Good day, and thank you for standing by. Welcome to the G-III Apparel Group Third 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 recorded strong profitability in the third quarter, well-exceeding our bottom-line guidance. Our strong year-to-date results showcase G-III's ability to successfully navigate challenging market conditions. Over the years, we have a proven track record of evolving to drive our business and to meet the needs of customers in an ever-changing landscape. Before I review our third quarter results, I want to take a moment to recognize all that we have done over the last 12 months since we announced the staggered license terminations of the Calvin Klein and Tommy Hilfiger brands. We noted that this change will allow us time to accelerate our long-term strategic priorities. Since then, we've delivered, we move quickly to develop four new initiatives and have made significant progress with our existing business. Our new initiatives include the repositioning and expansion of Donna Karen, which will launch this spring in over 200 doors. We will build 150 branded shop-in-shops and develop new licenses to extend the brand's new positioning and reach. Our long-term license for Nautica in North America, beginning with jeans and expanding to a broad range of additional categories is set to launch early next year in over 200 doors. We will quickly install 60 branded shop-in-shops. A master global license with the option to purchase Halston is expected to launch in the fall of 2024 with new positioning across a broad range of categories. We will also be a licensor of the brand, creating another income stream for us, and a multi-year license to produce outerwear for champion that fits seamlessly into our already. Well-developed outerwear operations with first deliveries available for fall of 2024. We've been able to secure these new initiatives rapidly as we're a vendor of choice for retailers with…

Thank you, Morris. Net sales for the third quarter ended October 31, 2023, were $1.07 billion compared to $1.08 billion in the same period last year. Net sales of our wholesale segment were $1.05 billion compared to $1.07 billion last year. Net sales of our retail segment were $33 million for the third quarter compared to net sales of $29 million in last year's third quarter. Our gross margin percentage was 40.6% in the third quarter of fiscal 2024 compared to 32% in the previous year's third quarter. The wholesale segment's gross margin percentage was 39.6% compared to 30.7% in the previous year's comparable quarter. The gross margin percentage last year was negatively impacted by significant one-time demurrage charges of approximately $27 million, which we incurred in the third quarter of last year. The gross margin percentage in the current year’s period was positively impacted by lower freight costs compared to the same period last year. We have been forecasting higher gross margin percentages throughout the year, and they came in even better than we had anticipated. The gross margin percentage in our retail operations segment was 49.1% compared to 54.9% in the previous period. SG&A expenses were $236 million compared to $240 million in last year's third quarter. We were able to achieve strong warehousing efficiencies compared to our expectations and actually at lower warehousing costs compared to the prior year. These reductions offset the inflationary pressures we have incurred throughout the current year. Our current warehouse capacity is now well aligned with our current and planned inventory levels. Non-GAAP net income for the third quarter was $130 million or $2.78 per diluted share compared to $66 million or $1.35 per diluted share in last year's third quarter driven by improvements in gross margins, SG&A, and less interest expense.…

Thank you, Neal, and thank you all for joining us today. The past 12 months are a testament to our ability to thoughtfully adjust, quickly create and bring to market new opportunities for our business. I feel great about our product, strength across our wholesale segment, digital increases, our prudent inventory management, and our financial discipline. We have strong plans in place to drive G-III with our focus on our strategic priorities and these new growth drivers. The strength of our balance sheet affords us financial flexibility to invest in our business and consider additional opportunities. I'd like to thank our entire organization for all their hard work. I'm proud of what the team has been able to achieve this year. I'd also like to thank our many partners and all our stakeholders for the continued support. Operator, we're now ready to take some questions.

[Operator Instructions]. Our first question comes from Edward Yruma with Piper Sandler. Your line is open.

Hi guys, it's Abby on for Ed. Thanks so much for taking our question. You touched briefly on the timeline for Halston and Champion. Can you just contextualize how big that revenue opportunity could be? And then as a follow-up what investments will be required to really maximize the potential of both of those brands? Thank you.

The Champion brand is for us is a coat license. So, I would say the brand would probably mature be between $80 million and $100 million in sales, and that would probably go out three to four years. The Halston brand as we described, we're going to classify that as a power brand for us, and the opportunity is significant. We believe there's an opportunity to bring that north of $500 million just on product that we will create, produce, and ship. And alongside of that we're going to create an income stream that's derived of licensing income that probably could be north of $20 million in the next three years. And the expense attached to these, they're very modest. There -- one is an option to buy, which is Halston. And the cost of that option is nominal. And alongside of paying for that option, it's a discounted licensing rate that we pay to the current brand holder, which is Excel. And as far as the cost of entry for champion, it's a license, it's a guaranteed sales number or a guaranteed royalty that we must pay, which is nominal. So, the CapEx expenditure or the acquisition cost of both of these brands is very nominal.

The next question comes from Will Gaertner with Wells Fargo. Your line is open.

Thanks, for taking my question. So, I guess first just maybe talk a little bit about what drove the upside to gross margins in SG&A, and then on that, how do we think about the puts and takes into next year? Any big callouts when we're thinking about modeling these two lines?

So, the thank you for your question, Will. Thanks for joining. The margin enhancements occurred as we were developing and further maturing our brands. We found that, the pricing power of our brands were underestimated. And as we tested pricing, the consumer accepted it. Sales were good and we stayed on course. There was no need to take markdowns to move inventory. It was not a promotional period, and it worked out absolutely great. We were able to move through, just millions of units of inventory that we carried over. And we would assume that, when you do that, you need to take a markdown to achieve it. We didn't take markdowns, as you see in our results. So, it was a great, great picture, the new canvas that was really created for us. We are now liking the margin format versus top-line sales. So, we feel the same way. As you see, our Q4 forecast shows margin enhancement as well. And we are adjusting top-line. We were adjusting top-line down. Yet at bottom-line, there are enhancements due to margin improvements, as well as buying a little bit better, as well as some freight costs coming down, but we are in a margin business. Neal?

Yes. As far as the look, Will, as far as the SG&A, I'd say, the most significant category that we had great success in was our warehousing costs, really based upon a couple of different factors. Certainly, helps when you can drive inventory down. And as Morris mentioned, the strength of the inventory and being able to move it. And look, we have been looking very hard at every aspect of our third-party warehousing from space utilization, the negotiating rates to moving inventory as properly as possible. So, we were very, very fortunate and efficient in the warehousing spend. The last item I would call out to is our advertising spend. I think we have been prudent in terms of placing that where it has been most effective.

Got it. And then any color into... go ahead. I was just going to say any color into next there, anything that we should be thinking about, puts and takes?

It is a little bit early. What I do like is, the percentage of business that we are forecasting on our owned brands versus licensed brands, our own brands are going to derive, as they do today, better margin than our licensed brands. So, it is really kind of cool to focus on better margin businesses, our distribution is going to change a little bit in our own brands. So, we are seeing some good things. I can't really speak to the stuff that I can't control. There is a lot going on in the world. We all see it. We all read it. We all live it. And that makes us a little bit, conservative in our outlook for the future. But short of that, our company is in great shape. We have a talent pool that has been here for years. Consistency and talent that we measure is as an important factor in how we grow and how we recreate businesses or create new businesses. Our people know how we think, they respond immediately, and there's no learning curve. So, this is a great time and a great company to transition new assets.

And then maybe just one more for me, the hire of Dana. How are -- it sounds like you're thinking about M&A a little bit more going forward? What, I mean, what's is out there? I mean, is there any attractive opportunities that you guys have identified? I know you don't have to speak specifically to any, but just maybe talk to sort of the M&A environment and how you're thinking about that?

Our culture has always been to acquire companies. We've done a really good job of that -- before Dana. That's -- we continue looking at opportunities, whether it's licensed or owned. We shop globally. We're astute buyers. It shows up in pretty much every acquisition we've made since the nineties. This turned out to be a good acquisition. There's nothing that sits in my mind that was poorly calculated and didn't perform. We made use of every acquisition we made. It's one of our company's strengths. So, enhancing it and putting somebody from the financial world on our team can do nothing but improve what we have. And Dana is a known commodity to us. We've dealt with Dana for many years at that PVH. PVH was a great partner for years. And Dana is an important part of communication and helping us understand PVH and how we work with PVH. And she'll do the same for G III and Apple with our partners. So, we look forward to coming to the company.

The next question comes from Mauricio Serna with UBS. Your line is open.

Thanks for taking my question and congratulations on the result. I just wanted to ask about the sales guidance. Maybe I missed it, but maybe you could comment a little bit what you're seeing from your wholesale partners. I'm curious just because I think it was lowered and just want to see what are the dynamics there. And maybe if you could remind us, like, I know you're not guiding next year, but if you could give us a little bit detail on how we should be thinking on when the new licenses and new like business initiatives will be materializing in your company's P&L that will be very helpful.

The outlook, as we all look at retail earnings and forecasts is conservative for the future. For all the same reasons, the consumer is not out there buying aggressively. Traffic is down. The economy is not on spending mode. Housing costs are up mortgage rates are up and we have the never-ending college dilution issues. So, there is a lot that's impacting the consumer that's not in our control. Everything that we are controlling is doing well. It is difficult to forecast, how deep the consumer is going into their pocket. We also have another element that we consider. We are still a large outerwear company. And when weather doesn't work our way, we are impacted. But the good news is the recovery is quick. Holding over deliveries on coats doesn't necessarily initiate a markdown. So, it is timing and it is amazing how you get a couple of days of cold weather and the pain of warm weather is gone instantaneously. So, it is hard to forecast that, but we saw it, as the weather changed last week, our business in the code area got very good. So, it is a good place for the pieces that we control. The pieces that we don't, again, it's hard to give a read for. And it's a little bit early for us to forecast next year. But we are the same company with more assets, with a consistent talent pool, with our balance sheet being stronger than it has ever been. So those factors all make me comfortable that we are down a good path for the coming year.

Mauricio, this is Neal. Just to add to the specific timing, Nautica Jeans, as well as the Donna Karan launch will be in spring, so you can expect those to start hitting in our first quarter. The Halston is launched for fall as well as the Champion outerwear businesses. So, I would expect that both of those are hitting primarily in the third -- starting in the third quarter of next year.

Please stand by for our next question. Our next question comes from Paul Kearney with Barclays. Your line is open.

Good morning, everybody. Thanks for taking my question. Congrats on the results. My first question is on the margins, a bit of a follow-up. So just looking at the model, it looks like, margins are at a multiyear high. I guess can you maybe help us to think about what in here is a structural improvement, what's more transitory? And anything you can kind of help to parse out on the year-over-year drivers? How much was pricing? How much was lower cost? How much was better distribution? And I have a follow-up. Thanks.

Sure. So, Paul, look, I think the margins are structurally in place. While the increase to the prior year has some one-time benefits, the actual achieved margin, I think, and our ability to maintain it goes back to what Morris said before about the ability for us to price strong and maintain those prices. We did have lower freight this year. We don't really anticipate that, that scenario will change dramatically on us. I think that we can continue to maintain pricing. In terms of input costs, we are not seeing anything structurally that to give us pause that this is somehow a unique one-time high for us. So, we will certainly endeavor to maintain these kinds of margins go forward, and that will be based significantly on our ability to maintain price. I think we have always really been able to do a good job in terms of managing the cost side of that equation.

Okay. Thanks. And then my follow-up is on price. And I guess trying to swear with the comments on the pressures on the consumer inventory purchases are still conservative. I guess what gives you confidence that as costs come down, prices won't have to soon follow in the intermediate term? Thanks.

Now, we don't really sell commodities. We're a fashion business. We sell fashion, we create demand. And when fashion is in demand and you do your job appropriately, you get paid for it. If you don't, you need to take the markdown and move product. We have a history of doing the right thing. As far as the creative side, we add amazing quality to our product, and the consumer always sees value in our pricing. It's not arbitrarily just raising your price and saying, we're going to get $10 more for this dress because we can, we add value whether it's accessory value, whether it's branding value, where we're spending a good deal of money on marketing going forward. And that generates demand and demand don't generate sales. And if all the pieces are all put together and done appropriately, you get the price that you're trying to achieve. We have a history, we have a long history that it's a consistent, it's a consistent thesis.

The next question comes from Ashley Owens with KeyBanc. Your line is open.

Thanks for taking my question. Just on Karl Lagerfeld, you've seen good momentum this year and have several initiatives in place there. Would just like to hear your thoughts on how you're sizing the opportunity within that brand for next year. And then any additional color on how the other brands are currently performing internationally versus domestically and how that's progressing would be helpful.

We have a big internal bet on, Lagerfeld. The bet is it's going to be our biggest percentage growth brand. It's doing great. It had a good year. It's having a good year. And the guidance that we're getting from our retail partners is, there's an amazing amount of growth opportunity with the brand door count and penetration with indoors product is selling, all the categories are working. It's a brand that makes you smile when you see it. They're -- it's got unique attributes. And we love that acquisition and we're expanding licensing opportunities as I spoke to the lifestyle opportunities that we have in hospitality, food and beverage, and unique situations. It was really originated by Lagerfeld. There's a high demand for unique situations. So, we'll also, other than the demand for our product is a demand for opportunities with the brand. I think, sooner or later, and I'm going to bet this sooner, within the next 90 days, we'll probably announce a hotel development in New York City. So, there is some really exciting things, that are going on with the brand. And as far as global, the weather was tough throughout Europe. From what I understand, it is the warmest weather in 150 years. And in spite of that, we are growing DKNY. We are growing Lagerfeld and we are growing, Vilebrequin. So, the weather impacted parts of our business. Our feet business is soft, our coat business is soft, sweater business is soft, but the fast-moving fashion pieces worked well. So, we are learning how to operate globally. We are not having the same success in China, but Europe and the Far East has been really good markets for us.

Please stand by for our next question. The last question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Good morning, everyone. And so nice to see the progress, and congratulations on the hiring of Dana Perlman. I think that will be a terrific addition. And Morris, you used one of my favorite words grow and growing. When you think about the strength that you had this quarter and certainly the discussions about wholesale even with more cautious or conservative orders, how do you break down the wholesale strength whether by brand, whether by Channel a wholesale department stores off prices or whatever it may be and what are you seeing there? And do you see that strength continuing? Does it continue because of categories? Does it continue because of pricing? How do you think of the levers moving forward? Thank you.

It continues because of many factors, primarily, the underlying talent that makes it happen. It is an aggressive group that discovers opportunities that most people just overlook. We are beyond just a brand. I think we are proving that out now. Give our company a start-up situation with, putting a focus and putting our people on the focus of building it. We can build a start-up and make it effective, very quickly. We are proving that out. Our brands were underachievers in the hands of the competition or other people, and we take them on. We embellish them. We give them love and care, and put a little money behind it. Relationships that we have with retailers are amazing. We get support. The moment we pivot a brand, the first question is, well, what do you want us to do? We are in. And that's really not the norm. That comes with many years of building that trust. And I would venture to bet that, if you spoke to any major retailer in the United States, they are aware of us, they trade with us, and they are happy with the relationship. We put, as a paramount focus, the profitability of the retailer with without there being able to be profitable, we have no shot. So, our first focus is understanding what they need to be profitable, build around it retain the DNA of what we're marketing. And there's a huge payback. There's loyalty, there are orders, there's cooperation. So, it's not a practice that everybody follows, and it comes from continuity of culture. Same management team running the company for decades. It's not a bait-and-switch situation. It's a great place to be. It's been fun building it. This phase there aren't many companies that could survive looking at giving up 50% of their top-line sales and forecast increases and be more profitable, and in a period of time when they're looking at maintenance and growth at the same time. I'd say, it's an amazing story.

Just one other thing. When you think about other additions to the licensing portfolio, is there a cap on how many you could do or do you think of it as size or number?

Yeah, there certainly is a gap. We're not in the business of the days of us looking at a license, a random license, and creating just revenue. To the extent that $20 million, $30 million is really not us. It's got to be an important brand for us to either acquire it or license it. There are some unique situations. Champion is a little bit unique. It's a relationship, but we needed another coat brand to shore up what we ultimately give back. And Champion turns out to be just a great solution for part of what we're giving back. But we're not out there shopping for a multitude of brands. We need scale, we need focus, and each brand has an entire management team. It doesn't cost our company much more to build a billion-dollar brand as to maintain a $100 million brand. So, the focus is large.

Thank you.

Thank you, Dana. Thanks, for your question. With that operator, I think, we are done. And thank you everyone for your interest and support. We wish you and your families a wonderful holiday season, and a happy, healthy New Year. Thank you.

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