Good day, and thank you for standing by. Welcome to the G-III Apparel Group Second Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Neal Nackman, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the Federal 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, non-GAAP net income per diluted share, and adjusted EBITDA, which are all non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Thank you, Neal, and thank you everyone for joining us. We registered another strong quarter well exceeding our top and bottom-line guidance. The second quarter caps off a strong first half for G-III, demonstrating our ability to navigate what remains a dynamic environment. This gives us confidence as we look ahead to the balance of the year and accordingly, we’ve raised our full year guidance. As a global leader in fashion, we remain focused on strong execution of our business while pursuing our many opportunities for growth. For the second quarter of fiscal 2024, net sales were $660 million, an increase of 9% from $605 million last year, well above our guidance by approximately 10% or $65 million. Non-GAAP net income per diluted share was $0.40, exceeding our guidance by $0.40. Similar to what we experienced in the first quarter, second quarter gross margins were better than last year's second quarter. Our freight costs have moderated and we're now beginning to anniversary last year's significant one-time logistics costs, which primarily occurred in the third quarter. We are very pleased with the progress we've made to rightsizing our inventory, which was $805 million, down 23% compared to $1.04 billion in last year's second quarter. We remain disciplined in our approach to future inventory buys and have appropriately adjusted our warehousing needs as our inventory levels have aligned. Our new inventory purchases are coming in at much lower freight cost. We are well-positioned for the second half. We ended the quarter in a strong financial position with $825 million in cash and availability, which is after repaying $75 million of debt. Year-to-date, we've repurchased 1.6 million shares, returning $26 million to shareholders. Further, our Board replenished our stock buyback capacity to 10 million shares. The strength of our balance sheet continues to…

Thank you, Morris. With respect to our results of operations, the comments I'm about to make are on a non-GAAP basis. A full reconciliation of our GAAP to non-GAAP results are included in our press release issued this morning. Net sales for the second quarter ended July 31, 2023, increased approximately 9% to $660 million from $605 million in the same period last year, and were approximately $65 million above our guidance. Included in our sales for this quarter was $38 million of additional sales of the acquired Karl Lagerfeld business, which became a wholly-owned subsidiary on June 1, 2022. Accordingly, the results of the Karl Lagerfeld business were included in our results commencing with the last month of the prior year's second quarter. Net sales of our Wholesale segment increased approximately 9% to $639 million from $588 million last year. This segment now includes the acquired Karl Lagerfeld business results. Net sales of our North American Retail segment was $34 million for the second quarter compared to net sales of $31 million in last year's second quarter. Our gross margin percentage was 41.9% in the second quarter of fiscal 2023, compared to 37.8% in the previous year's second quarter. The Wholesale segment gross margin percentage was 40.6% compared to 36.2% in last year's comparable quarter. As we have stated before, the acquired Karl Lagerfeld business operates at a higher gross margin percentage than the rest of our Wholesale segment. Their inclusion in the quarter resulted in increased wholesale gross margin percentages of approximately 150 basis points. The remainder of the increase in gross margin percentage is a result of a decrease in inflationary pressures in product and transit costs. The gross margin percentage in our Retail Operations segment was 50.5% compared to 51.6% in the prior year. Non-GAAP SG&A…

Thank you, Neal, and thank you all for joining us today. We're seeing the results of our performance. Closing out the second quarter, well exceeding our top and bottom-line guidance and our order book gives us confidence in our raised outlook for the full year. The strength of our balance sheet affords us tremendous financial flexibility to invest in our business and consider additional opportunities. Our diversification is a testament to the stable business model and solid foundation we've created, enabling us to navigate any environment. I'm very excited about the new opportunities we've secured, which our team is working hard to bring to market. We have strong plans in place to drive G-III with our focus on our strategic priorities and these new growth drivers. I'd like to thank our entire organization, our many partners, and all of our stakeholders for their continued support. Operator, we're now ready to take some questions.

[Operator Instructions] The first question comes from Will Gaertner with Wells Fargo. Your line is open.

Hey, guys. Thanks for taking my questions. Maybe we could talk a little bit about the guidance. So you guys beat by $65 million, but the flow-through was only $10 million on the top-line. Can you just -- is that just a matter of being conservative or can you just kind of put some more color on that?

Yeah, Will, that's -- so looking at the order book, we go through a very thorough process throughout the company in terms of the future forecast. We speak to every division. Again, we look at the order book that's in place. So those are just refinements, most of that really came out of our internal fourth quarter expectations.

Got it. And just one more follow-up. On Champion, is this going to be similar economics to the other licenses you had previously? And maybe just frame out how big you think that this licensing deal could be for you.

So, yeah, the framework of the Champion licenses is very much the same as our other coat license. The added feature is -- for Champion, there is demand in the athletic stores for the brand in the outerwear sector. DICK's and Foot Locker are potential opportunities for us, where our fashion brands really don't have that audience in those venues. So -- and it is not -- it won't be our largest business, but it will be an important business in our portfolio, and it will function alongside with approximately the same sales volume as our other brands that include Calvin Klein, Tommy Hilfiger, Levi's and DKNY, and Karl Lagerfeld. So it's in this same scope, same scale. That's the plan.

Just the economics are the same from like a -- from an EBIT margin perspective? Is it similar economics?

It is, and we reported yet another -- I'm sorry, what I left out is, Hanes has agreed to give us exposure in most of their global venues. So hopefully, we can build an international business out of that whereas Calvin, Tommy, we were limited to just North America.

Got it. Thank you. I'll pass it along.

Please standby for our next question. The next question comes from Mauricio Serna with UBS. Your line is open.

Great. Good morning, and thanks for taking my question. I just wanted to get a little bit more detail on -- I think like the implied growth for the second half of the year is around 5%, 6%. Just want to understand, like, how much of that is driven by Wholesale versus Retail. And in general, like, during this quarter, like, what can you tell us about the performance of the key brands, like, which one had, like, a stronger performance which one is maybe you saw some underperformance? And I don't know if you mentioned this, but did you provide any, like, long-term expectations on how much the Champion business could reach over time in the long-term? Thank you.

Thank you, Mauricio. Thanks for your question. I'll start with the last one. We generally don't provide a dollar value or dollar number for classification brands. But it fits right in the mix of our other brands and with additional opportunity. But we're planning it similar to all our co-brands. Your question on the growth, the growth is primarily through the wholesale distribution that we have, which are department stores and the typical distribution that we have. It is not -- it doesn't have an aggressive retail plan. Retail will be flat to last year and we have a very small retail business. As it relates to your question on brand's performance, we're -- we don't have any losers. We have -- a standout might be considered Karl Lagerfeld. Karl has gotten great exposure. We're growing it very well in the United States as well as in Europe. We have opportunities that still haven't surfaced. Door counts have increased, product has gotten better, and the consumer has gotten more interested in the brand. So we're seeing great appeal digitally, our own retail, and the distribution that we have for the product. The rest remains pretty much the same. Our brands are operated with amazing teams that Bob and we, relative to the market needs, and I do not have a brand today that is under -- that I would classify as underachieving.

Got it. Very helpful, and congratulations on the results.

Thank you, Mauricio.

Please standby for our next question. The next question comes from Paul Kearney with Barclays. Your line is open.

Hey, good morning. Thanks for taking my question. I think just to ask a little bit differently, relative to 90 days ago, what brands or categories drove revenue upside in the quarter compared to your expectations? And then could you comment on what you're seeing on channel inventory levels, whether you're seeing continued conservatism in wholesale ordering? Or are you starting to see them need to replenish their inventory levels? Thanks.

So what we have really in category callouts, our coat business as we shipped it, responded very well. We shipped -- historically, we shipped coats in late June, early July. As soon as coats dropped into the stores, we got immediate reorders, which helped our inventory levels. We're doing well in the athleisure performance side of our business. The belief early on was that the pendulum was going to swing all the way to the right and our business would suffer. As creativity generally got distributed, all the wonderful product that was created that's new and appealing, that business grew quite rapidly. Our suit separates business is kind of a sleeper, but it generates amazing profits for the company as well as amazing reorder activity. And our dress business came back stronger than ever. Those are rather -- I guess, I'd make those the callout features. On the footwear and handbag side of the business, we were over-skewed on canvas footwear. We've corrected that. We've improved on our canvas leisure footwear and that's working better. And our handbag business is not as good as I would like, but we've moved designers and sourcing locations and we see it improving drastically. So -- but the quarter itself was not a standout in handbags and footwear. In channel reorders, we're getting our reorders from our typical customers. We're department store driven and that's where our reorders are coming from. And our support is consistent. Our new brands are getting all the support we expected. We're dropping products soon. We're building out shops as they've been allocated to us. The real estate is prime real estate that we've negotiated for and we're on our way. You haven't seen the impact of Donna Karan yet, Nautica, Halston or Champion, and they're soon to come.

Thank you.

Please standby for our next question. The next question comes from Noah Zatzkin with KeyBanc Capital Markets. Your line is open.

Hi. Good morning. This is Ashley on for Noah. I guess, just curious on how you see the promotional environment playing out relative to three months ago when you were looking out and maybe how your expectations have shifted. And then if you could provide some additional color on what is driving your holiday expectations, that would be great. Thanks.

So, as far as promotions, there are fewer promotions in retail today than they were pre-COVID, quite honestly. Everybody has found that the right product is accepted by our consumer. If you design it appropriately, put the right quality into it, present it appropriately, the consumer is willing to pay. There are less promotions around, whether it'd be Macy's or Dillard's or Belk. The belief -- the common belief is, if you're sitting with an aggressive amount of inventory, you're going to have to take monstrous markdowns to move it. As we proved out, our inventory is down 23% and our gross margins are up and that's a testament to we're not giving it away where our inventory has got great value, our retailers are appreciating it and the consumer is buying it. So as it relates to -- I can't speak for the future. The political environment, the economic environment is something that we're not in control of. But as it sits today, we don't have a concern for an aggressive markdown cadence that would be unexpected. And our order book as it sits, is in line with our guidance. We sit with our order book similar to what it's been historically as a percentage of our budget. And the holiday expectation is actually a good one in our categories and in our product mix. We're seeing everything all of you are seeing. As far as guidance coming down, we are comfortable with where we are today. We are adjusting guidance. We've got appropriate inventory. We've got great partners that support our needs and we're looking at what we believe is a really good year and a good future. Thank you for your question, Ashley.

Thanks so much. Yeah, thank you.

Please standby for the next question. The last question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Hi. Good morning, Marcus -- good morning, Morris, Neal and Priya. Congratulations on the nice progress. As you think about the portfolio that is continuing to evolve and grow, are there categories that you want to focus on in adopting new licensing deals that we should be thinking about? And then as you think about the current wholesale environment with the improved order book, what's changed? Is -- how's AURs? What's happening with the promotional environment? And how do you envision holiday? And then I have one last follow-up.

Thank you, Dana. Thanks for your question. We don't have a need for new licenses or new acquisitions. As you listened to our story, we have sufficient tools to build a huge business. We've got not just classification licenses where the company sat in the '90s and the early 2000s. We have brands that afford us the ability of producing all categories and they are major brands that are recognized globally that we have an audience that is hungry for the launch of these brands as well as the brands that we continue with. The -- I guess the elephant in the room is PVH. We're not concerned. We might not be happy but we're not concerned about the future of this company. I think we have the tools to do better than we have done historically with the licenses. Owning is far better than renting. And we are in control of our own destiny, which is an amazing luxury. And on top of it, we're getting the expected support from our business partners, our trading partners with the knowledge that we don't have to produce product and it's not necessarily the brand that drives it. It's a talent pool underneath it. It's the culture of the company and we're transitioning to where we need to bring prosperity to ourselves as well as our stakeholders. So we're quite happy with where we are and it's amazing that our margins are increasing. Our staff -- an easy way to get Wall Street excited is to make an announcement that we're eliminating 20% of our staff and saving money. With this transition of PVH and all the new brands, it's amazing to me that we have stable SG&A. We've not added people. We've not fired people. We believe that the talent pool…

You answered most.

Okay.

Just a last thing, what's your outlook on holiday? How you're thinking about it? And given the diversification of wholesale accounts for Champion, how do you see wholesale evolving? Thank you.

So, the remainder of the year, I guess, our guidance tells you how we feel. We're not aggressive on inventory ownership. We kind of learned our lesson. We weren't able to manage as well as I would have liked the logistics crisis that occurred, and money is more expensive today than it was yesterday. So our inventory levels will be adjusted fairly dramatically. We'll manage a different type of business which doesn't give us the upside opportunity. If you own the inventory, you have a good opportunity to sell it. So our guidance has got -- it's got some upside opportunities, but not as huge as they had been historically because their inventory is managed differently. As far as what occurs for the future, there is -- that's political, it’s economical, it’s the economics of our country and our world. It's not all targeted as to whether we have the right fashion at the right price. We have all that embedded in our business. We're doing all the right things. Not in control of what we can't control. So…

Thanks.

And we do consider the inflationary issues and the politics that evolve around us when we do give guidance. So there is some level of conservativism that's factored into our guidance that considers what we can't control.

Thank you.

And Champion, Champion is wholesale. It's not retail for us. We -- believe it or not, our license was just signed, negotiations have been in place for a couple of months. But there was a confidence that -- confidence level that we would get there, and there is a complete collection ready to go. And there is excitement that surrounded it. We previewed with some of our customers including Hanes for their own needs for their own global distribution and were applauded for just creating this amazing product with a politically-inspired, athletic-inspired attitude that really doesn't exist in the form that we created it. And in the timeline, just amazing that this company achieved it. And that goes for everything we've done. There is -- where do you get notified that you're losing half of your business six, seven months ago and you have replaced collections that are applauded the way our new collections have been, that would be Donna Karan, that would be Nautica, that is not yet Halston, but we're very close to getting Halston ready for market and Champion. That's not imaginable and this company has achieved it. We're armed and ready to go with assets that are in our eyes going to replace everything we lose and more efficiently and more profitably.

Thank you.

Thank you. Thank you all. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.