G-III Apparel Group, Ltd. (GIII) Earnings Call Transcript & Summary

Hello, and welcome to the G-III Apparel Group, Ltd. Annual Stockholder Meeting 2020. [Operator Instructions] It is now my pleasure to turn today's meeting over to Morris Goldfarb, President and CEO. The floor is yours.

Good morning, ladies and gentlemen, and welcome to the Annual Meeting of Stockholders of G-III Apparel Group, Ltd. I am Morris Goldfarb, Chairman and Chief Executive Officer of the company, and I will act as Chairman of the meeting. As you are aware, in light of the current COVID-19 outbreak, we've decided for the first time in the company's history to hold the annual meeting solely by means of a virtual meeting instead of a physical meeting. While this format will take some adjusting to by all of us, our concerns regarding the health and safety of our stockholders, directors, officers, employees and meeting attendees and the general public is of the utmost importance to us. I'd like to thank you all for your flexibility, and I hope you are all staying safe and healthy. I'd like to introduce to you our executive officers and directors of the company, who are virtually present with us at this meeting this morning. We're very pleased to have with us Sammy Aaron, Vice Chairman of the Board and President of the company; Wayne Miller, Chief Operating Officer and the Secretary of the company; Neal Nackman, Chief Financial Officer and Treasurer of the company; Jeffrey Goldfarb, Executive Vice President of the company and a member of our Board; Jeanette Nostra, Senior Adviser to the company and a member of the Board; Priya Trivedi, Vice President, Investor Relations; and Michael Brady, Senior Vice President, Finance and Corporate Controller of the company; as well as Tom Brosig, Alan Feller, Victor Herrero, Laura Pomerantz, Willem van Bokhorst and Cheryl Vitali, each of whom is a member of the Board of Directors of the company; and Richard White, who is also a Board member and the lead independent director of the company. In addition, we're pleased to virtually have with us Molly Tucker McCue and [ Christina Sadowitz ] of the accounting firm of Ernst & Young; Neil Gold, Manny Rivera and James Lacey of the law firm of Norton Rose Fulbright. The meeting will please come to order. Mr. Miller will act as secretary of the meeting. Michael Brady will serve as the inspector of elections for the meeting with his authority, among other things, to receive and to determine the validity of all proxies and ballots submitted and to certify the number of shares represented at this meeting and the results of the vote of the company's stockholders on any motion. Because of the technical legal procedures which must be followed at this meeting, I've requested Neil Gold to assist us in running the meeting. I'll now turn the floor over to him.

Thank you, Morris. I would like to begin by highlighting some of the rules of conduct for the meeting, which are available for your review by clicking on the link, the Rules of Conduct, on the virtual meeting platform. The only business matters to be conducted at this annual meeting are those described in the Notice of Meeting and proxy statement. Only stockholders as of the close of business on April 20, 2020, the record date, or their duly authorized proxies are entitled to ask questions and vote at this meeting. Stockholders who have not as yet voted may vote by submitting a ballot to our transfer agent on the meeting platform now. If you desire to vote at the meeting, please do so now, as the poll will close in a few minutes prior to consideration of proposal #1. Stockholders may submit questions through the message box on the meeting platform. If you have a question that you wish to be addressed at this annual meeting, please submit it now, as we will not have time to review or address last-minute submissions. Questions are being monitored by Ms. Trivedi, the Vice President, Investor Relations. This meeting is being audio recorded. Mr. Brady has taken and signed an oath to faithfully execute the duties of inspector of election with strict impartiality and according to the best of his ability. The floor recognizes Mr. Brady.

I present the affidavit of the EQ Shareowner Services, the transfer agent and registrar of the company's common stock, with respect to the due mailing to the stockholders of the company of the Notice of the Meeting, the proxy statement, the formal proxy and the annual report to stockholders.

The affidavit, proxy material and other documents are directed to be filed with the records of the company.

I also present a list of holders of the company's common stock as at the close of business on April 20, 2020, the record date for this meeting, as prepared and certified by EQ Shareowner Services.

The list of stockholders is directed to be filed with the records of the company.

EQ Shareowner Services has computed the number of shares represented under the official formal proxy sent to the stockholders, to which I've added the number of shares present in person at this meeting as shown on the virtual meeting platform. I report that the holders of 44,061,209 shares of common stock are present or represented at this meeting, which shares represent approximately 91.7% of the shares entitled to vote at this meeting, and a quorum is therefore present.

The proxies and any substitutions of proxies presented are hereby ordered to be filed with the records of the company. The necessary quorum is present with respect to each of the proposals to be acted upon by the stockholders of the company, and the meeting is properly constituted for the transaction of business. The company's annual report to stockholders is available on the meeting platform during the meeting and on G-III's website at www.giii.com for examination by the stockholders. The letter to stockholders contained in the annual report and the annual report on Form 10-K filed with the Securities and Exchange Commission and included in the annual report provide detailed information about the activities of the company. The audited financial statements of the company for the year ended January 31, 2020, are included in the annual report on Form 10-K. Also available on the company's website are copies of the company's earnings release and quarterly report on Form 10-Q for the quarter ended April 30, 2020. As set forth in the notice sent to each of the stockholders of the company, the business of this meeting includes: The election of 11 directors to serve as the members of the Board of Directors of the company as presented in proposal #1 in the proxy statement; the approval of a nonbinding advisory resolution on the compensation of the company's named executive officers as presented in proposal #2 in the proxy statement; and the ratification of the appointment of Ernst & Young LLP as the company's independent auditors for the fiscal year ending on January 31, 2021, as presented in proposal #3 in the proxy statement. In order to avoid any confusion, let me take a few moments to outline the format for the remainder of today's meeting. Each proposal will be made and seconded. Management's position in favor of each of the proposal is set forth in the proxy statement, which was sent to all stockholders eligible to vote. After a proposal is seconded, the floor will be open for discussion, and we will respond to any questions concerning that proposal you have submitted through the message box on the meeting platform. After each discussion, Mr. Brady will report on the preliminary results with respect to each of the -- that proposal. The final voting tabulation, including any votes properly submitted during the meeting, will be delivered to the company by EQ Shareholder Services after the meeting and made a part of the minutes of this meeting. Once the proposals have been voted on, Morris Goldfarb and Neal Nackman will address the general business and operations of the company. After these presentations, we will respond to appropriate questions that have been submitted to the message box on the meeting platform. The meeting will now proceed to proposal #1, the election of 11 directors of the company. Accordingly, the polls are now closed for voting on the proposals being considered at this meeting. Pursuant to the company's bylaws, each elected director will hold office for a term expiring at the next Annual Meeting of Stockholders or until the -- his or her successor is elected and qualified. Mr. Brady?

Yes. The following persons have been nominated as directors of the company to be elected by the stockholders of the company: Morris Goldfarb, Sammy Aaron, Thomas J. Brosig, Alan Feller, Jeffrey Goldfarb, Victor Herrero, Jeanette Nostra, Laura Pomerantz, Willem van Bokhorst, Cheryl Vitali, Richard White.

Is there a second for these nominations?

I second the nominations.

Ms. Trivedi, have any stockholder questions concerning proposal #1 been received?

No stockholder questions concerning proposal #1 have been submitted.

Thank you. The final voting tabulations, including any votes properly submitted during the meeting before the closing of the poll, will be delivered to the company by EQ Shareholder Services after the meeting and made a part of the minutes of this meeting. Mr. Brady, would you please report on the preliminary voting results?

I'd like to advise the meeting that Morris Goldfarb, Wayne Miller and Neal Nackman, as appointed in the official proxy, have voted in accordance with the proxies received from stockholders. The majority of the votes of the shares of common stock present or represented at the meeting have been cast in favor of each of the candidates nominated.

Morris Goldfarb, Sammy Aaron, Thomas J. Brosig, Alan Feller, Jeffrey Goldfarb, Victor Herrero, Jeanette Nostra, Laura Pomerantz, Willem van Bokhorst, Cheryl Vitali and Richard White are elected as directors of the company. The meeting will now proceed for the consideration of proposal #2, the approval of a nonbinding advisory resolution on the compensation of the company's named executive officers. The text of the resolution is set forth in the proxy statement that was sent to the stockholders.

I move that proposal #2 be adopted.

I second the motion.

Ms. Trivedi, have any stockholder questions concerning proposal #2 been received?

No stockholder questions concerning proposal #2 have been submitted.

Thank you. The voting -- the final voting tabulation, including any votes properly submitted during the meeting before the closing of the polls, will be delivered to the company by EQ Shareholder Services after the meeting and made a part of the meeting -- part of the minutes, excuse me, of this meeting. Mr. Brady, would you please report the preliminary voting results?

I would like to advise the meeting that the appointed individuals have voted in accordance with the proxies received from stockholders. 27,464,144 votes have been cast in favor of the nonbinding advisory resolution on the compensation of the company's named executive officers. 11,725,000 votes have been cast against it, and 370,687 votes have abstained.

The nonbinding advisory resolution with respect to compensation of the company's named executive officers has been approved. The meeting will now proceed to consideration of proposal #3, the ratification of the appointment of Ernst & Young LLP as the company's independent auditors for the fiscal year ending January 31, 2021.

I move that proposal #3 be adopted.

I second the motion.

Ms. Trivedi, have any stockholder questions concerning proposal #3 been received?

No stockholder questions concerning proposal #3 have been received.

Thank you. The final voting tabulation, including any votes properly submitted during the meeting before the closing of the polls, will be delivered to the company by EQ Shareholder Services after the meeting and made a part of the minutes of this meeting. Mr. Brady, would you please report on the preliminary voting results?

I would like to advise the meeting that the appointed individuals have voted in accordance with the proxies received from stockholders. 43,424,717 votes have been cast in favor of proposal #3. 617,087 votes have been cast against it, and 19,405 votes have abstained.

Proposal #3 has been adopted. I will now return the floor to Morris Goldfarb.

Thank you, Neil. I would now like to present to you an update on our operations of the company, after which Neal Nackman, our CFO, will discuss our financial results. Let me begin the operations update by addressing the recent events and related protests throughout our country. We at G-III maintain a zero-tolerance position against racism, inequality and injustice of any kind. We strongly believe that we all need to do our part to make a difference, both internally in our company and externally in our communities. We've committed our support to UNCF and other organizations in an effort to help eradicate social and racial injustice. Furthermore, the coronavirus pandemic has sent shockwaves throughout the world. As this pandemic has evolved, we thought it imperative to continue to assist our community at large. We've made contributions throughout -- to our philanthropic partners to help them with their important work. We've leveraged our supply chain to donate PPEs to medical facilities, first responders, police departments -- and police departments [indiscernible] in the United States. From a business perspective, challenges we face from this pandemic are significant, but our top priority is to ensure the health and well-being of our employees, customers and communities. In that regard, we closed all of our retail stores and corporate offices in mid-March, and we've all been operating remotely. We've had to make some additional difficult decisions, including significant reductions in pay for our senior management and most of our other employees. And unfortunately, we furloughed a large portion of our employees. We've also adjusted inventory receipts in response to store closures and have been replanning the balance of the year. Our strong collaborative vendor base will afford us the ability to make opportunistic purchases for the back half of this year. These actions, combined with our solid balance sheet and liquidity position, strengthen our financial flexibility. We're well positioned to weather the current challenges and to demonstrate our leadership position in the fashion industry as we emerge from this crisis. Now let me provide the financial highlights of our 2020 fiscal year-end January 31, 2020, which was another solid growth year for us at G-III. We grew our net sales by 3% to a record $3.16 billion. Importantly, net sales in our wholesale segment grew over 5% to $2.86 billion from $2.7 billion -- $2.72 billion. Our adjusted EBITDA for the year increased to $285 million, up 6% from last year's $271 million. A reconciliation of adjusted numbers is disclosed in the year-end press release and available on our website. Our non-GAAP net income reached $156 million or $3.19 per diluted share, up from $2.86 per diluted share. Now let's review the details of our business, starting with our own retail operations. Over the last year, we've been working towards the restructuring of our own retail operations. And last week, we announced that we finalized these plans and made the difficult decision to close all of our Wilsons Leather and G.H. Bass stores, which will enable us to greatly reduce our retail losses. Accordingly, we've hired Hilco Global to assist in the liquidation of these stores. After completion of the restructuring, our retail operations segment will initially consist of 41 DKNY stores and 13 Karl Lagerfeld Paris stores. And our e-commerce sites were DKNY, Donna Karan, Karl Lagerfeld Paris, Andrew Marc, Wilsons Leather and G.H. Bass. Our wholesale businesses, anchored by our 5 global power brands, DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld, will continue to be the primary sales and profit engine for G-III. We ended the fiscal 2020 with a sizable and growing wholesale business of $2.86 billion in sales and entered the first quarter of fiscal 2021 with good momentum in our wholesale business, validating our strategy and the strength of our product offering. Calvin Klein is our largest business, and in fiscal 2020, the brand's annual net sales approached $1.1 billion. The brand remains a dominant resource in the women's apparel market. We were pleased with the soft launch of the new CK Jeans denim collection for the fall and holiday season. Our Tommy Hilfiger business ended the past fiscal year with net sales of nearly $500 million, an increase of 25% from the prior year. The business strength was broad-based across all categories, and we successfully launched the separate Tommy Hilfiger Jeans line. The strength in the business continues to showcase our stellar execution and expertise in design, merchandising, sourcing and selling, combined with a compelling brand management and marketing by our partner subsidiaries. As we broaden our product offering and distribution, we remain confident that we can meaningfully grow and expand our Tommy Hilfiger business over the next several years. Our Karl Lagerfeld wholesale business ended the fiscal year with net sales of just over $110 million. We continue to build the lifestyle appeal of the Karl Lagerfeld business and will further work to expand product distribution once the consumer environment normalizes. Our own DKNY and Donna Karan brands registered another solid year with net sales growth of nearly 25%. These businesses now generate over $450 million in annual wholesale sales and licensing revenue and are a significant profit contributor to G-III. Licensing is another important part of our DKNY and Donna Karan business profile, as it introduces a brand to a wider range of consumers across multiple product categories. We've created a solid licensing revenue stream from these brands with world-class partners. Overall, we were very pleased with the development of the DKNY and Donna Karan businesses. Lastly, our status swimwear and resort brand, Vilebrequin, continued to perform well. We continue to expand the brand's footprint globally via e-commerce and store openings. Internationally, outside of North America, our sales grew strong double digits, significantly driven by the international distribution of our DKNY brand. We continue to see significant growth opportunities internationally. Looking ahead, as government restrictions are lifted, we are reopening our retail stores in our New York City corporate offices. We are set to reopen this coming Monday. We will do so in a responsible manner with the health of our employees and customers as our top priority. We are following CDC guidelines to ensure we provide a safe, socially distant workplace with ample PPE available for our associates. Our warehouses have remained operational with a reduced workforce, observing strict social distancing and safety precautions in order to receive inventory, fulfill orders for our online customers and ship products to our retail partners. We've begun to scale these operations as stores have reopened throughout the country. We have reacted decisively to reduce our inventory exposure. We're being conservative with respect to ordering future inventory, and we'll continue to work closely with our retail partners in planning out the rest of the year. We anticipate further closures in brick-and-mortar retail, but we believe we are well positioned to ultimately retain and increase our business, whether through the brick-and-mortar stores of our retail partners or through their online sites. It's important to remember that we do a significant amount of business through our partners' online sites as well through our own site. In some categories, online penetration can reach over 40% of total product sales. We will be actively working with our retailers in shifting and dedicating additional resources to further drive sales on their online sites. We are also making significant investments in our own online business. Over the last couple of months, we've seen significant comp sales increases for our own DKNY and Karl Lagerfeld online sites. Over the last 40 years, we've earned the respect of our vendors, our retailers and our licensed stores. We have a well-diversified distribution across retail channels, including department and specialty stores, off-price stores, warehouse clubs and e-commerce sites. We will be patient and make prudent decisions to preserve our liquidity as we work our way through these challenging times. We have the experience, talent, global alliances and financial flexibility to navigate through this most difficult period and to continue to be a leader in our industry. We also believe that as opportunities arise, we will be in a position to capitalize on the ones that make most sense for us. We believe we will emerge much stronger and we will prosper. I'll now turn the meeting over to Neal Nackman, our Chief Financial Officer, to provide some additional remarks regarding our financial results. Neal?

Thank you, Morris, and good morning, all. Morris just spoke to our results of our fiscal year 2020. So let me give you a brief update on the financial results of our recently reported first quarter of fiscal year 2021. Let me begin by providing you with details on our announced restructuring of our retail segment, which includes closing all of the 110 Wilsons Leather and 89 G.H. Bass stores. These stores will begin their liquidation as soon as the stores are open. As a result, the company expects to incur an aggregate charge of approximately $100 million from this fiscal year, primarily related to landlord termination fees, severance costs, store liquidation and closing costs, write-offs related to right-of-use assets and legal and professional fees. We expect the cash portion of this charge to be approximately $65 million. Now turning to the results of our first quarter ended April 30, 2020. The coronavirus pandemic has had a significant impact on our first quarter. As Morris indicated, we entered this fiscal year with good momentum. However, mid-March, we were significantly impacted by the outbreak of the pandemic here in the U.S. And a great majority of our retail partner stores, along with our own outlet stores, were closed under statewide shutdown orders. Net sales for the quarter ended April 30, 2020, decreased approximately 36% to $405 million from $634 million in the same period last year. Our gross margin percentage was 30.7% in the first quarter of fiscal 2021 as compared to 37.3% from the prior year's period. SG&A expenses were $155 million in this fiscal quarter compared to $202 million in the same period last year. We took a hard look at our SG&A. We had to make some difficult decisions in order to preserve capital. We significantly reduced payroll by furloughing approximately 60% of our wholesale team and 80% of our retail team as well as implementing significant salary reductions for management and other employees. We are bringing our workforce back in a thoughtful manner as stores open and we ramp up our wholesale operations. We have also reduced other discretionary spending, which includes marketing and capital expenditures. Furthermore, we continue to have conversations with our licensor partners to seek contractual relief. Our efforts have enabled us to reduce our monthly cash expense burn to approximately $35 million. Net loss for the first quarter was $39 million or $0.82 per share compared to net income of $12 million or $0.24 per diluted share in last year's first quarter. Non-GAAP net loss per share was $0.75 for the quarter compared to net income per diluted share of $0.25 per share in the prior year. Non-GAAP results in this quarter exclude the impact of noncash imputed interest and asset impairments. A full reconciliation to our GAAP results are available in our press release issued earlier. Looking at our balance sheet. Accounts receivable were $421 million as compared to $478 million at the end of the prior year's quarter. Inventory decreased approximately 7% to $500 million. Our net debt was down to $285 million from $363 million in the first quarter of the previous year. Our current liquidity position remains strong and leaves us with significant financial flexibility as we work our way through this difficult disruption. The impact of the pandemic continues to be fluid, making it difficult for us to forecast results for fiscal 2021. Accordingly, at this time, we are not providing any guidance. That concludes my comments. I will now turn it back to Morris.

Thank you, Neal. We will be glad to answer any questions that the stockholders may have concerning the business affairs of the company that have been submitted through the message box on the meeting platform. Ms. Trivedi, have any stockholder questions been received?

No questions have been submitted by stockholders.

Molly Tucker McCue, a partner in the firm of Ernst & Young, may now make a statement if she desires to do so and is available to respond to appropriate questions from stockholders or their representatives that have been submitted through the message box on the meeting platform. Molly?

I have no comment today, Morris. Thank you.

Thank you.

Ms. Trivedi, have any stockholder questions for Ernst & Young been received?

No questions have been submitted by stockholders.

Since there appear to be no further questions, the Chair will entertain a motion for adjournment of the meeting.

I move that the meeting be adjourned.

I second the motion.

All those in favor of the motion, please signify their assent by saying aye. All those opposed to the motion, please signify their dissent by saying nay. [Voting]

Thank you for all coming. Okay. Thank you all for coming. The meeting is adjourned. Thank you. Have a great day. Stay safe.

This concludes the meeting. You may now disconnect.