Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the G-III Apparel Group Limited Second Quarter of Fiscal 2013 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Neal Nackman, Chief Financial Officer. Please go ahead, sir.

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 adjusted EBITDA and non-GAAP net income per share, which are both non-GAAP financial measures. We have provided a reconciliation of non-GAAP net income per share and adjusted EBITDA to our net income per share and our net income according to GAAP in our press release and on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning. With me today are Sammy Aaron, our Vice Chairman; Neal Nackman, our Chief Financial Officer; and Wayne Miller, our Chief Operating Officer. We had a very good second quarter. Across the board, our businesses are healthy. We met our revenue plan, exceeded profit goals and have booked well for our key fall season. We are positioned for a strong second half performance. We also acquired Vilebrequin, a leading luxury resort brand, which we believe is capable of significant expansion. Neal will run through the details in a few moments, but here are the financial highlights from the second quarter. We grew our revenues 9% to $251 million. This is right in line with our plan. I'll go through each major category in a moment, but the key drivers were dresses, sportswear, suits, handbags, team sports and our specialty retail operations, which had a strong double-digit comp performance in the quarter. Adjusted EPS was $0.13 per share, and GAAP earnings per share was $0.07 compared to prior year GAAP EPS of $0.08 per share. As you look at our GAAP numbers, bear in mind that there are $1.8 million of expenses related to the Vilebrequin acquisition included in this year's numbers. When taking these expenses into account, our earnings performance was better than we expected. While our key season is still ahead of us, our strong second quarter gives us comfort that we're in good shape to achieve our increased earnings per share guidance for the full year. Our acquisition of Vilebrequin, which is truly an outstanding luxury resort brand, was another significant accomplishment for us. We believe Vilebrequin, which we acquired on August 7, is going to prove capable of significant growth. We think the brand is powerful enough to go beyond the swim category and, because of…

Thanks, Morris. Net sales for the quarter ended July 31, 2012, increased 9% to $251.5 million compared to $230 million in the year-ago period. Net sales of wholesale licensed product for the quarter grew 13% to $178.4 million compared to $158.1 million in the year-ago quarter. We saw increases in wholesale licensed product sales this quarter, primarily as a result of our new Kensie sportswear line, as well as increased sales of Calvin Klein product. Net sales in our wholesale non-licensed product segment decreased in the quarter to $48.3 million from $50.7 million in last year's comparable quarter. Net sales in our retail operations increased 16% to $32.9 million from $28.3 million in the year-ago quarter. Retail sales increases resulted from a combination of an increase in the number of stores and a comp store sales increase of approximately 13% in the quarter. Our gross margin percentage increased during the quarter to 29.8% from 28.5% in the prior year's quarter. The gross margin percentage in our wholesale licensed product segment increased to 26.2% from 25.5% and, in our wholesale non-licensed product segment, increased to 25.6% from 24.7%. The gross margin percentage in our retail segment was 48% this year compared to 45.1% in the prior year's quarter. Net income was $1.4 million for the quarter or $0.07 per diluted share compared to net income of $1.6 million or $0.08 per diluted share in the year-ago quarter. In the second quarter, we incurred approximately $1.8 million or $0.06 per diluted share of expenses related to the Vilebrequin acquisition. When we excluded these costs from our net income, our non-GAAP net income per diluted share was $0.13 for the quarter. Our net income per diluted share was $0.08 in the prior year's quarter. SG&A expenses increased to $69.5 million from $59.8 million…

Thank you, Neal. This should be a very good year for G-III. More importantly, we continue to build the business across a number of paths that lead to sustainable growth. We are deepening our penetration in important categories. As we did with outerwear, our dress business has become a dominant player in the market with a wide number of brands across many tiers of distribution. Over time, we expect to push our sportswear and handbag business in the same direction, adding brands and carefully expanding distribution. Another path to growth and our continued ability to leverage our leadership position and access to capital build the business through acquisition. Vilebrequin is an outstanding brand with a world-class team. I'm excited about the future of this brand. While there is nothing to report today, we do not expect this to be the last deal we do to accelerate our growth. Through both of these paths to revenue growth, we can create leverage and improve efficiency. We're managing and integrating our businesses with a careful eye on overhead, shared services, working capital management and selective infrastructure development. It is our intention to show you a strong second half and full year performance and to also set the stage to achieve strong growth next year. Thank you, and I'll now open the call to questions.

[Operator Instructions] And we'll go first to Edward Yruma of KeyBanc.

Morris, can you talk a little bit about any early reads you might be seeing in the outerwear season? I know that you’ve mentioned at times the anniversary sale at Nordstrom might be a good read. Kind of how do you feel about some of these early reads that you're seeing, again, acknowledging that it's very early in the season? And then, two, how do you feel about the industry inventory levels for outerwear?

The early reads, Ed, are, as you stated, the Nordstrom's anniversary sale was exceptionally good for us and, I believe, for the industry. We had the #1 selling item in the catalog in outerwear and, I believe, the #3 best-selling item, and the performance was far better than last year. We received reorders. The feel is that we'll have a very strong year with Nordstrom's and specifically outerwear. Macy's, the coat business on the men's side opened up fairly strong. We've gotten very good reads and several reorders, as well as new sales on items that they had passed on originally, and they circled back and rethought the process and bought in additional SKUs, which is a great indication of their feel for the future. It's a little early to respond on the women's area. It seems as if we shifted a little bit later. The product is just reaching the floor. The product looks good. We shopped it actually yesterday. We've been shopping it every day since it's on the floor. We're quite pleased with the way it looks, and it appears that sales should be good. We have some great selling at JCPenney with Levi's. It seems as if Levi's business, I think it's one of the first shops that has been created at JCPenney. The sales at Levi's are significantly ahead of last year's pace. As for its license business, it's been good at JCPenney. And I guess the best read that we have is our own retail stores, which are Wilsons. Our business has been up pretty much every month for the entire year, and they're up low double digits throughout, and a good part of it is outerwear. So we're feeling good about the outerwear business. In response to your question on industry levels of inventory, I don't think levels of inventory are high. Actually, I believe they are low, and maybe good news, some of the factories in China are quite late on delivery. Their anticipated orders were less than what actually did occur, and they were not prepared to manufacture what orders they had, and there were a quite a few delays, and that is eating into the inventory levels that exist in our industry today. So I think inventory levels should be low in the coat area.

We'll go next to Erinn Murphy of Piper Jaffray.

Morris, I was hoping you could maybe help us understand just -- as you're thinking about the Vilebrequin acquisition, maybe talk about 1 or 2 of those attributes of that brand that were most attractive to you during the vetting process there. And then also given that this is your first major global acquisition, if you could just maybe give us an update on how some of those markets are performing. I think you indexed a little bit higher in France and Italy, and obviously the U.S. is a big market for that brand as well.

Thank you for the question, Erinn. Vilebrequin is a brand that the management team at G-III has been familiar with for years. It's clearly an untainted luxury brand in troubled environments, in troubled economies, the brand has stayed pure at a very high tier. It's very focused on men's bathing trunks. There's a ready-to-wear component to it. There's some accessories that have been developed for it, and all of them have been developed with gentle loving care. It's at a very high degree of quality and integrity and design. So we've been conscious of this brand for quite a while. It's a brand that is affordable for us. And our diligence with our retailers, we found that this is a brand that can expand into many other classifications, and they can expand aggressively into the female gender. It seems that as many women are familiar with the brand as men. It's a great gift-giving item. Bathing trunks has historically -- at least this bathing trunk, has been historically a great gift that a woman has chosen for both her husband and her child. And in doing our research, we found that globally, there's a major awareness for this brand, giving us the ability to expand on it both with existing classifications, as well as new classifications. The global penetration really exists in France and Italy for the most part. The stores in France are doing quite well. The stores in parts of Italy are not comping what they should, but that's the sign of economic times. We've upgraded or we're in the process of upgrading some of our real estate in Italy. We believe that's going to make a major difference in performance. We're focusing on updating some of our designs. And again, everything that I've described gives us opportunities…

I guess just, Morris, just 2 quick follow-up questions. You mentioned Italy. Parts of it were still weak. Have you seen anything sequentially improve? Or is it still just a kind of challenged macro environment there? And then secondly, when you referenced some of the potential longer-term to be in both China and Japan for the brands, what are you seeing from a tourist flow perspective from the Chinese tourists or the Japanese tourists in your European stores right now? Is there brand awareness of that brand already?

The -- we're seeing -- we're not seeing aggressive movement in Italy. As a matter fact, I just -- I came back from Italy 2 days ago and spent some time in Rome where we have a couple of locations and in Milan. There's a great deal of business that's done with the Russian community. There’s major awareness there. The Chinese community is aware of the brand to some degree. There are locations in Macau and in Hong Kong. There are no locations in Mainland China. And if our information is right, the biggest growth area in yacht building and yacht acquisitions is throughout China. Those people on yachts are going to like this apparel. So as we make it available for them in cities like Shanghai and Beijing and places like Qingdao, where there is a shipbuilding -- a luxury shipbuilding environment, I believe the awareness will grow very, very quickly.

And then just if I may, Neal, just a quick question for you on the gross margin. Very encouraging to see that improvement so early on this season. And as we walk through the back half of the year, if you could just maybe refresh us on kind of how you're thinking about product costs for the both third and fourth quarter. And then also, I guess, in the second quarter, what were the major puts or -- and takes for the margin? Was it a balance between both lower markdown, allowances as well as product costs? Or what did we really see drive that strength incrementally in the second quarter?

Sure, Erinn. So with respect to product costs and where the gross margins are going, we've spoken before and it's still the case that, that certainly has moderated for us this year and that we do anticipate in the back half of the year, predominately in Q4, to continue to see improved gross margins. Our Q3 margins last year were fairly strong. We’ve got -- we certainly will achieve those. I don't know how much of a beat we'll have on the Q3 margins, but Q4 looks strong, and we expect that, that will continue. In terms of Q2 performance, just to give you a little bit more color, it was really our sportswear part of our business was very positive. The Kensie business was new and operated at a higher gross margin. Our Calvin Klein sportswear and Calvin Klein Performance businesses performed very well. We retailed well. As I said, we had the benefit of some product issues, and those were kind of the main drivers as far as the wholesale margins. Of course, the Wilsons was really one of the standout businesses for us in the quarter. While still making -- still losing money in the quarter, it is -- it performed better than we had expected, and their margins were strong. They really had strength across all the categories, the men's and women's outerwear. But as Morris mentioned, it was really kind of led by the handbags and accessories business.

And our next question comes from Diana Katz of Lazard Capital Markets.

Morris, I was hoping you could update us on Calvin Klein Performance stores, how those are performing, as well as at wholesale and how you continue to view this opportunity?

The 2 retail stores that we have opened are doing okay. They opened strong. And for the summer season, I would tell you that we're a little disappointed in Scottsdale, but that may be a product of the fact that we're learning the environment a little bit. It's over 100 degrees in the summer. We're in an outdoor center, and traffic is down for the entire center. So I'm not sure that its outperformance is the performance of the center, and we're learning our way in San Francisco in a unique location as well. Our wholesale business is off the charts. We're doing extremely well with performance. The -- we're doing department build-outs in some of our retail stores. The sell-throughs that we're experiencing are far better than we anticipated. We've added another dimension to it. We're doing women sizes, and women sizes are a new area for some of the department stores in performance apparel. And in a conversation I had yesterday, I learned that the women size business is also performing at a level that was unanticipated. So we're very happy being in this business. We see great growth potential, and we're measuring how quickly we'll open up additional locations. We have leases that we've looked at and negotiated. We’ve not signed additional leases, and we will learn about the 2 stores that we currently have. And if we feel that there's an aggressive rollout, we'll do it. If not, we'll have 2 stores and do the best that we can. Our rollout in China begins actually in 2 weeks. So by the end of the year, we should have at least 4 stores opened, and we'll learn from that experience as well. So the product's great. The retail price points are great, and the customer that's buying it is coming back in the door to replenish her needs, so it’s positioned well.

Great. And then a small question on 2Q. What led to the sales decline in the non-licensed segment?

It was really pretty minor. There's probably no individual call-out on that, Diana.

Okay. And on the Vilebrequin, you gave, I guess, the overall accretion for next year of around $0.23. Are you prepared maybe to help us more on the breakout between gross margins and SG&A for our models?

Yes, the -- just to be clear, we have not given any EPS guidance on it other than to say that in the current year, we're expecting it to be neutral. As we said in the prepared remarks, it's a high operating margin business, and we do expect it to be accretive for us next year.

Okay. And then just finally for the model, any help on SG&A increase for 3Q?

Only -- just to repeat kind of what we've said before, Diana, which is that we do not anticipate levering, and in fact, we expect some slight delevering of the SG&A, for the balance of the year. Of course, Vilebrequin will also add to that -- the delevering situation on the SG&A.

[Operator Instructions] And we will go next to Jim Duffy of Stifel, Nicolaus.

Neal, the Wilsons store performance, tracking quite well. What is the run rate sales per square foot trajectory you see those stores on?

Yes, we closed last year, Jim, around between 3.10 and 3.15 and expected this year to get to about 3.45.

Okay. So you're making some nice progress there.

Yes.

And then with respect to what's contemplated in the guidance, if you mentioned it, I missed it. Did you speak to the sales contribution of Vilebrequin in third quarter in the year?

We did not. We talked about it being a $60 million business annually. That was the run rate prior to us. So we'll be picking it up on the date of acquisition and expect something pretty normal relative to that for the balance of the year.

Yes, so I'm trying to get my arms specifically around the seasonality of that. Is it more weighted to a 2Q sell in? Or is third quarter still a large contributor because of retail contribution?

Right. So it's got a wholesale and a retail piece to the business, and interestingly enough, it really is fairly strong for our Q2, 3 and 4, with its stronger quarter being in the second quarter, but it's got some decent strength throughout. Its only weak quarter, really, will be the first quarter.

I see. So there's a decent resort season business to it. And then I was very impressed with the progress on the inventory. Can you speak to where you sit with respect to carryover inventory from calendar 2011?

Yes. I think we mentioned it on the previous call that we have it. Obviously, our inventory levels have actually comped very nicely to last year. So we still got some carryover inventory. But our order book looks strong, strong enough anyway to get us through our inventory levels, and we're expecting that actually even at the end of Q3, I’ll probably still have increases that are sort of comparable to sales growth prospectively. So right now, inventory levels have kind of come into shape nicely.

Very good. And then with respect to the back half of the year, it sounds like the fourth quarter is perhaps your best opportunity to exceed the guidance range. What are the factors that would have to come into play for that to be the case?

Clearly, in my opinion, it would be weather. Last year, Q4 was very difficult. That's where we took a hit. There was no coat season. So if we have just a moderately cold winter, we should have a really good season.

We'll go next to Eric Beder of Brean Murray.

Could you talk a little bit about the sports business, how that is expanding? And how should we think about luggage as it expands in terms -- I don't know, doors or revenue? How should we think about those 2 businesses?

The sports business is expanding because of the additional rights that we had in NFL properties. We have the ability of selling the mid-tier today. Our women's business in sports is doing well. We're even doing an initiative that's addressing the fashion retailer in women's. That seems to be working. We've shifted a couple of programs. We're in the process of our second program to -- actually, Forever 21, which is a unique situation for us, and it's brought interest from other fast fashion retailers to us. The sell-throughs or the beginning of some sell-throughs at JCPenney, have been quite good, and JCPenney has actually called in some product early. We -- many suppliers, we had some concerns. So I'd say that sports is going to have a good year. There's added door count with added classifications. We have the sporting good channel and the mass tier, as I spoke to. We've shored up our design. We're sourcing a little bit differently than we have historically. So we've got opportunities in margin, opportunities in door count, opportunities in classifications we didn't have in the past. So that feels like it will be a very good business for us. The luggage business is kind of an area that survives in a more controlled environment. We're doing well with it, both Calvin and Tommy Hilfiger, but it's hard to gain access to retail space. There are limited brands and limited retailers to sell to, but we're -- we seem to be finding our way. We seem to be growing both brands for the future, and we have some of the product in our own Wilson stores, and that product is doing well. So we're not unhappy with the luggage business. In a sense, we're blending it in a way with our handbag and accessory business.

Let’s talk about the handbag business. So you've done really well with that. Would you like to add additional licensees for that? I know you've added some of the Andrew Marc business in handbags, and what do you want to do with the handbags? Is it bigger than just Calvin Klein?

Yes, it is. We're launching Andrew Marc, so we're busy with that initiative. To undertake -- as we're positioning Calvin Klein to be a mega brand and as we're launching Andrew Marc as a second brand and we're incubating a little bit of Kensie, it is not the time for us to reach out and just haphazardly take on other brands. We haven't mastered the 3 that we have on the charts yet, but it will be a big business for us. We've stayed consistent with what we've stated over the last, I guess, almost 2 years that this will be a $200 million business for us.

[Operator Instructions] And with no further questions in queue, I'd like to turn the conference back over for any additional or closing remarks.

Thank you all for paying attention and being part of our world this morning. Have a good day.

This does conclude today's conference. We appreciate everyone's participation today.