Good day and thank you for standing by. Welcome to the G-III Apparel Group Second Quarter Fiscal 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's 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 hand the conference over to your speaker today, Neal Nackman, CFO. 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're pleased with our second quarter results, which exceeded our bottom line guidance, and we feel confident in our raised outlook as we enter the second-half of the year with momentum. With our diverse portfolio of more than 30 globally recognized brands, we have long been a partner of choice, because of our best-in-class ability to build businesses at scale. Having the most desirable brands is central to our strategy and over the past year, our plans to better control our destiny with our own powerful brands along with some great new license opportunities are working, creating an incredibly dynamic portfolio for our future. We'll continue to drive the growth of our Go Forward portfolio in two key ways. First, and most significantly, the organic growth of our own brands, Donna Karan, DKNY, Karl Lagerfeld, and Vilebrequin across North America and internationally. Second, a group of new licensed opportunities secured with highly recognized brands including Halston, Nautica, Champion Outwear, BCBG, and this morning's exciting announcement of our license with Converse, Inc., which I will discuss shortly. Taken together, we're confident in our plan. We have created a strong Go-Forward portfolio that further diversifies our business model. This enables us to broaden our reach across product categories, distribution channels, and geographies as we deliver wherever the consumer shops. As we evolve our portfolio, we're actively managing and supporting our current business with Calvin Klein and Tommy Hilfiger through the transition of those licenses. A proven track record demonstrates G-IIIs ability to drive growth and is supported by our powerful corporate foundation, which includes experienced Senior Leadership, a strong long-tenured merchant and product development talent with expertise across a broad range of categories, a well-developed sourcing and supply chain, our newly established…

Thank you, Morris. Net sales for the second quarter ended July 31, 2024 was $645 million compared to $660 million in the same period last year and in line with our expectations. Net sales of our wholesale segment was $620 million driven by strong growth of our own brands in North America offset by a decline in the Calvin Klein and Tommy Hilfiger businesses. This compares to $639 million in the previous year. Net sales of our retail segment were $37 million for the quarter, compared to net sales of $34 million in the previous year's second quarter, despite the closing of nine doors. Our gross margin percentage was 42.8% in the second quarter of fiscal 2025, compared to 41.9% in the previous year's second quarter. The wholesale segment's gross margin percentage was 41.2%, compared to 40.6% in last year's comparable quarter. We continue to drive gross margins through a combination of growth of our higher margin go-forward brands and product mix. The gross margin percentage in our retail operations segment was 54.4%, compared to 50.5% in the prior year's period, driven by lower promotions over the implementation of our merchandising changes. Non-GAAP SG&A expenses were $229 million, compared to $237 million in the previous year's second quarter. The decrease in SG&A was partially due to favorable warehousing expenses, resulting from lower-than-anticipated inventory receipts, as well as better-than-expected warehouse operations. In addition, certain advertising expenses shifted into the third quarter. We also continued to experience decreases in royalty advertising expenses associated with lower net sales of licensed brands. Non-GAAP net income for the second quarter was $23.8 million or $0.52 per diluted share, compared to $18.6 million or $0.40 per diluted share in the previous year's second quarter. These results were significantly better than our expectations. Turning to the balance…

Thank you, Neal, and thank you all for joining us today. I'm proud of our team's work this quarter and I'm confident in G-IIIs future as a global leader in fashion. I'd also like to thank our entire organization, our many partners, and all our stakeholders for their support. Operator, we're now ready to take some questions.

Certainly. [Operator Instructions] And our first question will be coming from Paul Kearney of Barclays. Your line is open, Paul.

Hi, everyone. Thanks for taking my questions. Just two quick ones. So can you further elaborate on the opportunity you see for the Converse license and how should we think about future license additions from here versus the current [Indiscernible] brands? Then second, inventories for the quarter remain incredibly clean. Can you talk about maybe the composition of that for owned versus licensed and how should we think about inventories through the back half? Thank you.

Thank you, Paul. Thanks for your question. Converse is a huge opportunity for us. It perfectly fits in an area of business that we can implement and utilize the talent that we have. It's not an area of business that we need to scout for amazing talent. We have the talent. And what's better than a partnership with Nike? Converse is a brand that we believe, I would have to say that Nike believes we can contribute to globally. Not often that you get global distribution to a mega brand. Usually it's confined to a geographic region. We’re pretty much have most regions of the world and it's an opportunity for us to expand their brand and our talent and our sourcing into an area of business that we know. We've been in the business before. We've had partnerships with Nike before. And it's a challenge. Nike factories are unique. They have to be Nike approved, which is a rigid approval process. Nike was comfortable that we could achieve it, and we have. We've got factories approved already. Sample making and limited production is being tested as we speak. We're good to go. We're excited about the initiative. We have trading partners standing at the wing basically ready to write orders. So it's exciting for us. As it relates to -- okay, Neal, you can take the inventory.

Yes, on inventory. Look, our inventories are in great shape. Not only are they decent sized, but our aging are much better than they've been historically. As far as the balance between licensed and non-licensed, we really don't see any out of balance situations. In terms of the go-forward positions for Q3 and Q4, we are going to come up against lower inventory levels from the previous year, so I don't expect these kinds of falloffs like we've experienced in the first quarter and the second quarter. And in fact, I would tell you that we're expecting Q3 and Q4 inventories to be slightly up, more aligned with future sales growth.

Thank you very much. Best of luck.

Thank you, Paul.

One moment for our next question. And our next question will be coming from Ashley Owens of KeyBanc Capital Markets. Ashley, your line is open.

Hi, everyone. Thanks for taking my question today. This is Chandana Madaka on for Ashley. So taking in results and guides for 3Q, there's a step up that's expected in the 4Q. Just wanting to see if you could speak more around what's driving the confidence. I think, I mean, you've mentioned Champion and Halston have hit the floors, order book in a good position, digging in further there? Also, if you could call out any categories that have outperformed, that would be very helpful. Thank you.

Yes, so, look, we're very comfortable with the fourth quarter. We've still got work to do, as is normal for us this time of year. We just came off the spring market week. A couple of things to keep in mind, when you look at the compares as far as the previous year, we're really up against the weakest quarter of the prior year. So we feel comfortable with some outsized growth relative to that quarter. In addition, we're really continuing with the rollout of what you've seen so far, which is the launch of the new initiatives and the continued strong growth from our own brands.

The outsized growth in some of our assets, as in Donna Karen, is really obvious. We launched with a great level of success. The marketing campaign was amazing. The product that was developed through the archives was just unimaginable. If you looked at it today, you would think it was Donna Karan over the past at a very high luxury level. And it was produced at an affordable price point and the results are great. We're incredibly happy, the retailer is happy. I spoke to the door count and the door count expansion and the classification expansion and penetration. So we're excited by the brand. We previewed with two European department stores last week, and they're excited by the opportunity of bringing Donna Karan onto their floors. So we believe Donna Karen takes off globally very shortly. The fact that we've managed to build our business, our own brands at high-single-digits into low-double-digit growth is amazing in this environment with all the headwinds that have come at us. And at the same time, managed to sustain a reasonable business for our licensure PVH as we exit the brand. And exiting the brand and maintaining a semblance of peace and effort between the two partners, as well as the retailer is no easy feat. We've done it well you know product is retailing at a very high level and we fight to maintain some semblance of size with the retailers as we exit the brand.

Thank you. I appreciate it.

Thank you.

One moment for our next question. And our next question will come from Will Gaertner of Wells Fargo. Your line is open, Will.

Hey, guys. Thanks. Thanks for taking my question. So it looks like SG&A down in 2Q from a growth perspective, how do we think about SG&A spend into the second-half of the year? And then how to think about this sort of heavy investment cycle that you're undergoing here to invest in the own brands and the marketing campaigns? How to think about that into next year? Is that going to continue and how long will it go for?

Yes, so Will, the third quarter is going to have a significant increase in the SG&A. We did have a couple of pieces from the second quarter in terms of advertising and then warehouse expenses related to the inventory receipts that's falling into the third quarter. When you think about that $60 million SG&A spend that we talk about that's incremental for us this year, that is significantly going to be the second-half based. So you've got both of those two factors weighing in on the second-half. I think in terms of the investment spend go forward, we're growing the Donna Karan business quickly, but we're also going to probably still probably have a slightly outsized SG&A advertising spend as it relates to that brand until it scales up to a greater level.

Yes, Neal is exactly right. The marketing spend is huge as a percentage of the business that we've shipped. And it's first stage. We're barely in the business for nine months. We've achieved -- we've broken our internal plans by mega dollars, yet the percentage of marketing spend that we implemented just was huge for the first year. As we scale this business, it levels off and percentage of SG&A comes down. The dollars won't change, but as the top line changes, you'll see a dramatic difference. The big spend, well worth it. And again, we're marketing to the globe today. These expenses didn't exist before as predominantly a licensee. The marketing was the expense of the licensor. So today there's an added element of expense that we control and is working. What could be better than stating that it's working? So thank you, Will. Thank you for your question.

Just, can I squeeze in one more? Just on the visibility into your order book, U.S. versus Europe, can you maybe just frame up what you're seeing in both regions and how the order book is shaping up?

So our order book is much more elastic in North America. Our European business, as we grow it, is built on two deliveries. North American business is built on an everyday delivery cycle. We inventory product, we plan for supportive reorders, and in Europe for the moment, we run tight on inventory. We know how to move inventory in North America. We're not as proficient in Europe or Southeast Asia. But the partnership with AWWG affords us that ability and down the road our order book composition will change with the comfort of having supply to support growth -- quick growth through Europe. We're not there yet. So the order book is significantly more important to the company in North America than it is in Europe.

Understood, thank you, I'll pass the line.

Thank you, Will.

And one moment for our next question. Our next question will be coming from Mauricio Serna of UBS. Your line is open.

Great. Good morning and thanks for taking my questions. A couple of questions to start. Maybe, can you give us an idea of given the success that you've seen with Donna Karen so far, like how should we think about that size of a business expected for this year? And just to make sure I understand this, on the guidance update on the EPS, it seems you beat the quarter Q2 by $0.25 and you're racing by $0.37 at the midpoint. So that $0.12, just to understand, is just mostly lower interest expenses and the impact of the buybacks, or is there any changes in terms of the margin outlook that we should be considering?

So I'll take the first question, and Neil will respond to you on the EPS. So Donna Karen, all I can tell you is it's the best launch this company has ever had. It's the best press this company has ever had. And I think, I said earlier it has a strong potential, and I believe it's a conservative number, of doing $1 billion in sales, which does not include licensing opportunities. It does not include elements of the business that Donna Karen, oh, DKNY currently has, or Karl Lagerfeld. But we're fine-tuned at this point to grow globally. And I hate to say, but the sky's the limit, but I don't want to put a number down. I don't want it to be too low and I don't want to put a $5 billion number out there. We put out a very conservative number in my eyes, which is the $1 billion number. We're not far from achieving that with Karl Lagerfeld in pretty much record time. Karl Lagerfeld, when we took it on, had zero distribution in North America and a much smaller business in Europe. And with our efforts, jointly with our acquired partners, we've grown it, we've just said double-digits this year, high-double-digits, not high-double-digits, high-teens I would have said. And in a market environment that one might say is soft. And we -- you know, every day there's door expansion and modules and areas that were perfecting to improve on that business. Same thing with DKNY, when we acquired DKNY from LVMH, it had virtually no distribution in North America and a tiny business in Europe. And today, it's one of the most distributed brands on the women's side of the business in North America. So we achieved that in record time. You can go back to Calvin Klein, Calvin Klein had virtually no women's distribution in North America or anywhere in the globe. Under G-III's guidance and guardianship, we built it to possibly the largest women's brand in the world. I'm not sure that it's well recognized, but between Calvin Klein and Tommy Hilfiger, which were underachievers in other hands on the women's side of the business. We contributed $3.5 billion to $4 billion of retail sales for those grants. So now having the ability of focusing that talent pool and those relationships, maybe sky is a limit.

Mauricio, as far as the EPS role, you are absolutely correct. The other two pieces, aside from the bead, are the interest savings, as well as the share repurchases. The Q will be getting filed shortly, but we purchased about 1.1 million shares back in the second quarter. And then our interest savings, if you were to compare that to the previous forecast, was up about $3 million, was down about $3 million.

Got it. I think the guidance is $22 million for interest expenses for the year. Is that right?

That's correct.

Great. And then just one last one if I can squeeze this in. Maybe could you just give us a sense of how to dimensionalize, Converse, roll out over time in terms of the distribution, the retail partners that you would be distributing the brand to. And again, in a way, what kind of size do you think that business could reach in the long run?

We believe in a reasonable time, I'm not sure it's a long run, in the long-term. We can reach $200 million in sales. As I said earlier, it's global distribution, it's department stores, it's sporting goods shops, it's distributors that will engage to help us distribute throughout the world or areas that are designated for us, which is a good part of the world. And we're in a good position to grow that business, and the entire team is excited by the initiative.

Great, thanks so much, and congratulations on the results.

Thank you, Mauricio.

And our last question will be coming from Dana Telsey of Telsey Advisory Group. Your line is open, Dana.

Thank you. Good morning, everyone, and nice to see the progress. Morris, if you look at the opportunities for the licensed brands, certainly the success of Donna Karen with more to come and now Converse. How do you think about the distribution expansion, where the growth comes from, categories, distribution channels, regional, international versus the U.S.? Is there anything of each of the brands that would be more the standout as we go through the rest of ‘24 and into ‘25? And then Neal, anything to mention on freight costs and what you're seeing in terms of supply chain and lead times? Thank you.

Thank you, Dana. So we haven't touched on a couple of assets. The AWWG partnership gives us the ability or will give us the ability of distributing Pepe, which is an important brand in Europe and in India. We're going to distribute it to North America with the guidance of the AWWG leadership team. In there is kind of a unique element for us that integrates into some of our businesses as well, which is Red Bull as the A1 license for Pepe. So it's a co-brand and that should, we know it has great interest and appeal for the North American market. So, you know, we're going to take that on and then we're working aggressively on positioning Hackett appropriately in men's apparel and hopefully we establish a foothold in women's as we get more immersed in the partnership. And then again, there's another brand called [Fashion Noble] (ph) that had a huge presence in North America that we're going to undertake and help develop the distribution here. On top of that, there are brands that are specific to private label initiatives that are unique to retailers that we're developing as well. So there's an entire fortress of amazing assets to build from, all targeted for unique distribution. So it's -- I'd have to say it's as well-rounded as one could imagine and with our capabilities of producing pretty much every classification, including footwear and handbags and accessories, we seem to have control of it and it's all logical. Parts of the production and design are now allocated to different parts of the world. We have a design team that sits in China that creates products specifically for unique retailers, as well as some of our team sport initiatives. We're allocating responsibilities and functions into a broader spectrum of talent that we now have. So, I think we have really great control and a great future today, as I said earlier. I don't think G-III has ever been in better shape than it is today.

And Dana, with respect to your questions on freight costs and lead times, the majority of what we bring in is under contract. However, there is some that is not, and certainly to the extent that it is not, we are seeing and expecting and have built that into our third quarter guidance, some higher level freight costs that we expect, certainly in the third quarter, probably continue a bit into the fourth. As far as lead times, I did mention that we had inventory that was not received. We are seeing a small amount of delay overall on average. It's not that significant, but certainly on the fine-tuned margins at the end of a quarter, it can impact us a little bit. And again, we feel like we've built that into our perspective guidance as well.

Thank you.

Thank you, Dana. Okay, so thank you all for your interest today. Have a great fall season, and we look forward to speaking to you in December. Thank you.

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