Ladies and gentlemen, thank you for standing by, and welcome to the G-III Apparel Group Fourth Quarter and Full Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. Neal Nackman, Chief Financial Officer. Please go ahead, sir.

Good morning and thank you for joining us. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in forward-looking statements. In addition, during the call, we will refer to adjusted EBITDA, which is a non-GAAP financial measure. We have provided reconciliations to this non-GAAP financial measure to GAAP measures in our press release, which is also available on our website. 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. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning and thank you for joining us. Also joining me today is Neal Nackman, our Chief Financial Officer. Fiscal year 2022 is a testament to the power of G-III having gained market share and delivered significant growth in earnings for our shareholders. We saw a strong demand across our power brands, DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris, and we narrowed the losses in our retail operations. We delivered the highest annual EBITDA and net income per diluted share in our company's history, exceeding pre-pandemic fiscal 2020 results. We bought back $17 million of our stock, and our Board authorized total shares available for repurchase up to 10 million. We ended the year in a strong financial position with $1 billion in liquidity compared to $800 million last year. This affords us the flexibility to continue to invest in our future growth and further elevate our position as a leader in fashion. Now let's review the full year and fourth quarter fiscal 2022 results. Net sales for the full fiscal year were $2.770 billion, an increase of 35% to $2.06 billion last year. Importantly, the wholesale segment net sales for the fiscal year reached $2.7 billion, an increase of 41% compared to net sales of $1.9 billion last year and almost back to pre-pandemic levels of fiscal 2020. For the full fiscal year 2022, we generated $350 million of EBITDA as compared to $285 million in pre-pandemic fiscal 2020. Full fiscal year GAAP net income per diluted share was $4.05, the highest in our company's history and exceeding our guidance. This compares to GAAP net income per diluted share of $0.48 last and exceeded pre-pandemic fiscal 2020 of $2.94 by 38%. GAAP net income per diluted share for the fourth quarter was $0.98, compared to…

Thank you, Morris. Net sales for the fourth quarter ended January 31, 2022, increased approximately 42% to $748 million from $526 million in the same period last year. Net sales of our wholesale operations segment increased approximately 47% to $719 million from $488 million last year, and was up 13% to pre-pandemic levels of $635 million in fiscal year 2020. Net sales of our retail operations segment were $45 million for the fourth quarter and relatively flat compared to last year's net sales of $44 million. Last year was impacted by the pandemic and the restructuring of our retail segment. Sales at our DKNY and Karl Lagerfeld Paris businesses were both up over 50% compared to the prior year, which were impacted by the pandemic. Our gross margin percentage was 33.7% in the fourth quarter of fiscal 2022 compared to 35.6% in the previous year's fourth quarter. Last year's gross margins included benefits from COVID-related adjustments. Our gross margins were 33.3% two years ago. The current year's increase compared to two years ago benefited from the reduction in the promotional environment, which was partially offset by the significant increases in freight costs we incurred in the quarter. Wholesale operations segment gross margin percentage was 31.9% compared to 35.5% in fiscal 2021 comparable quarter and 30% two years ago. Wholesale gross margin percentages in this year benefited from clean inventories at retail, resulting in less promotional activity, combined with selective price increases. These improvements were partially offset by the significant increase in freight costs, which we had anticipated would have more of an impact on gross margins in the second half of last year. Last year's gross margins included substantial one-time benefits from reversals of previously accrued higher royalties resulting from favorable negotiations with our licensors. The gross margin percentage in…

Thank you, Neal, and thank you all for joining us today. G-III had its best earnings year in the company's history. I couldn't be more proud or thankful for what our team has accomplished. We're more agile and flexible today than we've ever been. Anchored by our globally recognized power brands and our dominance in a diversified range of lifestyle categories, G-III remains a vendor of choice in our industry. More broadly, as we look ahead, our strategic priorities to deliver continued long-term profitable growth will include driving our power brands across categories, further expanding our portfolio through ownership of brands and their licensing opportunities, extending our reach by developing our European-based brand portfolio, maximizing our omni-channel opportunities and leveraging data and continuing to innovate to stay relevant for our customers. We're confident in our ability to deliver on these priorities because of the strong foundation we've created, which include our high-performing forward-thinking team and experienced senior leadership, merchant expertise in product development, dominance across a broad range of product categories, our specifically developed and agile sourcing and supply chain infrastructure, a diversified distribution network to reach consumers. Our ability to unlock the potential of brands has enabled G-III to become a leader in fashion. We're financially strong and can use our balance sheet, talent, expertise and capabilities to further expand our global reach and capitalize on opportunities. We're well positioned to gain market share over time and increase shareholder value. I'd like to thank our entire G-III organization and all of our stakeholders for their continued support. Operator, we're now ready to take some questions.

Thank you. [Operator Instructions] Our first question will come from Paul Kearney with Barclays. Please, go ahead.

Hi everybody. Thanks for taking my question. On the price increases, can you talk about what's already been implemented? And can you quantify what you are expecting this year in the cadence of those price increases? And then are they on all brands and categories? Any more color on that? Thanks.

Yes. Paul, thank you. We selectively increased prices last year and what occurred was last year's freight increases really escalated as the year rolled out. So this year, we've got a much clearer vision of what those are going to be. We've got a good feel for our input costs, which have also had some increases and we'll be raising prices essentially across all categories and for the most part, across many, many products showing that every product can take it. So we're somewhat judicious as far as where we lift price, but we expect that will happen for all of the programs throughout this year.

Well, as an enhancement to -- I'm sorry, this is Morris. As an enhancement to our margins, as we grow our company-owned brands, we don't pay a royalty for the use of those brands. And as they grow, as a percentage of our overall volume, you'll see an improvement in margin that comes with it. DKNY is a good example of it, Karl Lagerfeld and G.H. Bass, as well as a growing brand that we've had for years, Marc New York. So those brands are -- they're margin accretive compared to where we've been in the past.

Okay. Thank you. And then just secondly, can you talk about the marketing investments that you're making? Are you making any shifts in where you're spending and how you're spending that money? And what's -- what are you doing differently today than you had in the past? And what kind of returns are you seeing so far from those marketing campaigns? Thanks.

The bulk of our marketing campaigns are targeted toward digital and social media, where we're deriving great benefit. It's showing up in our traffic on our own sites as well as our customers' sites, our retailers such as Macy's, Dillard's, Nordstrom, as well as pure-play Amazon. We're spending a fair amount of money, collaborating and marketing on the Amazon site and Macy's as well as driving traffic to our own campaigns that we're doing very frequently. And we have a fairly aggressive plan on -- now that we've got a strong foundation on Karl Lagerfeld, there'll be a good spend on Lagerfeld, which gets everyday marketing through the recognition of Karl, this iconic man, that had a skill set that is, was and will always be unique to the world. He is the preeminent icon in fashion. So there's not a day that there's not editorial free press that relates to Karl, and it's a global brand that gets global recognition every day. And we're spending a fair amount of money as we're positioning Bass in the lane that we've chosen and the market has accepted as well as DKNY. So there's a little bit of a distortion on our spend when we license brands such as Calvin Klein and Tommy Hilfiger, the marketing spend is included in our royalty base. Now that -- and they do a wonderful job, I might add, of marketing. They've made it possible for us to grow both brands in very rapid time in categories that never existed before. So we respect their marketing piece, but that's not really included in our own spend, which is focused on our company-owned brands.

Thank you. Best of luck.

Thank you.

Thank you. Our next question will come from Jay Sole with UBS. Please, go ahead.

Great. Thank you so much. I have sort of a three-part question. The first part is that maybe -- can we just talk about some of the building blocks for the plan for 2023 to give us a little bit more detail around that? And then secondly, within that, can you maybe talk about your guidance? How much does it assume inventory restocking versus incremental strong demand, driving the sales growth that you expect? And then lastly, can you just give us a little bit of an update on China, given the lockdowns that are there because COVID cases have popped up? What have you seen so far? Do you anticipate any kind of disruption? How should we think about your factories in China given COVID over there? Thank you.

Thanks for your question, Jay. The building blocks for our growth in 2023 fundamentally is the same and further expanding and penetrating the brands that we operate in -- categories that we operate. The projections, the inventory, all of it kind of speaks. I guess the answer to the question probably relates into our order book. Our order book is larger than ever. We do carry inventory to support growth and fulfill reorders. And generally, we're that retailer that can respond quickly, either through supply chain performance or residual inventory that we carry to support the customers that we have. So it's not a guess, it's factual. Our order book is -- I hesitate to give you the percentage of growth because what we've got in there is a supply chain issue that relates to your third question. We're pretty certain that we're well covered in the guidance that we've given. And we factor in non-deliveries. We factor in cancellations. And we don't factor in a new event as a tsunami occurs or a volcano or a war on another front. But everything that's logical is factored in. So we're comfortable that our guidance is appropriate. And your question on...

Maybe on just restocking versus incremental demand.

Restocking is basically what I addressed on the order book. We do provide inventory for restocking. That's what we do. We plan it through just an amazing team of planners to not to be overstocked. There is demand for our product that comes into play later in the season that's not committed for, and we take advantage of that at full price. So we're really good at projecting out that business. This is history as far as G-III is concerned. We've done it for over 50 years, planning appropriately for the needs of the consumer in later months. As far as supply chain in China, that's a little bit of an unknown. There is a COVID issue. There is -- there are factory closures. There are difficulties in transporting product to the piers to load on to containers. Hopefully, it's not going to last long. If it does, I would say that we have a problem as the world does. We're not solely China as we were about four years ago. China comes in second to Vietnam today. And we're pretty much globally sourced. It's not -- by all means it's not just China. And we're hedging our bet on third and fourth quarter opportunities that become available on production.

Got it. And maybe Morris, I can ask you one more. Just a little bit about margins and your expectations for margins this year. Obviously, last year was an unusual year for supply chain costs. I mean do you expect a reduction in that part of the P&L this year? Or do you think it's going to remain elevated or even go higher year-over-year and put more pressure on margins? Thank you.

Cost is certainly going up. Anything that you touch has got an element of an increase in it, whether it's selling charge, raw material charge, freight charges, gasoline surcharges for inland freight. All of that is likely to continue to rise. Container costs are not going to be $30,000 a container. They've leveled off. We've contracted with our providers at a very fair rate that doesn't move us around very much on increase in prices. But yes, there are increases. We've tested price points throughout the calendar 2021. They've worked. There's an acceptance by the consumer to our fashion, to our brands. And we are a fashion business. We're not gasoline. We're not a dozen eggs and we're not a loaf of bread. Fashion has got elements that you get paid for. It's -- in a form, it's an art. And if your art is in demand, and a woman wants it in her closet, she'll pay a little bit more for it.

Got it. Okay. Thank you so much.

Thank you. [Operator Instructions] Our next question will come from Susan Anderson with B. Riley. Please go ahead.

Hi. Nice job on the quarter. I was wondering if maybe you could talk about retail business now, the DKNY and Karl stores, I guess, how are those trending versus pre-pandemic levels? And then, if you could talk about the profitability of those stores and when you expect to get to breakeven or profits? Thanks.

Thank you, Susan. Thanks for your question. DKNY, we've right-sized the fleet. We've closed several nonperforming stores. Our product is significantly better than it was pre-pandemic. It's a broader assortment. It's a much more educated assortment as we get acclimated to the brand. And today, we're pretty much close to full maturity. We have our brand codes. We have our brand message and the consumer is respecting it. We see a big difference in wholesale. Retail is doing significantly better and our digital site is doing better. It's very difficult to do business in brick-and-mortar when your stores are closed. We have an aggressive retail team that has begun to do -- not begun -- throughout the year, they did virtual sales that helped enhance our business and our profits. But when you're faced with European, your best stores, which for us are European outlet stores, when they're closed, they're closed. There's nobody at the register. As great as the product is, as competitive as it is and high demand, there's no traffic permitted in those centers, you're not doing business. So we were faced with a good deal of that in DKNY. Karl Lagerfeld, a little bit different. We're not in Europe in our piece of that business. We're North American based, North American licensed and partnered, and that helped us a little bit. The marketing that's done globally, as I described before to Jay, is really helping us. We have virtual sales that are done at store level that are just amazing. The dollars per square foot that have been generated in Karl Lagerfeld are significantly better than they were before and better than DKNY. There's no price resistance to Karl at all. We do capsule groups that are, believe it or not, in our outlet stores, we do capsule groups that are higher retails than our department store product. So we take advantage of the brand relevance, the brand demand. And we're more aggressive on opening Karl Lagerfeld stores today than we are on DKNY. So we believe that fiscal 2024, we will be profitable. This year, the plan is to significantly reduce our losses, and 2024, the goal is to be profitable.

And speakers, I'm showing no further questions at this time.

Thank you, all. Have a great St. Patrick's Day, and thanks for listening to our story.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.