Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales for the first quarter were $610 million, in line with expectations.
- Gross margin rate expanded by 130 basis points.
- Inventory levels decreased by approximately 24% from the previous year's first quarter.
- Strong double-digit sales increases in DKNY and Karl Lagerfeld.
- Successful partnership with AWWG to expand European presence and leverage operational capabilities.
Negative Points
- Non-GAAP earnings per diluted share decreased slightly from $0.13 last year to $0.12.
- Retail segment net sales showed minimal growth, from $30 million to $31 million, despite closing nine doors.
- Non-GAAP SG&A expenses increased from $226 million to $237 million.
- Gross margin percentage in retail operations decreased from 50.9% to 47%.
- Second quarter net sales guidance is slightly lower than the same period last year, at $650 million compared to $660 million.
Q & A Highlights
Q: We heard from Macy's about the strong performance of Donna Karan and other brands. Is there anything that came in softer than expected? Also, how comfortable are you with the current order book?
A: Our brands, including Tommy Hilfiger and Calvin Klein, are performing well. We are in a good space with our larger brands and private label initiatives. The order book is in line with historical trends, and we expect it to grow, especially with the expansion of Donna Karan and Karl Lagerfeld.
Q: You guided Q1 to $615 million but came in slightly lower. Can you explain what happened?
A: We have an approximate range for expected sales, and a few orders coming in 24 hours earlier could have made a difference. We are comfortable with where we ended up and see positive trends in the order book and overall business.
Q: The second half guidance shows a substantial ramp. What gives you confidence in achieving this?
A: We have door expansions and stable performance from Tommy and Calvin. The growth of our own brands and new launches are showing strength, supporting our strategy and projections.
Q: Can you provide more details on the 2,500 additional points of distribution?
A: We are gaining shelf space from private label initiatives and expanding space for our own brands. Our pricing power allows us to house more inventory in similar spaces, and we manage inventory well to ensure optimal placement.
Q: Can you elaborate on the new partnership with AWWG and its impact on your European business?
A: We currently have around $400 million in European distribution. The partnership with AWWG, a dominant European distributor, will help us grow aggressively. We plan to double our equity stake soon and have the option to buy it all, focusing on expanding our presence in Europe.
Q: How much do your go-forward brands contribute to gross margin compared to licensed brands?
A: The differential is primarily the royalty, which runs about 8%. Our own brands provide a healthier gross margin and operating margin due to the absence of this royalty and incremental licensing income.
Q: What are the sell-through trends at wholesale, and how do you see door expansion evolving next year?
A: Sell-through trends are positive, with no significant promotions or sales. Average unit retails have increased. Door expansion is about increasing points of sale within existing stores, not new doors. We are also focusing on European and global expansion.
Q: How are other brands like Karl Lagerfeld, Nautica, and Houston performing?
A: Karl Lagerfeld is performing exceptionally well, with plans to nearly double its size in North America. DKNY is also picking up pace, becoming our second most important brand. We are seeing strong sell-throughs and positive market reception for these brands.
Q: What are the long-term aspirations for Donna Karan, and how much could it contribute to this year's revenues?
A: The demand for Donna Karan is greater than our current production capacity. We are carefully managing production to ensure quality. We expect a significant year next year, supported by strong product design and consumer reception.
Q: Can you discuss the impact of newness and innovation on demand and AUR (Average Unit Retail)?
A: Newness and innovation are driving demand and helping us achieve better AUR. Our field merchandisers ensure optimal product placement and presentation, contributing to strong sell-throughs and higher average unit retails.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
