Welcome to the G-III Apparel Group Second Quarter Fiscal 2017 Earnings Conference Call. My name is Ellen 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. Mr. Nackman, you may begin.

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 diluted 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, Chief Executive Officer and President, Morris Goldfarb.

Good morning and thank you to everyone for joining us. With me today are Sammy Aaron, our Vice Chairman; Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; and Jeff Goldfarb, our Executive Vice President. In addition to discussing our second quarter results, we wanted to provide more detail on our Donna Karan acquisition which we believe will further transform and diversify our Company, generate significant cash flow and expand our margins. Our second quarter results did not meet our expectations. As many of you can appreciate, this organization is not accustomed to disappointment. All of our teams are dedicated to working harder, staying energized and remaining focused on delivering our best possible performance. Importantly, our non-outerwear wholesale business stayed strong in all categories. We sustained momentum across the breadth and depth of these categories despite a tough retail environment. We delivered well designed, well priced product with quality and integrity that we're known for. This enabled us to achieve double-digit growth in this portion of our wholesale business. Before I go into additional detail with respect to our operations, I'll review a few high level financial metrics from the second quarter. Sales in the second quarter were $442 million compared to last year's record level of $474 million. The $40 million shortfall against our guidance primarily reflects later than expected timing for outerwear shipments and a shortfall in our retail average sales. The loss per share in the quarter was $0.03 compared to net income per diluted share of $0.27 last year. The loss per share includes professional fees of $0.04 per share net of taxes incurred in the connection with our pending acquisition of Donna Karan. Our EBITDA in the second quarter was $3 million compared to $27 million last year. This also reflects the…

Net sales for the second quarter ended July 31, 2016 decreased 6.7% to $442 million from $474 million in the same period last year. Net sales of our wholesale operation has decreased 7.7% to $361 million from $391 million primarily as a result of decrease in shipments of outerwear products. Net sales of our retail operations decreased 10% to $100 million from $111 million in the second quarter, primarily due to same store sale decreases of 16.9% for our Wilsons stores and 9.8% for our G.H. Bass stores compared to the prior year quarter. Our gross margin percentage was 35.2% in the three month period ended July 31, 2016, compared to 35.5% in the prior year's period. The gross margin percentage in our wholesale operation segment was 30.7% compared to 29.7% in last year's quarter. The gross margin percentage in our retail operations segment was 44.8% compared to 46.8% in the prior year's quarter. Gross margin decreased in both our Bass and Wilsons businesses as we offer deeper discounts in order to sell excess inventory. Total SG&A expenses increased to $153 million in the quarter ended July 31, 2016, from $141 million in the same period last year. This increase is primarily due to increases in facility costs, advertising expenses and professional expenses associated with the Donna Karan acquisition. The increase in facility cost was due to increased shipping from our third-party warehouses and higher rent expenses that resulted additional retail stores open since the prior year. Advertising cost increased due to an increase in cooperative advertising and advertising purchase players, which is partly associated with the newer Bass, Karl Lagerfeld and Tommy Hilfiger product lines. Payroll cost increases associated with new hires were offset by reductions in bonus accruals. Our income tax benefit was impacted positively by a $2.4…

Thanks for your attention today. To those of you who follow these calls regularly, you know that we're not shy about claiming victory and setting in ambitious performance goals. We talk regularly about our get-it-done culture and about how this is what has enabled us to succeed and outperform our industry peers, even when the environment is tough. This environment, the weather issues we experienced last year and the persistent consumer traffic issues, these are a bit humbling. Even though these issues are discreet to our outerwear and our outlet business, we're eager to show that we can move past them, that we're in better shape with much bigger and more exciting growth plans than ever in our industry. Across the organization, we're very mindful that the kind of success we want and are capable of does not just happen. Particularly, not with the pressures we've seen. We're taking ownership of the tough environment, ownership of our need to execute a number of important work streams simultaneously and ownership of our responsibility to show you the results that identify G-III as a truly special company. I thank you again for your time today and operator, we're now ready to take some questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Edward Yruma with KeyBanc Capital Markets.

Hi, good morning, guys, and thanks for taking my question. I guess first on the reduction in outerwear, Morris, I know you indicated that you believe your inventory and your channel partners' inventory is pretty solid, but I guess help us think through -- were you able to adjust your manufacturing plans? Are you anticipating kind of higher closeouts of outerwear should this not materialize? How should we think about this change in order pattern?

I think we're being conservative because we're responding I guess a little bit to the lack of enthusiasm we thought we might get with quick shipping, so these numbers and projections were done just recently giving us a little time to get some visibility. The big percentage of that shipping are reasonable percentage of our shipping occurs in July. So we had a few weeks under our belt and watched it very closely and we're responding to clearly the lack of enthusiasm at retail at our own outlet stores and we are canceling some goods. We have the time to do that. We have the cooperation of our vendor Bass. So we're playing it conservatively. We will not be in an inventory issue this year the same as we were last year. On the wholesale side, we've played it fairly conservatively. We felt that we would leave a little bit on the table if business is great, but we're in good shape in inventory. The dated inventory that we had, we were able to liquidate pretty much all of it through the course of spring, so we're positioned well as it relates to inventory.

Great. And two other quick follow-ups. I guess first, really on the $10 million operating loss from DK next year, I guess how should we think about the pro forma interest expense? Are there any other expense items that would fall either in the G-III piece of the business, or below the line that we should think about when we think about delusion for next year? And then second, Neal, I think you mentioned you early adopted some of the accounting changes. Are you going to restate the previous periods? Or how should we think about the annual benefit from the early adoption? Thank you.

We'll start with the latter part first. We are going to be doing the tax benefit prospectively. With respect to the Donna Karan acquisition expenses, the borrow is a combination of a draw on existing ABL which is at a fairly low interest rate. We've got a seller note which is also at a fairly low interest rate, and of course now we've got to go into the marketplace and syndicate about $350 million term loan. We think our interest rates will be very manageable, we think that the leverage on the company is also very manageable and that you can see that with the forecasted sales projections that we've got, that we actually expect to deliver fairly quickly.

Do you have any kind of price talk on the interest? Or just the roundabout how we should think about the expense for next year?

I think we've got to go into the marketplace and we're subject to that. We're very positive. The company's results have been very well. We're strong, we capitalized, we have existing firm commitments from our lead banks. So we're certainly comfortable, but I think it's pretty immature to give you the specific rates.

Great. Thanks so much.

Thank you.

The next question is from Erinn Murphy with Piper Jaffray.

Great. Thanks. Good morning. Just a couple of clarification. I guess the first, Neal, for you. On the $40 million shortfall relative to plan, you mentioned both outerwear shipment being pushed out, it's also retail business running under plan. Is there more weightage for outerwear shipments, I guess, is my question. When you guys reported or -- excuse me, provided the DKNY acquisition announcement, I think you only had about two weeks left for the quarter. So I'm assuming that it was really the shipment -- which I know those are very important weeks for you that may be fell under-planned. Just trying to understand the magnitude of the miss relative to the lack of pre-announcement?

Yes. I would say that about 60%, maybe 65% on this was on the outerwear shipping and we did, as you know, we ship a significant amount of volume in our wholesale business every quarter, in the last weeks of the quarter. So we were not able to actually ship as much as we thought we could have. There were certainly more orders as there always are, that it's just a matter of timing and the ability to get them out. The outerwear was a larger percentage of our miss.

Okay. That's helpful. And then just going back to the financial that you provided for DKNY in the 8-K. You mentioned next year, I think is $325 million top line and $10 million EBIT loss. Is that a similar run rate to what you're seeing this year in the business? Or are you assuming some growth or recovery as you get that initial forecast for next year?

We are anticipating some improvement. We're expecting to be able to impact the business in the back half to some extent. Of course this all depends upon how quickly we can get through our closing process, but we do expect some improvement and that those represent improvement over the existing business.

Okay. And then I guess just last on the Wilsons business. I think you said it was down 17% in the quarter. I know there are fairly broad spread reset of the stores happening right now. Can you just talk about if there has been any improvement in what you've done during that whole reset and what are some of the controllable that you have using around to helpfully correct some of that comp decline?

If you look at the resets at Wilsons, you'll see improved fixturing at minimal expense. Signage is better, the promotional cadence that have I guess impeded the normal sales of the business have improved; the product mix is much more appropriate to what the store needs. And what we've done actually this week, we evaluated the regions of the country that are cooler than comp to last year and those regions are doing significantly better than the rest and they're comping better than last year. We're getting a reasonable read. I can't imagine that Wilsons doesn't comp up for Q4. There are so many things that went wrong last year and leaving with the one weather. There's a little bit of a quite slow down. The world was not aligned for Wilsons last year, so there's an opportunity to do significantly better than last year in Q4.

Okay, and if I could just speak one more, and, Morris, for you. When you look at over five years, you've kind of given this $5 billion target across many of your major, I guess, marquee brands. I guess if you're seeing this pathway for growth for Calvin, for DKNY, for Tommy Hilfiger -- all which have the top line assumptions inside, where is that phase coming from? What brands are losing and are you confident that you can grow the businesses to that level without cannibalizing some of maybe your smaller brands in your mix? Thank you.

To respond to your last comment first, we're very careful to plan our businesses and develop our businesses in order not to cannibalize existing brands and businesses. We've done that from the beginning of our licensing history in coats, we still do north of 50% on the women's side of the coat department at Macy's, we have 60% of the men's coat department all with a multitude of brands that all march to a different beat. They look different, they're priced a little bit differently and they read specific to the DNA of the brand that's being marketed. We're cautious about the cannibalization piece of it. We now have some of the best brands in the industry. We have Tommy Hilfiger, we have Calvin Klein, we have Karl Lagerfeld and soon to have Donna Karan. I would say that we have the heroes of the industry and what the department stores look for today is some level of discrimination in what they market and the brands that they market. So today, we're serving up two power brands that virtually don't exist in the United States. These brands are huge, there is nobody bigger than Karl Lagerfeld and he had no presence in the United States, we're bringing that brand here. We will double our plan for the year. We're doing extremely well. The brand is retailing in pretty much all the categories that we've shipped. We're going to bring Donna Karan back to reality. The brand is clearly one of the biggest American brand there is. We've been after this brand for years, we've succeeded in acquiring it, we're developing a plan that's appropriate for our company and for the retailers in collaboration with the retailers and we see $5 billion as a very attainable number. These are absolute giants in the industry that we're going to further their presence and improve on the product mix that's been brought out. It sounds like a staggering number. I'm not accustomed to referring to G-III as a company that can handle $5 billion in sales, but we have the tools to do it, we have the people to do it and I think we have the financial support to do it. This is contrary to what we're presenting today. This is probably the best time for G-III. We've got just great stuff that's planned on bringing to market and with great talent doing it.

Great. Thank you for that. Best of luck.

Thank you, Erinn.

The next question is from Eric Beder with Wunderlich Securities.

Yes. Good morning, everyone. This is Bryan Caronia on for Eric. The first question we had was if you could offer any insight you've been able to glean from your retail partners in terms of the consumer outerwear markets for the fall and the holiday season. Are you seeing an expectation of greater discounting and pricing competition or greater off-price efficacy given a reduced inventory levels? Just any thought you have on that mark?

Bryan, surprisingly, our biggest concern in the outerwear segment as a business is the off-price channel. The fact that they had pack-aways, and they had levels of inventory that they purchased at the end of last year, opportunistically, that would impact our business. The first reads that we got were from the off-price channel. The first real -- it's not the first -- not extremes [ph] -- anniversary sale was very good to us. They're out early, they promote their anniversary and we get really good reads -- good and bad. So the indicators were that it's a pretty good year for them. The off-price channel came back and bought the product that we had three reorders in the last weeks -- significant reorders -- from the off-price channel in commodities that I thought we might be troubled with for the remainder of the year. It's good news in the off-price channel, it shows that good products does retail and the sales that we made to them were not liquidation sales. I hope nobody is listening on the off-price side of it, but we made good margin on it. We're off to what seems to be a fairly balanced year, but as you read from our numbers and as you've heard, we're watching it and we're playing it conservatively.

Okay, great. And then if I could just add...

By the way, the reads from the departments stores, it's a little bit too early to respond to that. It takes a couple of weeks to get it on the floor. Our bigger accounts at the department store level haven't provided us with the indicators that we need to really get excited.

Okay, perfect. And then if I could just add one more here. Looking a bit more over the longer term, obviously you've spoken about in the past. Obviously you're key relationship with the large department store players, but in the phase of Macy's announcing their closing of about 100 stores, I guess over the next 6 to 12 months or so, how, one, do you think that might affect your business particularly with Macy's and then I guess how it might be an indication of sort of the dynamic of the department store wholesale business over the long term? Thanks.

I think the department stores today are doing the appropriate thing. They're reviewing their strategy, they're eliminating door comp and most of the doors that they're eliminating are pretty much the ones that are impossible to build scaling. I believe you'll see areas of the country where there are vibrant sales available that department stores will again start to open. They're doing what most prudent people are doing. They're closing their non-performing stores. That's good strategy for us. We help on margin assistance for these department stores and the biggest leaders for us are the stores that they're closing. From a margin point of view, a maintain margin point of view, we should see improvement. From scale, all I can tell you as some of these stores are closing, our business is growing. We're tracking our biggest account, we're tracking the high team's comp increase for the year -- we did the same last year. It's really not linear whereas the store is closed, we lose the same percentage of business. That's not the way it works. There are brands that are losing space, there are brands that are not performing and in Macy's as well as any department stores, they're very, very eager to have new collaborations and new brands. That's where we fit in. We're bringing the most powerful new brands into the industry. That has to build well for us. We know how to produce it, we know how to service it and we can finance it. There's a comfort level from the department stores that are in need of newness to play with the providers that can do it. We're getting that interest. Our showrooms are jammed every day, developments and new initiatives are just -- for me they're unimaginable. The desire for our participation at retail is great. So we believe that the department stores are trying to offer a greater purpose to their customers and we're here to help them. Thank you for your question, Brian.

Thank you.

The next question is from John Kernan with Cowen.

Good morning, Morris and Neal. Thanks for taking my questions.

Thank you.

I just wanted to ask a shorter term question and a longer term. What gives you confidence [Technical Difficulty].

Hey John, we can't hear you. You're breaking up.

Can you hear me better now?

Yes.

Sorry about that. Can you just help us understand the Q4 sales and margin assumptions it does imply a pre-acceleration from Q2 and Q3? Can you help us understand the functions for both, for non-outerwear as we head into the fourth quarter? Thank you.

Sure, John. In really both the wholesale business as well as our outlet retail business, last year's Q4 was not strong. We were under pressure. Weather was a significant factor, so obviously we're up against some poor comps. Those were negative comps in the retail space, as well as the pressure on margins and the same thing is really true for our wholesale business. The only dynamic that changed for us a little bit is that in the wholesale business, we are anticipating that the outerwear season will become much more robust later in the year as we get to a more normalized winter season. Again, in addition to that, we're launching a number of new initiatives, both -- with Tommy in particular, it's starting in the latter half of the year, but the call initiatives continue to grow later in the year as well. All of those factors are what gives us confidence that we'll see fourth quarter improvement at both the retail side sales and margin as well as in the wholesale side of our business.

Can you provide any color on the total sale in for Hilfiger and Lagerfeld in the fourth quarter?

In the fourth quarter, will be -- I won't guide you on the number side of it at the moment -- but in classifications, we will have addresses distributed, we will have suits, we will have performance apparel and we will have the early stages of sportswear as PVH vacates some of the space that relates to Tommy. If your question is broader than that on Karl Lagerfeld, Karl Lagerfeld were handbags, dresses, suits, sportswear, footwear which is trending very strong. We're fairly well-exploiting all the retail space in departments with Lagerfeld.

That's helpful. And then just longer-term, with Donna Karan, the margin assumptions that you're making for 2018 and beyond, I think above double-digit operating margins. Can you help us understand what is driving that improvement? Is it product margin? Is it SG&A reduction? What gives you the confidence and what are you doing to enhance distribution and marketing? And can you help us understand some of the product launches that you expect to go through? Thank you.

Well, on the margin side, John, we look at our current business and move on our wholesale business in high single-digit operating margins. That's done without the benefit of a significant royalty income stream which is pure profit and it's also significantly impacted by royalty expenses that we pay to our licensors. The absence of those two things really is what gives us confidence that the operating margin for Donna Karan should be -- we're comfortable in the mid-single digit, in the mid-double digits and then even north of there.

In response to your marketing questions and how do we get there, we're developing a plan right now as we speak as you know. We don't have the keys to the business yet where every day we're interviewing and understanding how their marketing advertising in the existing staff service, the market that they're addressing. We're clearly going to go down another path. There are some sensitivity there, but we've defined it, we've collaborated with our retailers and the appetite is quite significant for this brand globally. We're getting calls every day from existing partners and people that would like to partner with us for the future through licensing and through becoming customers of the brand. If it's repositioned, then it will be repositioned. We're excited about it. Do we have something that we can clearly announce as to who the participants and who the retail distribution will be, it's a little bit early for us to announce that. But you can bet that it's going to be significant in scale.

Okay. Neal, just one final question. Any step ups in SG&A in marketing around Donna Karan next year at CapEx? Potentially associated with it and working capital bill that we should try to put into our models now?

Yes. We're planning for significant size and not significant SG&A reductions or at the existing base. We'll be evaluating the way they run businesses and obviously we'll bring them in line with what we do in general. But our forecast is really based on top line growth, more than SG&A leverage, as far as the existing infrastructure. In terms of CapEx, the beauty of our plan is we're really significantly growing the wholesale channel and that's a significantly less capital intensive than if we were to be rolling out stores. There will be shop development that we do, similar to what we do, but nothing too dramatic in terms of the size that we think the business can get to.

Hey, John, it's Wayne. Just let me add also that...

Hi, Wayne. How are you doing?

There's a team of us right now that are very focused on the integration side of the business. Although we're not prepared to say about savings, I think everybody's takeaway should be that this will be a very, very efficient operation as soon as practicable and we're working very closely with teams of people right now both on the front end and the back end of the business. Next year when you look at top line on the chart that we gave you guys in terms of the deck, you could see top lines impacted very little because we're assuming a close of January 31, 2017. I think everybody knows the time table on that. What we can impact is probably late into the fourth quarter. But suffice to say the way Q3 operates, we're already working behind the scenes to do whatever we can do within the scope that we have not closed on as business yet, but we're very excited to really make an impact where we can get in there and have this thing closed.

All right. Thanks, guys.

[Operator Instructions] Our next question is from David Glick with Buckingham Research Group.

Thank you. Question about the core business. We have greater visibility on how you're thinking about the DKNY business over the next three years, which is helpful and more information than we had expected. Conversely, we have less visibility on your core business, just given the revision today. Your guidance are just about at 7% operating margin. I'm just wondering how much of the drop of 100 basis points this year in your EBIT you think is recoverable near-term i.e. next year. It will also be helpful to know what your base of wholesale outerwear sales are expected to be this year so that you can segregate that from some of your growth opportunities and how much you're going to lose in retail this year so we can also try to plan that out better going forward? Thank you.

Yes. I guess let me try to recap it this way for you, David. The outerwear business we've talked about as a high single-digit decline, it was approximately a $700 million business last year. Our core non-outerwear businesses are growing very nicely, high single digits. When you look at the balance with the new launches that we have, our growth rates are significant, up in the almost 20% level when you take the core business and the new businesses that we're launching. I think in terms of where the operating margins go for next year, obviously we're thinking about it. We've got a big season in front of us and I think it's a little premature for us to be talking about exactly how that comes back. Clearly this year we've had SG&A pressure in both as a result of the outerwear decline and as a result of the new launches of the business. We definitely expect that on the Karl and Tommy front as far as -- and G.H. Bass, as well in terms of the additional SG&A spends that we had, that we'll start to leverage those much better next year. Outerwear, we're hoping for a good end of the year and it's a little premature to say what we'll do and how that performance will be as we will into next year. In terms of retail performance for the full year, this is a challenging first half and we're hoping to bounce back pretty strongly at the back end. Our total top line performance for the full year on exchange [ph] is really a low in the single digit declines in terms of comps for the full year. So we're looking for improvement in the fourth quarter, we see that. I think we can feel much more comfortable about seeing it prospectively as well. But again a little bit early for us to be out there for next year's growth on the retail side as well.

Are you playing EBIT loss from a contribution margin perspective and retail this year?

We are.

Okay and then just a quick follow up in terms of -- you talked about DKNY leading, I believe with sportswear and jeans. What are the other categories? Obviously you're strong in dresses, you have a lot of strength in related classification categories, active as well -- in Calvin Klein, you're rolling that out in Tommy Hilfiger. What's the opportunity on some of those related categories for DKNY, which can be very substantial businesses for you?

As you know, DKNY is a collection business. Ship is a collection. It's produced as a collection and the retail is a collection. The pads that we've created in department store are collection pads. We're very proud of approximately 14,000 square-foot pad that we occupy in Macy's and what's very interesting and why this brand is appropriate for this time is that a lot of our competition -- two biggest competitors are either giving up space or spaces being taken away from them on similar pads. So we will be offered those pads to showcase our collection of Donna Karan and as time goes on, we'll appropriately surround it by classifications. There's a huge demand for footwear, we're in the middle of developing it as we speak and there's great opportunity to distribute footwear through the same cycle. We're pretty much out of the box at Lord & Taylor for Karl Lagerfeld, became a very important footwear vendor to them and we believe we can duplicate that and bring it to a different level and scale with DKNY. That will be brought to market. And the other piece is we have a built-in business globally with partners. They've been under-served with appropriate products. We're in the process of interviewing them and understanding what their needs are throughout the globe. That should improve literally overnight and we're going to work on our online business and improve our outlet stores. We think if there is an outlet business, this is the best brand for us to pursue in the outlet centers.

Thank you very much.

Thank you, David.

Our next question is from Jim Duffy with Stifel.

Thanks. Good morning. Few questions from me. Morris, could I ask you to repeat what you said about the leases up for renewal and maybe talk about strategically how you're thinking about the retail footprint from here?

Sure. We have approximately 100 leases that are coming due in '17 and '18. I think it breaks out there are 65 in '17 and maybe another 35 in '18, so we're reviewing those. If we don't get deals from the developers that bring those store to profitability, we have the opportunity to walk away and that's 25% of our fleet of stores. That changes the profile and our strategy and our strategy with Bass is to -- I believe today's strategy -- if retailed gets worst and I'm wrong, we have the ability within the next 18 months to change directions. But my desire is to continue the growth of Bass. The brand is getting great positioning in wholesale. The footwear is doing extraordinarily well -- both men's and ladies' in wholesale venues. Genesco has done a great job of developing the product, pricing it appropriately and bringing out the quality that we were hoping they would. PVH is doing well on their men's piece of the business and the women's piece, we're looking to improve. We took that on and our first delivery was not what we thought it would be. We've retooled on the design side and the pricing side and we think it's a good business. We've also added -- you can't really look at Bass as a stand-alone retail business. It's wholesale, it's licensing, it's the globe and part of outlet is to help standardize and expand on the overall brand. And yet, Wilsons is something that we look at a little closer. I'm not sure how much the world would miss Wilsons today if we don't get better on the product side of it and find that the demand for outerwear is just beyond the four-month demand. We might consider transferring some of those pieces of real estate to Donna Karan.

Okay. Just to assume you guys talk over the course of the call, there's an awful lot of balls in the air. What gives you the confidence that you have enough management depth, such that you can keep all these balls in the air and execute on the integration of this acquisition?

I guess history might do that. We've done it before, we do it consistently, we've launched Tommy Hilfiger in record time and the level of interest, the level of orders are sensational. It comes because great product and great people are creating that great product, so we have them. Karl Lagerfeld, very much the same way. Retail as we add retail pieces, the staff is there to support it. We used to have a difficult times a year ago in the tracking [ph] talent, partly because of who we were and partly of with how the industry functioned and how successful some of our competitors were. Today, I think we all have read the amount of people that have been laid off at Ralph Lauren, and Michael Kors, and Jones New York. There are some great talent that's looking for a home. We interview people all the time. I've never seen the level of talent that's available and are eager to come to G-III and build businesses. I'm not doing it alone. The celebrity status that four or five of us have in running the business, it's really not the business. The business are these amazing people. They take on a challenge and make it work. It would be great if it came in solo what we did and how we've changed over time. We're not the same company we were years ago. We've corrected everything we need to correct for sustainability in this industry. At one point we were exclusively -- as you know, Jim -- a company that took out licenses. Today we're well balanced with great people and I'd say that if you poll the industry, the retail is in the industry and ask them to line up their top resources, we hit the charts really high. I guess some of those elements make me comfortable that we can do this.

Okay. The couple of questions on the specifics of the deal. The shares issued to all LVMH. Is the price fixed on those?

No, it is not.

Okay. And then Neal, you characterized the interest rates and the leverages manageable, you're positive. I pencil out about $25 million in annual interest expense before the $10 million operating loss, before all the professional fees and other expenses. But this is a starting point. What type of IRR for shareholders do you calculate for this Donna Karan deal? What gives you the comfort that you're getting to a hurdle on that basis of assessment?

Jim, I think we've put out the short-term targets in this morning. That has got us up with very strong top line, very strong operating margins. In the short run, of course there are some expenses to get this launch, then get it accurate. The value of creation that we think we can add to what we paid is extreme and would result in very good positive returns to shareholders in a very strong IRR.

Okay. I'll leave it at that. Thank you.

Thank you, Jim.

The next question is from Rick Patel with CLSA.

Thank you. Good morning, everyone and thanks for taking my question. Just a follow-up question on the retail lease expiration. Can you frame how many of those 100 stores up that are going to be expiring are Wilsons versus G.H. Bass? And is there any way to provide context on how many of those locations are currently unprofitable?

I can tell you that the first group that we looked at and most sensitive, we have 23 that are not profitable for Wilsons, will probably react to those very quickly. I gave you the lease expiration. There were others that we're going to try to negotiate our termination on, blend to those are about 23 that will respond to quickly. Some will just take a right-off on this just as the productive stores that we believe we need to exit. The rest of it is approximately a 50-50 split between Bass and Wilsons in Donna Karan explorations in the periods of time that I gave you.

And 3Q, you expect Bass comps to be up low single-digit? Is that based on what you're seeing right now or do you have new product initiatives that gave you some confidence in better results versus what you saw in 2Q?

We are looking for new product to start to show us better improvement. Overall, I would tell you that the start of the season is where we've planned consistent with the start of the season but we are looking for an acceleration as we get into back to school and set the floors and start to see more traffic.

And then last question for me, there are some aspirational luxury brands out there that are pulling back on inventory across various categories and department stores as they protect themselves from promotional pressure. Do you see this as a growth opportunity for your brands or is this is a different pricing peer that's likely to be replaced by higher priced brands in those department stores?

We don't really classify ourselves as aspirational luxury. We're little bit more affordable, maybe we might call ourselves affordable luxury in some of our brands. So I think that what we will get is the customer that is shopping aspirational luxury that will step down the tier and I think we get the benefit of the trade down or the trade-off.

Thanks very much and all the best this fall.

Thank you. Thanks for your questions.

This concludes our question-and-answer session for today. At this time I'll turn the call back to Morris for any additional or closing remarks.

Thank you very much. I hope our next call is better call. Thank you for paying attention and have a great day.