Good day! And thank you for standing by. Welcome to the G-III Apparel Group Third Quarter Fiscal 2025 Earnings Conference 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, 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, Neil. And thank you, everyone, for joining us. I’m very pleased with our strong third quarter results with earnings above our expectations driven by growth of our key owned brands, DKNY, Karl Lagerfeld, Donna Karan and Vilebrequin, which collectively grew over 30%. Our teams continue to demonstrate strong execution despite a challenging consumer environment, unseasonable weather, and supply chain disruptions. In fact, in the U.S., September and October ranked as one of the warmest on record. Had the weather been in line with historical trends, we would have captured incremental sales in the third quarter, driving further earnings outperformance. At the start of the fourth quarter, we experienced softer sales in cold weather categories. However, as temperatures have started to drop heading into the holiday selling period, we've seen notable improvements in selling throughout -- across our brands and channels. This momentum was further amplified during the critical Black Friday period with our products strongly resonating with consumers. Our marketing investments have driven a significant increase in consumer engagement, as best seen in the boosted traffic to our owned North American direct-to-consumer stores and websites, resulting in substantial growth in both conversion rates and overall sales. Our inventories are well positioned to support holiday and early spring demand. We remain cautiously optimistic about the remainder of the year as reflected in our raised earnings per diluted share guidance. It's been two years since the unexpected announcement of the upcoming expirations of our PVH licenses. At that time, those two brands represented approximately 50% of our revenue. We immediately set out to accelerate our long-term strategies and have made significant progress in transforming our business model. The plans we laid out are working. Our key owned brands, DKNY, Karl Lagerfeld, Donna Karan and Vilebrequin, collectively grew over 30% this…

Thank you, Morris. Net sales for the third quarter ended October 31, 2024, were $1.09 billion, compared to $1.07 billion in the same period last year and in line with our expectations. Net sales of our wholesale segment were $1.07 billion, driven by strong growth of our owned brands in North America, offset by a decline of the Calvin Klein and Tommy Hilfiger businesses. This compares to $1.05 billion in the previous year. Net sales of our retail segment were $42 million for the quarter, compared to net sales of $33 million in the previous year's third quarter. This increase was driven by strong double-digit comp sales increases in the quarter, despite the closing of seven stores. We are pleased with the progress we are making in our retail segment transformation, since the recently implemented management, footprint, merchandising, and brand experience changes. Our gross margin percentage was 39.8% in the third quarter of fiscal 2025, compared to 40.6% in fiscal 2024. The wholesale segment's gross margin percentage was 38.4%, compared to 39.6% in the previous year's third quarter. As anticipated, gross margins were lower than last year, due to a mix of programs, including a greater concentration of sales of our licensed brands. However, gross margins in the third quarter of fiscal ‘25 were slightly better than our expectations. The gross margin percentage in our retail operation segment was 52.3%, compared to 49.1% in the prior year, driven by the positive impact of our merchandising changes. Non-GAAP SG&A expenses were $259 million, compared to $234 million in the previous year's quarter. As you recall, we had guided a higher investment and expenses for this year, primarily associated with the marketing for Donna Karan and DKNY, and the expansion of our operational capabilities through talent and technology investments. The marketing expenses…

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-III's future as a global leader in fashion. I would also like to thank our entire organization, our many partners, and all our stakeholders for their support. Operator, we are now ready to take some questions.

Thank you. [Operator Instructions] Our first question is going to come from the line of Bob Drbul with Guggenheim. Your line is open. Please go ahead.

Hi. Good morning. It's impressive to see the outlook increase in light of the environment. Can you talk a bit more just about the third quarter outperformance and maybe just walk us through the puts and the takes for the remainder of the year?

Our third quarter shined fairly nicely, in spite of some warm weather and quite honestly, toward the end, we were a little bit disappointed. We thought we could drive even more business in the third quarter. We left a little bit on the table because of logistical issues. Although the port strike lasted for a bare moment, that bare moment probably cost us $20 million to $30 million in shipping. It was all ready to go. Containers were ready to be picked up. So we kind of slipped for Q3. The follow-up question might be, did it go into Q4? Part of it did. Most of it did, and Q4 is shaping up nicely. Our sales for the last 10 days have been very good. The weather is broken. Our outerwear sales are good. Reorders in pretty much every classification of product are handpicked, business opened up a little bit. Our footwear business is good. Our sportswear business is good, so it's all beginning to shine. The Q3 sell-throughs, we'll go back to Q3 for a minute, were good. We did amazingly well in our own retail. Historically, we've struggled in our own retail and we’re close to – this year we're planned on being pretty close to breakeven. Next year, for the first time in a decade, we will be profitable in our own retail, shrinking it to an appropriate size, and now evaluating how we now grow it to something significant in that world. So Q3 was a great learning period for us. We had new initiatives. We launched – earlier in the year we launched Donna Karan, and Q3 was great for Donna Karan. We did a little bit of shipping for Champion for the first time; that worked out well. And we've developed – now we have a developed line, pretty much ready to go for Converse. So we don't expect very much out of Converse until spring of 2025, but we're all geared to go. I think it all began and the energy was all kind of put in place in Q3. We're working very hard to replace the sales of what we are giving up. We should cite, as well, the fact that we gave back Guess as a license, which is approximately $60 million in annual sales that we don't yet go forward. We lose a little bit in Q3 and in Q4 shipping. If you look at Guess, we've brought down our Calvin business, or the retailers have brought down the scale of that business by a couple of hundred million bucks, and we've compensated for it. So I'd say we've done better than what you might even see, so. A little worry to your question, Bob. I apologize if I've left anything out. Give me a follow-up.

I think that's good. I mean, on the Converse side, just the timing of when that is shipped, when you start to ship. And then I guess the other piece, I don't know, Neal, the EPS bridge sort of Q3, Q4, the updated guidance, can you just give us a little more just around some of the puts and takes there?

Let me start with the Converse piece. Converse will have touches of product going out in spring. We'll have pretty good penetration globally, hopefully globally for fall of 2025. We're putting our distributors in place. We're opening regional offices. We've got an amazing talent pool that was put together that's very much experienced in this sector, and we've got great support from the Converse team. This was not a license we assumed from another licensee. This was owned and operated by Converse. And they saw us as a suitable partner to build the men's and women's business globally. So we're excited by the partnership. We believe this is scalable. The opportunities they've put on the table for us are impressive, so that's the Converse piece of it. Neal, the response?

Yeah Bob, so in terms of the puts and takes between Q3 and Q4 and just bridging you on EPS, so let's start at the top line. I guess compared to where we were before, we're probably about $15 million off in our model on the third quarter, about $35 million off in the fourth quarter. The real story there is Outerwear, plain and simple. The other categories are performing reasonably well. We did see some unusually warm weather. That certainly hurt us in addition to the supply chain issues that Morris was talking about. While it's broken now, right now we feel we've got a reasonable feel for what's going to happen in the fourth quarter. In terms of going back to the third quarter, very strong performance in the bottom line despite being slightly off on the top. Gross margin percentage came in stronger than we expected. Our SG&A we continue to manage very prudently, so we've got some nice efficiencies in our warehouse. That's to help a little bit to our low inventory levels. We did have a small amount of advertising spend that probably slipped from Q3 into Q4's period, but a very strong performance overall with respect to Q3 results and that really leads us into a very strong performance for Q4 results. So despite taking down top line sales, we're still looking for 6% top line growth in the fourth quarter. We're looking for over 25% EPS growth. So we fine tune what we expect our gross margin percentages to be in the fourth quarter. Those are up strong and nice. And we continue to monitor our SG&A judiciously.

Thank you very much. Good luck.

Thank you for your questions, Bob.

Thank you. [Operator Instructions] Our next question is going to come from the line of Ashley Owens with KeyBank Capital Markets. Your line is open. Please go ahead.

Thanks and good morning. I just wanted to keep on the subject of gross margin really quickly with expected to be up in the fourth quarter. Can you just talk about the magnitude of expansion, puts and takes there, and then just some insight into how holiday promotions are panning out relative to your expectations, let's say, three months ago?

Yes. So look, we know and expect that as we shift to our own brands, we don't pay a royalty on those brands. We've got the ability to generate licensing income. We've got a wider distribution network, and we expect to have higher gross margin percentages as a result of that shift. We've been seeing that this year. Freight increases have been moderate, that's been helpful. So overall, we're really kind of a little bit ahead of where we had expected to be in the early part of the year. With respect to promotionality, you know it's been out there. It has not been very extreme in our businesses. It is something that we build into our process, and we really haven't seen any extreme pressures beyond what we have anticipated.

The retailer is not promoting aggressively. I think the consumer is out there buying. There's nothing unique that has gone on. Conversely, it appears that margins aren't the issue. It doesn't appear that there's dumping throughout the world or through the fashion community. We certainly aren't promoting heavily to move our products, there's no need to. And the retailers are all in check. They are doing seasonal promotions that are not abnormal.

Okay. Great.

Thank you, Ashley.

Yep. Just one more on bigger picture, sorry. So bottom line, just growing slightly above the projected sales growth for this year. Obviously, last year, you had significant margin expansion and bottom line flow through. I would just be curious to gauge your confidence levels in the bottom line momentum next year should the growth continue to outpace the sales line? And then any buckets of opportunity you've identified for additional leverage going into next year?

Yes, a little bit too early for us to give you the specifics on next year, but we're very bullish about what's going on in our business. We're very bullish about how our brands are performing, very excited about the new launches for all the new brands that Morris was discussing. I think in terms of where we land from a gross margin standpoint, again, the shift to our own brands continues to be a positive lever. We're now launching a few licensed businesses. Those obviously, I think, perform at about the same levels that we would have been in our portfolio before. In terms of leveraging on SG&A, we did have the big spend this year on advertising. I think that sets a good baseline for us. I think, prospectively, we've got some new businesses that we're still launching, so we'll look into the advertising spend for those. But we'll certainly start to lever the base of a higher level of spending on the Donna Karan and DKNY business as we continue to see sales grow from those two brands.

Thank you, Ashley.

Okay, great. I'll pass it on. Thank you.

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Mauricio Serna with UBS. Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking my question. I just wanted to get a little bit more details on the Donna Karan brand and Nautica, but mainly Donna Karan since it's one of the biggest launchers you've had in a while. Maybe you could – you know, could you tell us more about, like how should we think about the contribution of that brand to this year's revenues? And then on the gross margin, it was nice to see the outperformance. I remember like the guidance called for some contraction because of the shift within brands, but just wanted to understand what was really like even stepping – taking a step back, what drove the outperformance in Q3’s? It was just like healthier margins on brands on a like-for-like basis. And as we think about 2024 – sorry, fiscal year ‘26, calendar year ‘25, is it fair to assume gross margin could continue expanding just on a revenue mix – on a brand makeshift? Thank you.

So, thank you for your question, Maurice. The Donna Karan launch was perfectly executed. The marketing married incredibly well with the product mix. The talent pool that we have at G-III, as their time was beginning to open up with the elimination of some of the categories for PVH, there was the ability to focus and study the archives of Donna Karan carefully and bring them to an affordable price point, at least affordable for where we were positioning it. Although elevated, it's a surprise to most women walking into the store to see a Donna Karan dress or sportswear or a sweater or a handbag or a pair of shoes at the price point that we're putting it out. Although 50% higher in most categories than our other brands, it's an absolute bargain. So we made friends with the consumer, we made friends with the retailer, and we were quite happy with the margins that it provided us. So, and what, now that we're more entrenched in it, there's an amazing amount that you learn as you launch a brand. There is some product that's better than others, some colors that shine, some prints that are worthy of further development, and you begin to eliminate the lesser performing areas. So, you can only expect better from what we've put out with Donna. We should be going through a major growth period that every retailer that has bought the product has expanded their door count, expanded categories, and let's use the term of quality of sale. The quality of sales is absolutely up there. There's careful distribution, careful analysis of price points, and continued marketing to support the needs of the brand. So, we're very, very excited by it, and you brought out Halston. We took on Halston from ABG,…

And just to follow-up a little bit, Mauricio, on your question as far as the financial contribution, I think, look at what we've accomplished this year. We've got improving gross margins for the year. As I just said before, it certainly is possible for us to continue that. It's going to be a function of how that, our own business is mixed with the licenses, the new licensed businesses that we're launching. Then the current year, we've got an SG&A spend that was rather unusual. So, I think if you strip that out, we're really very pleased with the performance. Not to mention that our retail performance has also now improved as well, which gives us an additional arrow in the quiver for the future.

Got it. Understood. Thank you so much.

Thank you, Mauricio.

Congratulations.

Thank you.

Thank you. And one moment as we move on to our next question. And our last question is going to come from the line of Paul Kearney with Barclays. Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking my questions. Can you speak to the current inventory position of the go-forward portfolio compared to the total? And on the 30% exposure to China manufacturing, how much lower do you think that can go and how quickly? And if you could provide any thoughts on how you are planning inventory for next year? If tariffs become more of a reality, do you anticipate the need to potentially bring inventory in early? Thank you.

So, thank you for your question, Paul. It's a good one. You know, it's an unknown, quite honestly. But I would say we're as prepared as anybody is to bring down the scale of our business in China or whatever country that aggressive tariffs impose, that are not manageable for us. We've done it before. You might be aware, but we come from a factory-based, not really a design-based company. The Founder of the company was an entrepreneur who was an immigrant. It wasn't about fashion for him. It was about his ability to – his need to make money. So he built a factory, produced product in New York City of all places. And when I joined his company, it was my dad, we were all about New York City. Everything was produced here on the West Side. And as time evolved, fashion brought us to South Korea. We brought our entire business basically to South Korea. From South Korea, we went to Indonesia. We were in Mongolia. And today our home office is in Northern China, overseen by a gentleman that's been with the company for over 30 years and we're very flexible. If we were – if there was a need to move out of China to Caribbean-based countries, we have a footprint there. We're in Jordan. We're basically anywhere there's a sewing machine, you'll find our presence. And we have a team of people that have been with the company. The leadership in China has been with the company since 1984, most of them. And they are very, very flexible. They are very company. They are not suit and tie. They are boots on the ground and where do we go next? And what do we need to do? So I think that's about as secure as I can be. I believe that that's a major advantage for our company in the competitive landscape. I don't think anybody can do it better than we can. It's not something we look forward to, but it's something that I believe we can manage. And as I said in the script, we were 80% some-odd at China several years ago, brought down to 30%. And if you eliminate our coat business from China, we're at about 20%. So I would say it wouldn't take us very long to accommodate what is thrown at us through tariffs and political strategy.

Just in terms of inventory levels, compared to where they've been and the go-forward brands and the non-go-forward, the inventory levels are in excellent shape. That's across the portfolio. I think prospectively, we would expect not the size decreases that you've seen for the first three quarters, but probably more in line with future sales growth prospectively.

Thank you very much. Happy holidays!

Thank you, Paul. Thank you for your question.

Thank you. And I would now like to hand the conference back over to Morris Goldfarb for any further closing remarks.

Thank you all for your interest, your support, and we wish you an amazing holiday season. Thank you very much.

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