G-III Apparel Group, Ltd. (GIII) Q4 2018 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter and Full Year Fiscal 2018 Earnings Conference Call and Webcast. My name is Elaine, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Neal Nackman, Chief Financial Officer of G-III. You may begin.

Thank you. 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, annualized non-GAAP net income and loss per share and to 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 and on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning and thank you for joining us. With me today are Sammy Aaron, our Vice Chairman and President; Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; and Jeff Goldfarb, our Executive Vice President. Our fourth quarter and full year results, we’re pleased to have closed the fiscal year with continued record breaking net sales and strong net income, reflecting back, I am proud of all that we’ve accomplished this past year. We have successfully captured growth across our existing portfolio of brands and also did a really good job in executing the integration of DKNY and Donna Karan brands, our largest and most important acquisition to-date. Now let’s take a look at our fourth quarter and full year results. We increased our fourth quarter net sales by 19% to $715 million from $603 million last year. Fourth quarter non-GAAP net income was $0.26 per diluted share compared to a net loss of $0.16 per share in the fourth quarter last year. For the full fiscal year, we grew net sales by 18% to $2.8 billion from $2.4 billion in the prior year. Non-GAAP net income per diluted share increased 12% to $1.60 from a $1.42 in the prior year. Our adjusted EBITDA for the year increased to $201 million, an increase of $53 million from the prior year. We concluded fiscal 2018 with the Calvin Klein business in excess of $1 billion in annual net sales and all categories performed well. We believe we still have an opportunity for continued growth ahead with Calvin Klein. We more than doubled our annual net sales of Tommy Hilfiger products to $275 million. The combination of our execution and great advertising and marketing from PVH has made the brand a strongest it has been in many years in the United States. Our outlook for fiscal 2019 is for another year of growth. We doubled our sales of Karl Lagerfeld Paris products, another iconic designer brand. We have created an accessible fashion line with a specific provision flair. As a result, the consumers responded quite well. We have built out great collections in multiple categories, each of which we believe will be meaningful to the whole brand. We are building the Karl Lagerfeld brand methodically and we continue to expect it to become an important pillar for G-III over the next several years. Now in our second full year in the North American market, we are increasingly confident that we can grow other brands capturing major opportunity. We are very pleased to have successfully integrated the DKNY and Donna Karan brands and the operations on to our platform this year. We achieved an unquestionably successfully launch of key categories for DKNY and partnership with Macy’s in the United States. In addition to our ready-to-wear launch of DKNY’s sportswear, which did well out-of-box accessories, and our shoe and handbag collections gained momentum this spring. We have also just recently launched DKNY dresses and the early read is promising. DKNY products are now available in over 400 Macy’s doors. We are excited to be a prominent brand in their top doors and several important categories. We have also re-launched DKNY with Hudson Bay for the Canadian market and with Liverpool in Mexico. DKNY is a global brand with a global opportunity. This past quarter, we re-launched the Donna Karan brand and ready-to-wear handbags and shoes into fine department stores and we are pleased with its development. We continue to be confident DKNY and Donna Karan will both grow to take their place among our largest and most profitable businesses. As we move forward with both Donna Karan and DKNY, we have decided to become fur free with both brands beginning with fall 2019. This commitment follows a longstanding relationship with The Humane Society of the United States. Let me take a moment to talk about our outerwear business. While we have become more diversified and less seasonal with each passing year, outerwear is still a big category for us. This year’s winter is conducive to a big outwear season with all brands performing well. The many other brands in our wholesale mix also did well this past year. Our top performance includes Eliza J, the best-selling dress brand in Nordstrom's and our team sports business which will continue to grow its partnership with Fanatics, a great online sports retailer. Vilebrequin, our status swimwear brand had a much-improved year with full year comps up low double-digits outside of the US and mid-single-digits in the US. We continue to push for expanded wholesale distribution with the best specialty stores in the world as well as a more vibrant company-owned e-commerce business. We are particularly focused on developing the business in China and have signed a key partner for distribution in some of the best markets. We have recently opened in a store in the prestigious Atlantic Hotel in the resort town of Sanya City and expect to open four to five additional stores this year in strategic cities across China. As for our own retail stores, we made good progress and reduced our losses by nearly half in Wilsons and Bass. We remain focused and confident that we will achieve a one-third reduction of our store base by the close of this fiscal year ending January 31, 2019 compared to a store base of January 31, 2017. In the fourth quarter Bass and Wilsons were roughly on plan. Margins were much improved and outerwear sold well at Wilsons. We continue to see an improving comp trends at both brands. I would also note that beyond our store reduction plan this past year we converted eight doors to Karl Lagerfeld and five doors to DKNY. We plan on further reducing our losses in this upcoming year through better store productivity, operational efficiencies and additional store conversions. Overall, looking ahead to 2019 and beyond, we continue to see a significant opportunity for us to continue to grow our business and to be the partner of choice for our department stores as well as our license stores. The depth and breadth of choice available to the consumers is unprecedented. The shift to shopping online also continues to strain brick and mortar. Now the consumer has access to instantaneous information on products and pricing, they are making informed decisions on which channel and from which retailer they make their apparel and accessory purchase. To that point, we too continue to evolve and we are uniquely situated with regards to e-commerce. Our products sell extremely well online through the well-developed sites of our retailer partners. This continues to be a larger percentage of our overall wholesale business. We will continue to build our partnership with pure play online retailers including Amazon. We have incorporated a thoughtful allocation plan that preserves our brands and enables further growth. At the same time, we will continue to develop and enhance our own e-commerce platforms which include DKNY, Karl Lagerfeld, Vilebrequin, Bass, Wilsons and Andrew Marc. Successfully navigating the changing retail environment is a result of our focused and thoughtful approach to our business. Brands particularly like our global power brands, DKNY, Donna Karan, Calvin Klein, Karl Lagerfeld and Tommy Hilfiger as well as the other well-known brands in our portfolio have never been more important for our customers and consumers. We built a well-diversified business and we continue to deliver a clear fashion aesthetic that is unique to each of our brands. Our brands distinct lifestyle and fashion positioning are a key competitive advantage. As I said before, this is a challenging market environment and the consumer buying patterns are affecting the overall retail landscape. I’d like to take a moment to discuss our current business with the long-standing customer. As many of you are probably aware, Bon-Ton department stores has filed bankruptcy, we therefore believe that it is prudent to forecast that business excluding Bon-Ton. We believe the negative impact on this year’s results will be in overall reduction of a $100 million in net sales. The associated reduction of our diluted earnings per share is expected to be approximately $0.30 a share. We believe that the beyond this year, whatever the outcome there is consumer demand for our products in the markets that Bon-Ton serves. Beyond this point, the remainder of our wholesale business is healthy and as Neal will describe in detail in a moment, we continue to see a good year ahead of us. Thank you, I’ll reserve the few comments with closing and now I’ll pass the call to Neal Nackman, our Chief Financial Officer.

Thank you. Fourth quarter results net sales for the fourth quarter ended January 31, 2018, increased 18.5% to $715 million from $603 million in the same period last year and net sales of Donna Karan brands added approximately $57 million of sales in the quarter excluding the Donna Karan sales, net sales for the quarter were approximately 10% higher than last year. Net sales of our wholesale operation segment increased 17% to $566 million from $484 million. Net sales from our Donna Karan product lines accounted for $49 million of this increase. Net sales of our wholesale operation segment excluding Donna Karan sales increased by 7% in the quarter. Net sales of our retail operation segment increased 3.6% to $178 million from $172 million. Net sales increased by a $11 million from our DKNY stores. Wilson’s leather sales increased with same-stores sales increase of 2.5% compared to the same period in the prior year, these increases were partially offset by a decrease in net sales at our G. H. Bass store chain where same-store sales decreased by 6.8% compared to the same period in the prior year. We operated 44 fewer source at the end of fourth quarter of fiscal 2018 compared to the end of fiscal 2017. Our retail fiscal year included 53 REIT this year, which cause the quarter to include 14 weeks of results compared to 13 weeks in the previous year. This added approximately $6 million of sales in the quarter compared to last year. The Donna Karan business was acquired in December 1, 2016 and the quarterly results of operations will only include for two months in the previous year’s fourth quarter. Our gross profit percentage was 36.3% for the quarter compared to 32.8% in the prior year’s period. The gross profit percentage in our wholesale operation segment was 29.5% compared to 26% in the previous year. This increase in gross margin relates to stronger performance across many of our wholesale divisions. In particular Calvin Klein, Tommy Hilfiger and Karl Lagerfeld, all had higher gross margins and the outerwear divisions also achieved higher gross margins. The gross profit percentage in our retail operation segment was 51.4% compared to 41.8% in the prior year. This increase in gross profit percentage is due significantly to an increase in gross profit percentage at Wilsons and G. H. Bass where we saw less promotions. Total SG&A expenses increased to $219 million in the quarter from $200 million in the same period in the previous year. This increase is primarily attributable to the Donna Karan business which was included for two months in the prior year’s fourth quarter. We recorded asset impairment charges primarily to furniture and fixture and leasehold improvements in some of our underperforming retail stores in the amount of $7.9 million compared to $10.5 million in the prior year. Our GAAP net loss for the fourth quarter was $542,000 or $0.01 per share compared to a net loss of $20.1 million or $0.42 per share in the previous year’s fourth quarter. We had non-GAAP net income of $0.26 per diluted share in the current fourth quarter compared to a net loss of $0.16 per share in the prior year’s fourth quarter. Non-GAAP results exclude professional fees and transitional expenses of $0.3 million and $9.1 million in the fourth quarter of fiscal 2018 and 2017 respectively; the impact of non-cash imputed interest of $1.4 million and $1 million in the fourth quarter of fiscal ‘18 and ‘17 respectively; asset impairment charges of $7.9 million and $10.5 million in fiscal 2018 and ‘17 respectively; and income tax charges of $7.5 million in fiscal 2018. The income tax charges related to the one-time effects of the new Tax Act primarily relate to a reduction of deferred tax assets and taxes due on foreign earnings. Full year results. For the full fiscal 2018, net sales increased by 18% to $2.81 billion from $2.39 billion last year. Net sales of our Donna Karan brand added approximately $230 million of sales in the year. Excluding the Donna Karan sales, net sales for the year were approximately 8% higher than last year. Net sales of our wholesale operations segment increased 21.4% to $2.45 billion from $2.02 billion. Net sales of our Donna Karan brand added approximately $211 million in the year. Excluding the Donna Karan sales, net sales for the year were approximately 11% higher than the previous year. Net sales of in retail operations segment increased 6% to $502.5 million from $474.2 million. Net sales from Donna Karan stores, increased $59 million. This increase was offset by sales reduction at both G. H. Bass and Wilsons. For the full year, comp sales decreased by 1.7% at Wilsons and decreased 5.8% at G.H. Bass. In addition, we operated 44 less stores as of the end of the year compared to the prior year. Our gross margin percentage was 37.6% in fiscal ‘18 compared to 35.2% in fiscal 2017. The gross margin percentage in our wholesale operations segment improved to 32.8% from 31.4%. The gross margin percentage in our retail operations segment was 49.9% compared to 43.6% in the prior year. The whole sale gross margin did benefit approximately 100 basis points from the addition of Donna Karan licensing income for which there is no associated cost of goods sold. The retail gross margins were positively impacted by better weather in the fourth quarter and less promotional activity. Selling, general and administrative expenses increased to $855 million or 30.5% of net sales from $704 million or 29.5% of net sales in the prior year. This increase includes approximately a $135 million of incremental expenses related to the Donna Karan business which is only included in our results of operations for the last two months for fiscal 2017. Net income for the year increased to $62.1 million or $1.25 per diluted share from $52 million or $1.10 per diluted share in the prior year. Net income includes the effect of professional fees and transitional expenses on $2 million and $11.7 million in the full fiscal 2018 and 2017 respectively, the impact of non-cash interest of $5.7 million and $1 million in fiscal 2018 and 2017 respectively, asset impairment charges of $7.9 million and $10.5 million in fiscal 2018 and 2017 respectively and again, the same income tax charges of $7.5 million in fiscal year 2018. On an adjusted basis, excluding these items from the current and prior year's results non-GAAP net income per diluted share was $1.60 for fiscal 2018 compared to $1.42 for fiscal 2017. In addition, the company’s effective tax rate excluding the income tax charge was 36.9% of fiscal 2018 compared to 33.2% for fiscal 2017. Regarding our balance sheet. Account receivable increased 12% to $294 million from $264 million, inventory increased 15% to $563 million from $483 million. Our inventory increase is higher than our projected sales growth primarily as a result of the launch in growth of the DKNY and Donna Karan wholesale and retail business. We spent approximately $35 million on CapEx for 2018 primarily related to the additional fixturing cost at department stores. At the end of the quarter, we had long-term debt outstanding of approximately $391 million which we incurred primarily in connection with the purchase of Donna Karan, this compares to $462 million at the end of the previous year. In addition, our cash balances at the end of the quarter were $46 million compared to $80 million a year ago. Looking ahead to 2019 and beyond takes into effect the impacted of several factors which includes the exclusive sales related to Donna Karan stores incorporated. We anticipate this will result in our sales and this year being approximately $100 million than it would otherwise have been and we’ll have in our favorable impact on our fiscal 2019 net income per diluted share of approximately $0.30. We also require to implement the new revenue recognition standard which for us will require us to reclassify, co-operative advertising expenditures from SG&A to a reduction in the net sales. This will result in a decrease in net sales growth and gross margin percentage of approximately 1% than what it would have been otherwise. Similarly, there will be an offsetting reduction in our selling general and administrative expenses. In addition, we are now anticipating an effective income tax rate of 27% for the upcoming fiscal year. With that said, for the fiscal year ending January 31, 2019, we are forecasting net sales of approximately $2.94 billion compared to $2.81 billion in fiscal year 2018. We expect net income to be between $97 million and $102 million or between $1.90 and $2 per diluted share as compared to net income of $62 million or $1.25 per diluted share in fiscal ‘18. We expect our non-cash imputed interest expense of $5.7 million in our forecasted results. On an adjusted basis, excluding non-cash imputed interest; we are anticipating non-GAAP net income of between $101 million and $106 million or between $1.98 and $2.08 per diluted share. It also assumes a weighted average diluted share count of 51 million shares. We are projecting full year adjusted EBITDA for fiscal 2019 of between $218 million to $227 million compared to adjusted EBITDA of $201 million in fiscal ‘18. We are anticipating mid-single-digit comp increases at both Wilsons and Bass for the full year. We anticipate continuing to reduce the retail losses in our Wilsons and G.H. Bass operation by between $10 million to $15 million in fiscal 2019. This will be from a combination of planned comp increases, planned gross margin improvement and reduced losses from closed stores which we approximate to be around $4 million. For the fiscal quarter ending April 30, 2018 we are forecasting net sales of approximately $570 million and a net loss between $2 million and $7 million or loss per share of $0.04 to $0.14 per share. This forecast compares to net sales of $529 million and a net loss of $10 million or $0.21 per share reported in the first quarter of fiscal 2018. The first quarter forecast assumes non-cash imputed interest expense of $1.4 million. On an adjusted basis, excluding the non-cash imputed interest expense; we are forecasting a non-GAAP net loss between $0.02 and $0.12 per share as compared to a non-GAAP net loss of $0.18 per share in the previous year. That concludes my comments. I will now turn the call back to Morris for closing remarks.

Thank you for joining us today. We are proud to have been able to provide leadership in the marketplace including with our new product launches, especially DKNY and Donna Karan. To be clear, a lot of what we’ve been able to achieve is because we have the trust and the dedication of customers across the retail spectrum. Every time we tried something new our retail partners have stepped up and supported us. This is because they know we deliver. Their support truly inspires us. Our brands resonate. We are firmly on a path to growth. While we may face some challenges along the way, this market essentially is an opportunity to us. It will be winners that emerge from this period of rapid change and our intent is to make absolutely sure that we are in the winner circle. We also intent to do everything we can to make our customers are there with us as well. Thank you. And we are now ready to take your questions.

Thank you. We will begin the question-and-answer session. [Operator Instructions]. And our first question comes from Edward Yruma from KeyBanc Capital. Please go ahead.

Hi, good morning. Thanks for taking my question. Morris you guys had some commentary on the improvement in profitability at Wilsons and Bass and I was thinking of something that will continue into fiscal ‘19. How should we think about the overall outerwear business in relation to guides you’ve given and how do inventories at the end of the seasonal look?

Inventories at Wilsons -- and let me start from the back first. Inventories at Wilsons are in very good shape, we sacrificed a little bit of our spring opportunity to monetize. That actually worked out well, whether through springs been quite cold, so we’re busy selling fall product and we’ve start out with the good inventory level, it’s better than it’s ever been from an assortment point of view. We’ve also managed to sell off some of the dated inventory to jobbers and our business is good. The first quarter as you’ll see will lead you to the believe that the remainder of the year will continue to be strong. So, we’re quite pleased with where Wilson is.

Just in relation to your outerwear business for your entire business and how you think about kind of industry conditions in outerwear for this year?

Industry conditions are good, everybody monetized their inventory, the season ended strong. The, off price channel came around and basically cleaned up most of what was left over for pack ways for the coming years. So, everybody is positioned through a good year, we’ve bought fairly aggressively early to take advantage or maybe not take advantage, but to ensure ourselves the competitive pricing. So, that began sometime in October and where we were more aggressive on our purchases, we’ll begin to receive some of next fall products a little bit earlier. And we’re happy that we made that decision. So, I’m sure the marketplace responded in similar form, our competition, the people that are in the outwear business, all ended up on a high note. So, it looks like outwear will start out as strong classification yet again.

Great. And one final one if I may. How should we think about the DK revenue that you’ve embedded in the fiscal 2019 guidance? And are there any significant shifts due to the seasonality? Thank you.

We will be approaching the $400 million total Donna Karan business, the significant increase of that is in the wholesale part of our business. And we would expect the Donna Karan would be somewhat similar to the normal seasonal businesses that we’ve had like what Calvin Klein, and with Tommy Hilfiger would be. So, we’ll be slightly back ended, but certainly nothing like some of the businesses that we’ve run that are outwear based. So, it should be a fairly a normal flow throughout the year with the exception that we do expect to continue to be growing the business so, we would expect continued escalations as each season unrolls.

The cycle changed a little bit as we’re becoming a little bit more important in the European market. The best performing and maybe the biggest volume categories for us will probably be footwear and handbags and accessories. And that cycle may shift the calendar a little bit, but it’s a good opportunity for us. It’s better margin than we’re accustomed to and it’s an assortment of the retailers that we’ve never traded with that all of the sudden kind of expand into kind of some of our other brands as well.

Our next question comes from Erinn Murphy from Piper Jaffray. Please go ahead.

Great, thanks. Good morning. A couple of questions from me. I guess first just on the Bon-Ton impact, it seems a little bit higher than you would have anticipated from an ETF perspective, kind of implies margins are much closer to like 20% for that business versus your 8% wholesale average. So just trying to understand A, if there’s anything else in there; and B, just kind of what was the historic -- or I guess why was the historic possibility so much higher than your average?

Yes, so Erinn there’s nothing else in there. When you take sales off the top, there’s not at this point for us a significant review of fixed expenses associated with that. So, if you were to look at the normal margin we would have expected and the variable expenses again of taking sales off the top of one account, it does come in at a very high operating margin versus the entire operating margin for the business in the wholesale segment.

Adding to that Erinn, there’s $0.30 is attributed to Bon-Ton but it’s a whole package. There’s an off-price component that comes with doing department store, full priced department store business. Each one of our licensees permits us a percentage of off price that relates to the full price business. We have factored in the give back of the off-price business that’s got a wide range depending on brand.

Okay, now that’s helpful. And then just on the Donna Karan, just going back to I guess Ed’s last question you said I think Neal that you’d be approaching $400 million in terms of revenue for this year. I guess help us think about where we are at from an inflecting profitability perspective in fiscal ‘19?

Yes, so as we said before Erinn, we do expect in the plans this year is an operating profit for Donna Karan as a result of those increased sales. There is not a significant SG&A lift associated with those sales.

Okay. And then just one other one, just I guess on the retail business. I think more you talked about an improving trend quarter-to-date for both retails businesses. Can you just expand a little bit more on that? It sounded like Wilsons, the fall weather is helping that, but maybe more serious on the G.H. Bass business, and are you tracking to where you guided that positive mid-single-digits?

Clearly the Wilsons business is a factor of the weather working our way and being prepared with inventory. The Bass business has gotten better as we received spring deliveries, the assortment is a stronger. The margins are significantly better and we are selling off a good deal of our dated problem inventory. So, it all pretty gives us a picture of the future which is cleaner inventory, less product in the backroom, more current and fashionable inventory. We have realigned our design and our sourcing structure for that and we believe we are in the middle of a much better year.

And our next question comes from John Kernan rom Cowen. Please go ahead.

Neal, can you just talk about what’s embedded in your guidance for Calvin and Tommy, obviously both brands had a lot of momentum in fiscal 2018. I’m just wondering how we should model them and expect to model them in 2019? Thank you.

Yeah. So, the Tommy business will continue to grow, the Calvin Klein business will be more seriously impacted by the loss of sales related to Bon-Ton. So, I think from a net basis, we would be down in that business as a result of that.

So, I guess maybe excluding Bon-Ton what would be, what would you expect those two brands will be growing this year?

Yeah. So, look the Calvin business, we had initially, so we can get up about a $1.5 billion that would probably be include mid-single-digit type growth perceptively. We’re still feeling that the Tommy Hilfiger business ultimately comes a $1 billion as well, much smaller base so much higher growth rate on the Tommy Hilfiger business.

Okay. And then just thematically as we think about the department stores they just have their holiday season in a long time, it looks like the level full price sell through has obviously increased pretty significantly recently and you obviously hinted the inventory levels are much better than they have been in the prior years. So, when we think about the health of the overall department store channel beyond some of the headlines like Bon-Ton? how are you doing that channel both in Brick & Mortar format and digitally going forward?

So, digital and Brick & Mortar and most of our retailers are almost one. They’re investing heavily in their online businesses and its showing the percentage of visitors that we might do with any given retailer today, skews a little bit more than it ever has towards digital. It’s growing at a greater percentage on digital which is more than compensating what might be missed on the Brick & Mortar side. The other element is lot of that department stores have added a component of an off-price channel whether it’s Saks or Nordstrom's or Macy's they all have off-price components that is also showing up their businesses. So, their focused on better products more appropriate pricing and more appropriate pricing doesn’t mean cheaper pricing. The goal in most retailers is to get their AUR, their averaging unit retail up not down. So, it’s a problem environment in many areas but there are solutions for the problems. And the astute retailer is finding them, it will take time. We’re all looking for a business that we can better understand, the digital side of what we do today is fairly new. The antiquated Brick & Mortar and department store business is one that is a little bit dated maybe a little bit more than a little bit. And there is not a retailer that’s not aware of what they need to do to get the consumer back in the door. So, at the end of the day there, as I said earlier this is a time where the stronger and more creative do prosper. So, I think we’re part of that and there are certainly retailers that are going to be leading the charge and some will lose.

Okay. And then maybe going back to Donna Karan, I think Aaron’s question focused on what you thought the profitability will look like in fiscal 2019. What about the long-term margin structure of this business as we go into fiscal 2020 and 2021. How should we think about of updating our models in terms of the overall operating margin at Donna Karan business?

Yes, without getting specific on guidance for the next two years, we have always viewed this and continue to view the business as one that will lever the SG&A much more dramatically than what we have in the portfolio existing because we did start with an acquired base that was pretty big and we built it pretty quickly. So, we continue to think it will see leverage from the business and it will be ultimately a 15% to 20% type operating margin that emanates from that business as a result of getting licensing income, not having to pay royalty on the wholesale piece of the business and continuing to improve the retail part of it.

Our next question comes from Eric Tracy from Buckingham Research. Please go ahead.

Good morning and thanks for taking my questions. Just real quick clarification Neal in terms of the Bon-Ton, are you assuming low shipments to Bon-Ton this year? I just want to make sure because that was still in operation, I just want to make sure that’s the case.

Yes, we are assuming a very small amount.

Okay. And then as it relates to DK, in the 400 million or approaching 400 million contribution, could you maybe just explain on that in terms of the visibility, be it from a category perspective or the distribution and how that layers in and is that -- is there any change to that based on last quarter in terms of the cadence and timing of that rough contribution that we should think about?

Sure. We initially launched DKNY with handbags then sportswear, footwear came next, and the piece that happens to be the strongest within the category that is strongest in our mix at G-III is really the dress business and that came on late. We had a segment that we weren’t happy with it. We didn’t bring to market, this happened regularly. So, our first delivery of dresses or our first planned delivery of dresses never happened. Dresses have now hit and performance as well is doing quite well. We are learning a lot. You aggregate some of the winners, you expand on the commonality of the winners and you go forward and extract the components and make a broader assortment of winners. So, we are in a process of doing that. Our bookings are really strong on the dress side of it. So as far as the mix that is yet to come, it will differ from the mix that’s out there. Our footwear business is strong, it’s strong globally. And our handbag business again -- on the bookings on our handbags are very good. Ready-to-wear, always the problem child, it’s a broad assortment of the product that needs to be delivered pretty much at the same time with newness appearing on the floor on a regular basis. That’s doing okay. And we are going to grow our coat focus, our coat business was -- on the men’s side was virtually not existent and our women’s business in coats was quite small. So, I would say that Q4 there would be significant difference in the scale of Q3 and Q4 for DKNY because of the kick in of the outerwear business that wasn’t thought as well as it is going forward.

Before asking this in terms of the composition of domestic, international and ultimately that long-term target when you guys initially acquired DK. Has that changed at all accelerated near view in any just sort of color on the overall contribution would be great.

Part of it is has shrunken. We’ve called in the non -performing pieces, the distributors that were not achieving their goals and merely had a guarantee commitment to LVMH for minimum guarantees. We kind of negotiated and renegotiated out of those that, it was not going for any party. We’ve established partnerships that are supposedly and hopefully that’ll be significantly better one in China that’s a joint venture that we’ve not launched yet. So, we’re looking at an area that was one of our largest distributors that's at a zero base for the moment that will launch for fall. And we should see a significant difference for the back end of the year. As far as the European business, most of the business for DKNY was really the wholesale business, really done in Europe. We do deeply as the company does very little outside of Vilebrequin that caters to the European business. So, what we find interesting is that we’ve opened many new accounts, none of them have bought to the scale that our American Department Stores or the American Retailers buy, but they’re all in they’re all excited about the opportunity of marketing DKNY at a different price point with an aggressive provider that also put reorders. So, we’re aggressive and we’re quite comfortable that we can achieve success in the European market, in the Asia Pacific market, in the Middle East and also in Russia. We’re seeing the excited partners for the first time we came into troubled brand that now is true partnership we’re listening to what they need, we’re producing what they need. And they are excited every one of them is excited to get our attention. So, we’re in a good place with this brand.

Our next question comes from the Susan Anderson from B. Riley FBR. Please go ahead.

Hi. Good morning. Thanks for taking my question. I wanted to touch a little bit on marketing just looking at that if you’re adding any marketing dollars this year and then also I think back at ICRE you talked about any marketing campaign for DKNY. So, if you could touch on that a little bit and what that entails, that would be great. Thanks.

We do have a plan, we have a budget for an aggressive marketing campaign. You’ll see it delayed a little bit. Our choices for how we market and who we market with are just strumming up right now. But you’ll see a good deal of marketing, we’ve learned from the success of PVH wonderful marketing generally results in good business. So, we saw it, we are a student of it. We are the beneficiaries of good marketing from PVH and we will take a page out of their playbook and apply to ours. So that’s one. It’s not only DKNY, it’s also for Karl Lagerfeld. We have a planned launch of flagship store which is actually a conversion of DKNY store and Soho this year, that will interact some of the marketing we have planned as well as Karl himself who has been doing a great job in Europe that we’re the beneficiary of in the US of the Karl Lagerfeld Paris collection, where we market Bass well. We are building a reasonable licensing revenue for Bass and to support that we believe appropriate marketing really is necessary. Beyond that, Estee Lauder is launching a new fragrance which is not done very often, them spend will be significant that is specific to DKNY. So, we’ve previewed it, we think it’s great. So, we will be the beneficiary of brand building that will be done through Estee Lauder as well.

Great, that’s helpful. And then just one last one to touch a little bit on the door closures. I guess it's kind of maybe giving your overarching view kind of going forward, what exposures do you think you have left after Bon-Ton, will it just be the existing retailers, department stores trimming, kind of existing doors which you may not be in a lower tier, would you expect some more larger scale closures going forward?

The closures that will occur as they have historically will be the non-performing stores. So, I don’t really view that as major exposure. There may be a lesser door count but it will be a healthier business. And generally, our partnership with department stores leads us to support some of their losing doors, so think closed losing doors, we may slip on -- a little bit on the top-line but I think we pick it up in profitability. And beyond that we are always fighting for extra money in the performing doors and maybe the shift in inventory will support what’s needed to supplement performing product and performing doors. So, I don’t really see that as a negative. The online business as I said earlier is really packaged with brick and mortar in our customer base, so as may be brick and mortar slips somewhat it appears that the online business picks up the miss. The third component is we’re first building our own online business and we are at the embryonic stage. We are investing in it. We have a great staff of people. We are seeing improvements every single day. So, I think that’s really not factored into the growth aspect of what we’re putting out there but that should become something that resonates possibly this year, if not this year it will be next year. And then the other piece of it is the piece I touched on which is the European piece. We don’t have a presence in Europe, universe of competition when they release earnings and they talk about how they’ve done historically, their focus on good performances generally been outside of the United States. We’re an American company, distributing almost exclusively in the states and for the first time we’ve crossed those borders and we’ll have something that will be impactful in the coming years at international. So, we've got some very good addition to our business that really sure up some of the problem issues that resonates for all of us when we read what goes on in the state and how the consumer responded.

Our next question comes from Chethan Mallela from Barclays. Please go ahead.

Hi. Good morning. I just want to ask about the private label partnership with Amazon that you discussed in the last call. Can you provide a little more detail on the product categories that it covers, the size of the business right now and how you’re thinking about going it and just the strategic motivation? And then is the cost of this can be at least margin neutral just because of the lack of royalty?

So, good question. let's start with the categories. The categories are primarily coats and dresses, the scale of the business is very small, there is a cost attached to developing a broad range of product and executing deliveries on small units as this grows. There have been several stages of management and buying changes at Amazon. And quite honestly, we’re rethinking our partnership on the private label piece of it. So, there is a growth right now at Amazon G-III rather through the marketplace or their purchases of our brand. Our license brands Calvin Klein, Tommy Hilfiger they’re important to Amazon. So, it’s a large account for us, but the focus has taken a little bit of the private label focus off the table until they’ve stabilized their organization and it’s clear to me what our expectations should be and can be.

Great. And then just on a quick follow up on the DKI our China JV. I believe last quarter the expectations was that products' going to start shipping in early 2018. And now it sounds that there might be plans for the fall. So, I’m just curious if there is a change there. And then just more generally around the strategy in that market. Could you just try a little context on the categories that you’re going to plan to launch initially? And how you’re thinking about the initially distribution in the belt?

So, we’re first shipping product for fall, we’re also shipping is we’re in the middle of that cycle as we speak. So, I don’t believe it’s really delayed through expectations. The categories are pretty much, it’s a broad range of everything that we do and then some. What we’ve done in that marketplace is we’ve hired design that will -- that lives in Shanghai, we have merchants and production tracking people that are specific to the partnership. So, we’re treating it as a provider for the local market with some percentage of the needs filled by an organization that resides in Shanghai. We believe that’s the best way to serve a market that sees products a little bit differently, the size, scales are a little bit differently, they are a little bit different. So, we are excited by the opportunities but we are not treating it the same as we are Macy’s in the US. So, I would say by July, August, we would have a good representation of what we do. Part of the growth will come out of company-owned stores and shop-in-shops that we create and a big piece of the future growth of that partnership will be through franchises that we have signed on and they pay for product, they prepay for product, there’s little risk in it other than failure and there’s a fair amount of franchises that are -- franchisees that have signed up for this initiative and many more that are waiting to see the early stage of development, the early stage of performance.

Our next question comes from Jim Duffy from Stifel. Please go ahead.

Morris, there’s been a lot of recent comments from retailers about increasing penetration of exclusive brands and private label. Can you comment on how you think about this as it to relates your business and partnership with retailers, where do you see further opportunity for exclusives, how do you think about opportunities as a private label provider? That would be helpful, thanks.

Thanks for your question Jim. We’ve always been a student and participants in a private label. If you are going to hit the piece of the business that attracted the most, it’s always been the private label piece. And that’s how it was built, it was built with specialty retailers through the 70s, 80s and 90s and as specialty retail faded away we needed a new model to do department store business and that became licensing brands that would be important to the department store side. So, we were really great on producing products, sourcing products, designing products. Our weakness had been believe it or not, building brands. So, licensing became the cure. But we never lost sight of the private label silo, we have an entire silo with a team of people that has designated designers and sourcing people who are for specific retailers. For competitor reasons I prefer not to disclose those but they are all important. They are all primary retailers in the United States. You would be surprised as where our product resides. And it is also department stores. We do private label for Lord & Taylor with their brand. We do some private label for Dillard’s. We do some private label for Nordstrom's. We do some private label for Macy’s. And then there’s Kohl’s and JC Penny. So, we have a presence in all of those retailers with private label. Better than private label is actually the fact that we acquired an interest in Karl Lagerfeld to control the distribution and have it not as absolutely private label, but as a controlled distribution brand to retailers that needed not exclusivity but a little security that it wouldn’t be a highly promotional brand. So, we achieved that and as you know with DKNY, which is that’s an expensive private label initiative, but that’s primarily a Macy’s brand. So, we were respectful of private label and understood the need of retail wanting to be special. I think this is the trophy piece. So, the scale of it, that’s agreed upon between G-III and Macy's is quite significant. And it was the enabler to acquire the brand quite honestly. The other pieces we have a brand that is Nordstrom's best dressed brand and it’s not exclusive to Nordstrom's. But it’s primarily Nordstrom's, again we control the distribution. It's our brand. It's Eliza J, I am not sure you have ever heard of the brand but it’s the largest dress brand in Nordstrom's. So, we have long waited, I like the private label business. I understand the need for it. And you’ve begin to take on a different profile as a company when a retailer believes that you can protect what they ask you to protect, the integrity of the brand, the integrity of product and the specialness of what they want to achieve. So, our organization is built that way.

Okay. Thanks for that. Neal, coming your way, can you quantify the revenue and profit impact from closed retail stores in the just completed fiscal year?

So, Jim the revenue figure I do not have handy, but I spoke to the $4 million improvement and losses that were close stores off in the prior year.

Okay. So, that was as it relates to the this reported year not the upcoming year?

That’s right, that was losses in the prior year that we will not repeat.

Got it. Okay. And then receivables Bon-Ton, where do you sit as far as that goes?

We’re in good shape, we managed our business well. There was no additional reserve that was needed, we were cautious with our shipping. And we believe we’re fine.

Okay. And then last one for me, Neal, interest expense expectations for 2018 and your expectations for cash flow for the year?

Yeah. So, we have out in the press release, Jim I think on the non-GAAP basis I’m looking for interest expense of about $43 million this year that’s going up from about $38 million last year. We did have rate increases last year and we are anticipating some this year. So, that’s of course for the increase -- I am sorry the second part of the question…

Cash flow expectation for the upcoming year?

Right. Sure. Yeah, my y estimate is there will be around $60 million of free cash flow this year. We probably have an expectation of spending CapEx in the mid-30s, again similar to what we did last year. So, I think that even anticipating growth in working capital should up us around $60 million free cash flow year.

Thank you. I will now turn the call back to Morris Goldfarb.

Thank you for listening to our story and thank you for your partnership. Have a good day.