morris for closing remarks. Morris Goldfarb: Thank you Neal. The fourth quarter aside, our fiscal year 2016 was powerful, both in terms of our financial performance and more importantly our strategic development. Over the past several years we certainly have been very fortunate to found such a powerful partner with the Calvin Klein organization and PVH. Calvin Klein is a truly powerful iconic global brand. We view the opportunity now immediately in front of us with the Tommy Hilfiger, and Karl Lagerfeld relationships in the same way. These are also great iconic brands with tremendous potential. I think it's worth repeating that we have mapped out roughly $1.5 billion in annual revenue opportunities with G-III, from just these two brands, and while I am focusing on them given their recent and have scale, we also have great opportunities in every category across many brands in our diversified mix of businesses. As we begin the new fiscal year, our major challenge continues to simply rise to the goals and the high standards that we've set for ourselves. We just finished the year where we drove decisively forward through one of the toughest outerwear seasons ever. Through one of the most challenging macro environments ever and yet we managed to post record results. At the same time we also created the biggest set of future opportunities we've ever seen. We're confident that these opportunities will propel us to new record levels of sales and profit for many years to come. Thank you, Operator we are now ready for some questions. Question & Answer Operator: Thank you. We will now begin the question-and-answer session. If you have a question please press star, than one on your touch tone phone. If you wish to be remove from the queue please press the pound, sign or the hash key. If you are using a speaker phone you may need to pick up the handset first before pressing the number. Once again if you have a question please press star, than one on your touch tone phone. Our first question comes from Ed Yruma from KeyBanc Capital Markets. Please go ahead. Ed Yruma: KeyBanc Capital Markets: Hi this is -- on for Ed, thanks for taking my question. I guess just first you talked about it a little bit, but if you could just elaborate or on inventories in the channel for outerwear and then I guess, you typically, I know you typically type avoid during some compactly, but that you, you did that for this upcoming fall can you just, add some color on what some of your partners are doing in terms of -- away and then my second question just in terms of that's just given us a majority of the mix is there any reason why you didn't necessarily pre-announced add ICR is this an indication that may be kind of what go up few weeks in the quarter. Thanks. Morris Goldfarb: Thanks for your question--. Our inventory levels are little higher than normal, we made a strategic decision to pulled back some of the off price sales, that we historically do at this time of the year and the rationale for that or there were opportunities more opportunities than ever for the off price channel to consume the left over inventories or the troubled inventories in our sector. So seeing that we decided that we get we disclose of our facts and risk inventory and hold on to our core basics, because we believe that we can appropriately reassert them for the coming year and generate more value for them, then we could have in a high density, disposable area of business, so we opted to hold on to our inventory. The pack away segment of what we talk about today is, I would assume it's quite deep and part of the rational for what we believe is a fair analysis of what we might expect in the coming year is the knowledge that there is a fair amount of pack away product being help by our off price retailers. So we take that into consideration and we temper the growth of our business with that knowledge. As far as the pre-announced segments of the business, we've had internal discussions as to the benefit of pre-announced to our shareholders and to ourselves and it is much as where more of a wholesale business than the retail business it is a moving target, we do not have visibility the same as the retailer does. We do not know immediately the effect of inventory that the department stores hold on us, so we wait till we solve that problems with I call it vendor assistance, returns product that we have this out for the retailer. So that comes a little bit later. The decision was made that we felt that it we were best for the shareholders and for ourselves to announce as we do normally. We view our business is very healthy, we have all of these great opportunities, we believe that it was well understood that the weather that we had to deal with was well understood and all our conversations we eluded to how difficult business was and how the weather impacted us. Thank you Jessica Operator: Thank you. Operator: Our next question comes from Erinn Murphy from Piper Jaffray. Please go ahead. Erinn Murphy: Piper Jaffray: Great. Thanks, good morning. Just a couple of questions for you guys. I guess first just following up on Jessica's question as you looking forward until fall of 2016 given what you're seeing with pack away and how you are seeing inventory in the channel. Are you still comfortable at the wholesale level of to your department wholesale level with the flattish order book I mean that it's really be off right but causing a little bit more concern and you just help us to think about how you see kind of the order book standing out right now for fall of '16 for outerwear. Neal Nackman: We're forecasting our business as a conservative and going forward and we are accompanying to weather patterns that we just went through and I don't believe we're going to have the same situation to deal with. So there is upside to our plans. We are we're not incurring too much of an issue on the department store level the size of the department may be increased to some degree but our percentage of the pay as always is increasing in trouble times the retailer leans on their best resources, the resources that protected them in a tough environment and the resources that sold best in the tough environment and we qualify for both of those. So I would say that our business is fairly projected for the year and I would be disappointed if we nearly hit the projection at the we're putting add on the folk side. Erinn Murphy: Okay. Thank you and then I guess, in terms in this coming for Neal but it's sounds like you guys starting to adding some cost for the new businesses. The Tommy Hilfiger dress business, the Karl Lagerfeld businesses that started seems like some of those started in the fourth quarter. Could you just help us, to think about the trajectory of some of these added expenses are they kind of what was the impact specifically to the fourth quarter and how do you see that first half versus second half of this year is there any way to breakout the incremental expenses related to how you're feeling the growth? Neal Nackman: Yes, so we did start to incur expenses, we actually launched the Karl Lagerfeld business was launched in the third quarter. We actually we're building expenses all those small in the earlier part of this year it certainly continued in Q3, it continued in Q4 we did not have a significant amount of sales in either one of those quarters. But a small impact really overall through the deleverage for the current year. As you move into next year, we're really starting to build all the new Tommy Hilfiger businesses. So that's going to be depended upon how quickly we hire people, some of those people who have been hired already there will be more people hired for the Karl Lagerfeld initiatives, there'll also be a marketing spend relative to our GH Bass business. There will be space that we're going to need incur. So those things will continue to ramp up as we go through as far as the expense side, as we go through fiscal year end '17, of course the good news is that, as the year progresses, we are in the Karl Lagerfeld business we're shipping throughout the year, Tommy will start to ship more with strength in the later part of the year, Karl will also probably accelerate. So I think next year we'll be under pressure in terms of again levering SG&A at the wholesale side of the business. But we do expect it probably end of next year we should be well aligned and then going forward to start to see more positive operating performance from the new initiatives. Erinn Murphy: Okay, well then two clarification, I guess, first is the Tommy Hilfiger, business excluding the Jessica so the piece you just pick up from the PVH is that actually accretive this year in total? Neal Nackman: The Tommy Hilfiger address business for this year would have been slightly accretive. We really with all the businesses that we run and when we start businesses we have been very-very good at always having them accretive. The issue is that they are not at the same operating margin percentage as we would expect the overall. Erinn Murphy: Got it, okay and then I'm sorry the other Tommy Hilfiger business for the suiting denim sportswear that most recent licenses is that real accretive just not as accretive as it was fully scaled? Neal Nackman: Yes, that's our anticipation for next fiscal year. Erinn Murphy: Okay, and then I guess just last Neal for you. If we were to take a mid-20 year guidance I'll call it from an EPS perspective for 250 what are your expectations for gross margin and SG&A within that? Neal Nackman: So, for I guess just in total Erin, we're looking at a year that's going to be on gross margin side we're looking for pickup really in the retail side of the business. The wholesale business margins have been good, we expect that those will continue relatively the same rates as they were for this year. As I mentioned we are expecting some SG&A pressure, so we'll probably have a little bit of pressure on operating margin performance in general for that entire business. As I said the retail businesses, we're looking for much more seasonal weather as far as Wilson just concerned that should help our margins and still continued increases on the GH Bass business as well. Ed Yruma: Got it. Thank you guys and I let others and I'll jump in. Operator: Our next question comes from Eric Beder from Wunderlich. Please go ahead. Eric Beder: Wunderlich: Good morning. You talked before about how outerwear's about 30% -- 35% of your business I think was the comment you made last year. What should we be thinking about going forward is going to be the percentage of business with outerwear and I guess when you look at Karl one a Tommy and how are you going to for a Karl what is going to be the distribution strategy initially and for Tommy how are you going to expand that beyond its kind core at may see this year here in the US. Morris Goldfarb: Okay. Neal Nackman: The first question Morris Goldfarb: The first question relative to the size of outerwear business we are just shy of 40% outerwear, but if you look at Wilson's, Wilson's alone is about 70% outerwear. So we've the serious impact and retail really exist for us is Wilson's so just maneuvering through a business that's faced with outlet stores, the premier outlet stores that we have that are in tourist centers that are dependent on foreign tourism that was off dramatically as well as the worst weather that I can never remember I would say that we are not likely the anniversary that with Wilson's where we are changing our product mix to a degree we had some deficiencies in fashion not critical to the business but we believe we can alter the assortment and make it better than it has been. We are altering the levels of inventory that we have, we the sign on the doors as, Wilson's leather, leather is evaporated to a small percentage of what we do, leather being the high tick in store, we were negatively impacted by that. So we're making the appropriate adjustments for Wilson's and we include Wilson's as part of that 40% cotes. On the wholesale side, we really don't see a major issue and being the dominant supplier of outerwear, we're clearly the dominant supplier in the department store sector for both men's and women's and in tough times as I said before the vendor based does changed and we derived the benefit for that. We provide great margin for the department stores, they clearly don't want to give up the type of margin that they get on the outerwear side. It's the best that we provide for the retailer and any classification. So there is a desire to grow it not to shrink it and they are for long term in outerwear. As a matter of fact we're adding another brand to it. We're addition Karl Lagerfeld as an outerwear brand this year. So we don't have a fear of the outerwear business. So and your second question the distribution of Karl and Tommy are little bit different. Karl the initial distribution is to load in tailor and to the dealers and several specialty stores and it's a breath of product, we've shipped footwear for the first time, that footwear is retailing very well, we're pleased though we've gotten decent distribution for loid and trailer, we clearly are obvious on the footwear floor and we're retailing exceptionally well. The to a lesser degree has distribution and those shoes are selling well also. We have made a couple of fashion profiles on our early distribution as we always do that's not a problem for us. We've adjusted some of the retails to clear some of the inventory at retail for Lagerfeld, second delivery is much better and we believe that our third delivery is exceptional, I encourage you to shop to store shop Lord and Taylor in diligent and see what the product looks like. So we are proud of it is as always, we have got best-in-class associates that have joined our Company to help grow it, this being a travel time for a lot of brands has given us the opportunity to get the best talent in the industry to sphere head all the initiatives that going forward with. Tommy is had two issues; one is the exclusive distribution to is ours to deal with in fiscal '18 and we basically take over at the beginning of next year for the sportswear fees that services only all the other classifications and they are coats, dresses, suite separates, denim all the other and performance apparel all those classifications are basically open to distributed it's basically the same distribution as Calvin Klein it's department stores, it's a level of all prices, it's a level of club business and it's a large initiative it's not often that you're able to sign a license and not make an acquisition, not go out of pocket, not affect your balance sheet and feel comfortable within 3 years you have a $0.5 billion worth of business that you can generate and that's a fair number it's not part of it comes through the guarantee for -- and the other pieces come from the knowledge that we have and the capabilities we have in building product, shipping product, and having a great retail partners that are supporting the real estate that we need to make us feel comfortable that, that number is a real estate number. Eric Beder: Great. Thank you. Operator: Our next question comes from Rick Patel from Stephens. Please go ahead. Rick Patel: Stephens, Inc.: Thank you. Good morning. Can you just delve a little deeper into your outlook, as we think about your first quarter earnings guide for lower year-over-year earnings growth, are you being hit by continued mark down in the new quarter or is it just the function of higher expenses that that's the primary corporate there and to what extend is there an element of conservatives in those numbers? Morris Goldfarb: Yes. So just on the first quarter I guess really on we start an order of magnitude in terms of P&L we're filing most impacted in the first quarter with the incremental spend on our new initiatives I mentioned the categories before so that's partly in terms of magnitudes of the greatest impact on our first quarter so we will definitely see SG&A pressure we are building those businesses and the sales right there are still nowhere near normal or where we would expecting to be. The second issue really is an impact of reduced gross margin percentages, we are still finding in our Wilson's business has really still continue to never have seasonal whether for the entire season that's impacted then, they've continue to move out of inventory there is also a drag to some extent on the G.H. Bass business as that as impacted a traffic as well. So it's only some pressure from on the retail side of the business in the first quarter much less of an impact in terms of mark down just to be very clear. When we end the season we accrue for all the mark downs as far as our the items that we've shift. So we've had all of our conversations, we cleaned up all of our inventory and our positions through the end of the year and we essentially go into the first quarter based upon how we perform a retail. So other than the general reality the retail is impacted coming off of a very weak fourth quarter, and things have not really picked up extremely well. We continue to see our brands performing at the best within categories, but we will see some pressure on the wholesales that will not be a function of catching up the prior mark down just really more of function of what we see going on in the marketplace today. So just to recap that full year a little bit, gross margin pressure mostly at the outlet on the outlet side of our business some on the wholesales side of our business certainly SG&A pressure from a leverage standpoint with respect to the new initiatives, and since I am giving you color on the first -- actually lead a little bit into the second quarter as well. The one thing that we do continue to see in the second quarter we will continue to see that expense pressure, hopefully by that point in time our retail business will start to normalized margins, but we will have SG&A pressure into the second quarter. We'll also think that we will have to some extent the outwear season is certainly one that is more challenging challenged as we go into this year and the second quarter is the start of our outerwear shipping, so we do see a little bit of pressure on the top-line sales in terms of the ability to get that early outerwear out as early as we've done in the past, there may be more of a focus on taking that outerwear closer to well we hopefully seasonal weather the next year for us. So, that's the additional guidance I being, willing to give you at this point on the quarters. Rick Patel: Alright, that's really helpful and can you also just revisit your long-term growth algorithm, just based on the guidance for 2016, looking for mid to high single digit EPS growth, you know as you're thinking changes about, you know, the longer term, potential for the Company? Morris Goldfarb: The potential for the Company is never been better, I think we've sided three huge opportunities; the opportunities we have between Karl Lagerfeld, Tommy Hilfiger and the organic growth that still achievable and that we still factor into our businesses, can double the size of our business, I mean it's in an amazing spot that we're in. We're explaining the situations of the past and the future is never look better, I mean we have assets that are deliverable assets, we have talent in place that can make it happen, we have capital that can support the growth of the business, we have no long-term debt. So I would tell you the prognosis for the future, has never in my career been better than where we sit today. Rick Patel: And Morris, can you give us more color on the opportunity for Hilfiger, I know in the past you've mentioned that Lagerfeld could be a $500 million opportunity, so as we think about the billion that would apply to Hilfiger. How do you see that breaking out across all the different categories that you've lined up? Morris Goldfarb: It's difficult for me to break it out by category. But all I can tell you is it took us a decade to assume all the rights that we have with Calvin Klein and with Tommy Hilfiger it took us two weeks to negotiate through a contract and we have took us ten years to meet with Calvin Klein and we have an amazing partner that is aligned with us and as a desired to grow the brand Steve Shiffman, who leads the charges and an amazing partner collaborating at every level and we believe that it's a reasonable bet that we can achieve, what we have achieve through Calvin Klein with Steve Shiffman we can achieve with Gary -- and Tommy Hilfiger. So, Gary is worked with Sammy Aaron and carving out the essential elements of the business that can help us grow rapidly. We're on that way today. The only thing we lack right now is a showroom that can properly house it there is the product gone here before the showroom than there is excitement in the industry for what we are showing and what we are beginning to deliver. So, I am comfortable that the numbers are realistic. Rick Patel: Thank you and good luck the spring. Morris Goldfarb: Thank you, Rick. Operator: Our next question comes from John Kernan from Cowen. Please go ahead. John Kernan: Cowen: Good morning guys, thanks for taking my question. I just wanted to go back to the first quarter again is the pretty big acceleration year-over-year growth in terms of sales I guess you're implying the things are looking better in certain categories. Can you walk us through, what's gotten better since the end of the fourth quarter outside of outerwear? Neal Nackman: So John, really, I would tell you that the outerwear is really been -- the outerwear story continues or is the only negative that we're really looking at as been the outerwear story that continued slightly into the first quarter our non-outerwear business has been growing in the high single-digit to a double-digit growth we've done well in dresses, sportswear in suits, in handbags and that continues into the first quarter as well. John Kernan: Okay and I'm just looking beyond the first quarter initiative $1.5 billion in revenues that you've talked about the incremental revenues from Hilfiger and Lagerfeld, can you talk about net expenses that are going to supporting that but also the long-term goal but double-digit operating that you spoke up in the past if there any -- how far out does that get push now that there are some expenses in building these two new business? Morris Goldfarb: Yes, I would tell you that look ultimately when we build all these businesses out they will be -- probably at around the same operating margins that we experienced today for our wholesale business which is now really a double-digit operating margin performance on the wholesale side of our business and ultimately the businesses that we're adding will be in about that same operating margin zone. The big issue for us in terms of getting to a consolidated double-digit operating margin is really is improving the retail side of the business. This is really the first time at the end of this year that we'll actually have incurred a loss first time in over a handful of years that we've had a lost from that segment of the business while its small, that's unusual for us. We see no reason why that business can get right it both the Wilson's business returning back to where it had been and still improving just to remind the Wilson's business has really been a high single digit operating margin business for several years prior to the rough patch of weather and now of course this year weather and tourism. We see no reason fundamentally why that one get back to high single digits and then ultimately be a double digit operating margin business. G.H bass has been a looser since we've taken it on from an operating margin standpoint we significantly improved that loss this past year. We're expecting small profitability out of it as we go into next year and we continue to think to that that's the double digit operating margin business for us. So in total for us to get to the double digit operating margin that we've been talking about it really will be rely on us improving the retail business and moving that from really what we're now looking at is in the forecast a low single digit operating margin up to the double digit operating margin level. John Kernan: Okay. Thanks and just two quite kind of housekeeping questions. Can you just going back to a prior question the percentage of your business that is outerwear in the fourth quarter did you give that? Morris Goldfarb: We didn't but willing to fourth quarter tends to be comparable to what we run for the whole year which is around 40% in wholesale of course much more impacted by the Wilson's businesses is more significantly impacted in the fourth quarter with that would be slightly higher. John Kernan: Okay, and then one final question its looks like the working capital I guess there is working capital tied up in the business right now at the inventory elevated can you help us to understand what cash flow free cash flow looks like in 20-- in your fiscal '17? Morris Goldfarb: Sure. So without the doubt the slowdown in terms of retail selling we've got more inventory that we would have expected to have converted into receivables and then cash. Going into this year we will probably averaging about $45 million a year free cash flow, this last year we will probably down it around 30 if you added back the investment that we've got in Karl Lagerfeld. We were expecting to be probably closer to about $50 million of free cash flow this past year. I think the slowdown in terms of our business force us to tie more of our free cash flow and working capital. So I think you're right about that observation. I think going forward we'll return to some nice healthy increases in free cash flow going forward should certainly be at that $50 million level or better going forward before we get into investments. John Kernan: Okay thanks and best of luck. Morris Goldfarb: Thank you. Operator: Our next question comes from David Glick, from Buckingham Research. Please go ahead. David Glick: Buckingham Research: Thank you. Good morning. Just a clarification on your guidance, sounds very helpful in Q1 in Q2 but on a consolidated basis for the fiscal year, where you planning gross margins relative to last year and are you planning SG&A deleverage is my first question, I have some follow-ups. Neal Nackman: Yes. So just to be clear again for the full year we are anticipating increase in gross margin percentage and that will be offset by increasing SG&A deleverage and if you looked at our guidance and you rolled it out, you will see we're looking at a pretty flat year in terms of an operating margin percentage. David Glick: Okay great and then from the sales perspective I just want to clarify are you where are you planning your wholesale outerwear business, where you planning your Bass business from a top-line perspective and then so that implies obviously probably a double-digit non-outerwear business ? But I just wondering if you could break that out for us. Neal Nackman: Yes, so we're planning the outerwear business as Morris said that, it will be negative a mid-single levels at this point. The best business we are expecting essentially almost anniversary the increase in comps this year we had a comp increased this year of about 12% we are expecting that same type of increase on Bass again next year, and just to give you a little more color even on the Wilson side where we were about negative 7.5% this year, we're expecting about high-single digit comps for next year on Wilsons. David Glick: Okay, great, thanks and one last follow-up. Morris Goldfarb: David, just to get back to Bass for a minute. Bass is exclusively a retail player, and it's a licensing model, its wholesale for us both in coats as well as women sportswear. So there are elements of Bass that are working better than retail for the moment, and as we get the retail aligned, as we make some adjustments in the way we promote the way the store looks and levels of inventory necessary to run the Bass stores. We have segments to the business that are working well. The licensing fees is working extremely well. David Glick: One last follow-up Morris for you if I could. Yes, you issued equity a few years ago, now you've generated a lot of sales growth opportunities as you described without making major acquisition. Given where the stock is trading at the moment you have a share of repurchase authorization, would you consider putting that your net cash position to work to buy-back stock at this point? Morris Goldfarb: We may, our board is given us the right to repurchase 5 million shares, we are reviewing it all now and we're going to do the prudent thing for ourselves and for the investment community, if we view it as a best use of our capital, we'll absolutely buyback that. David Glick: Okay, great. Thank you very much, good luck. Neal Nackman: Thank you David. Operator: Our next question comes from Liz Pierce from Brean Capital. Please go ahead. Liz Pierce: Brean Capital: Thanks, good morning. Just a couple of clarifications on the Wilson's when you talked about comp is at the positive high single digit right? Neal Nackman: Yes. Liz Pierce: Okay and then in terms of also on the pack away, that is certainly showing -- you said on the outerwear did you packed away the core basic problem and move the more fashion off, could into the off price channel? Neal Nackman: Yes, we either promoted the fashion through the department stores sector or sold the fashion elements off to the off price channel. Liz Pierce: And Morris just basically could you believe you can still sale right get --is the longer self -- the erratically if weather normalized it? Morris Goldfarb: Absolutely. Liz Pierce: For this step that you packed away? Morris Goldfarb: The step that we packed away and didn't aggressively push through the retail venues that where there, we believe that we can benefit long term by reasserting it then reshipping it for fall of 2015. Liz Pierce: Okay. So just feeling that it doesn't have it must rest just more shelf -- and then in terms of Wilson's you talked about the change of the mix and I guess this is also largely an outerwear question. Given how difficult it is to predict the weather and consumers continuing to buy closer to need are you rethinking how you do outerwear on a larger scale like more layering pieces less heavy weight really changing that mix u? Morris Goldfarb: Yes absolute. What we are doing is creating other system jackets that have the ability of taking outer layer and wearing inner layer we're producing transitional weight garments. So the assortment is changing as the consumer needs and consumer taste levels change. So our -- a lot of our outerwear can be worn in mild environment versus all the heavy weights that we had done historically. Liz Pierce: Okay good and then my final question just from Jimmy Fallon. I think you had mentioned that ICR that you had recently signed up more universities and so two questions; are you continuing to build that book of business not only in number of schools but are cost maybe other categories? Morris Goldfarb: Yes very much so. The number of schools that we've signed on are north of 30, 30 important colleges and universities and the initiative is that we are looking at don't necessarily have to have the application of team sports or colleges and the concept of logo placement can work for premium product, they can work for pedestrian just wearable apparels so we are looking at all opportunities with Jimmy Fallon. We have had a big launch that's planned for majorly baseball and we have an ongoing situation with NFL. Liz Pierce: Great. Thank you and best of luck you guys. Thanks. Morris Goldfarb: Thank you. Operator: Once again if you have a question please press star, one, and our next question comes from Jim Duffy from Stifel. Please go ahead. Jim Duffy: Stifel Nicolaus: Thanks, good morning. Neal, can you size you expected revenue contribution from the new Tommy licenses and Lagerfeld in fiscal '17 and then Morris, I have some bigger picture questions on strategy. Neal Nackman: Yes, Jim, it's too early for us to do that, we've been on sale for parts of the year so but we have not we haven't decide not that just yet. Jim Duffy: Okay. Morris, questions for you, if a lot going on in the portfolio, do you seeing the opportunities for active portfolio management may be exiting some businesses which are less strategic such as you can prioritize resources to others have more attractive returns, does that part of the process? Morris Goldfarb: That's an excellent point Jim. We have done some of that. We have exited some of the smaller businesses that are space intensive, people intensive and really at the level that we're at and the sites that we've set for ourselves don't rationalize in our business any low level. So, there probably been a half a dozen of those that have been eliminated things like Shown John and Johns New York to a major degree nine west the dress business that Andrew Mark there are a lot of elements that make up the portfolio of brands and businesses within G- III and we've exited done where under review of several other pieces of business. Some that are mildly profitable and some that contribute to the reduction of a corporate overhead and some that some that don't will go away. Jim Duffy: Okay, that's helpful. Thanks for that and then question for you just on the retail footprint, given the challenges we've seen in the store traffic of late, you view that as a transient phenomenon and what you're thoughts on allocation of capital towards retail own retail on a go forward basis? Morris Goldfarb: I am not aggressive on opening new stores currently we're committed to several leases for this year for Wilsons we have 5 new stores opening this year where as last year we had about 15. So we have tempered the growth until we figure out what the consumer is all about we're little confused. We don't know if this long-term instability on outlet centers such as Orlando, Las Vegas, would very common in these are premium centers for us in premium in the sense that they, they provide the biggest share of our revenue and as I said earlier the traffic is down dramatically and when you are down in your top stores it's very hard to redeem it in your local centers. So we're reviewing what we do it's with retail and we have 3 different models, they all have different dynamics we're finding some wonderful opportunities in Vilebrequin we just opened three new locations in Germany and those locations where available to us in the past. The locations of Vilebrequin are very small the CapEx in these locations is very small as well and they fit into the long-term plan of the business. So we have an unblemished brand that's careful on how we open stores and we will continue to open those we flip a little bit, two years ago the strategy was to open more American stores and less European stores today we flip it where Europe is doing better than the states and we have opportunities that we never had in stores. The third model is the bass model and that's a little interesting we've encouraged you to walk into a bass today if you were in the bass store a year ago you see a dramatic difference in how the product is presented, the quality of the product, the promotions that are being run throughout the store as and I will tell you that we are opening an outlook store in Manchester Vermont and another one refit in Woodbury Commons in late April. The Woodbury Commons will show you what the future of bass might look like, this store is a little bit smaller it will be much more intensive on the footwear side of the business, and we believe that we have a in our hands that just needs a little bit more love before it gives us the earnings change that we think that it's still attainable. Jim Duffy: Thanks for all that perspective. Morris Goldfarb: You're welcome. Thank you for your question. Operator: And our last question comes from Erinn Murphy, from Piper Jaffray. Please go ahead. Erinn Murphy: Piper Jaffray: Great, thanks for letting me hop backed in. I guess just two clarifications; First on the outerwear order book I guess -- I thought earlier in the call you mentioned that it was trending flattish to department stores but that would being somewhat offset by more of a cautious off price outlook. So I think Neal at the end of the call that was actually down mid-single-digit is that accurate and that's all in? So that's up my first clarification. Neal Nackman: Yes, what I am referring to is the full year going forward and the order book really is soft at this point relative to where we've been in the past and I think that's retailers really also still trying to figure out and adjust to what their former brands will be for outerwear next year. Erinn Murphy: So what percent of your order book if completed at this point versus less than normal the tiny year. Neal Nackman: We're generally around 50% complete for the year in total all categories and we are slightly below where we were last year. Erinn Murphy: Okay. So then if you slightly below where you were last year with about 50% cone I guess to get to your negative mid-single-digit all in your assuming that things don't meaning I mean things actually get just to clarify less than your guide? Neal Nackman: No it's too early to make to do that math. I think Erinn, we are still anticipating lots of orders to come in on both categories so we are not anticipating any future degradation to that book. Erinn Murphy: Okay and then I guess just the second clarification just on that comp outlook for opened I think you said high single-digit positive comp. With the year that we just had what gives you confidence in that in this trend and is that something that you're seeing already quarter today in the first quarter. Neal Nackman: We are not seeing yet. We are 're really still experiencing un-seasonal weather and actively promoting to move goods, where that make sense. What gives us confidence at this point is that, we've really think that this was a very unusual weather pattern that we experienced for this past year. If you look at the previous few years of Wilson's performance, the performance was much better and we don't see anything fundamentally wrong with our box and our model, what's going on at Wilson's. We think that I terms of bounce pack we think we'll get a bounce back on weather in terms of tourism, not sure that bounce is back quietly is quickly or is robustly. Morris Goldfarb: Erinn and a follow Erinn Murphy: All right. Thank you. Morris Goldfarb: And a follow up to Neal's answer on our order book when you have elements of that business, that are bought they are not seasonal, there are multiple buys and as we build a dress business that delivers many times as a year as we built a sportswear business that delivers many times the years as build the footwear business and those orders come in by collection, versus the cote business were orders are in early there is an element that you can refer to that includes the just the cote business, but what we've just done, is we put online, Tommy Hilfiger, we put online Karl Lagerfeld, we have bass sportswear, all these orders are not in they are not in early, they are bought relative to the collection. So the anticipation is that relative to our plan, the percentage of our order book would be less, that's the rationale from just its. Erinn Murphy: Got it. Morris Goldfarb: Got it. Erinn Murphy: Yes. Okay, thank you guys. Erinn Murphy: Morris Goldfarb: Thank you Erinn. Operator: I will now turn the call over to Morris Goldfarb, Chief Executive Officer for closing remarks Morris Goldfarb: Thank you Operator. Thank you for joining us this morning and hopefully we have results that are more appealing for our next earnings release. Thank you for staying with us and have a good afternoon. Good morning Operator: Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.