G-III Apparel Group - Earnings Call - Q4 2020
March 19, 2020
Transcript
Speaker 0
Welcome to the G III Apparel Group fourth quarter fiscal twenty twenty earnings conference call. My name is Jackie, and I will be your operator for today's call. Please note that this conference is being recorded. I would now like to turn the call over to mister Neil Neckman. Mister Neckman, you may begin.
Speaker 1
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 and 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 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, which is also available on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.
Speaker 2
Good morning, and thank you for joining us. Also joining me remotely today are Semi Aaron, our Vice Chairman and President Wayne Miller, our Chief Operating Officer Neil Nachman, our Chief Financial Officer Jeff Goldfarb, Executive Vice President and Priya Trivedi, Vice President of Investor Relations. As we are hosting this call remotely, please bear with us and stay on the call if we have technical difficulties. We'll be right back with you. The coronavirus outbreak has become a national and worldwide crisis.
Our top priority is to ensure the health and well-being of our employees. In that regard, we've closed all our retail stores and corporate offices. We continue to work remotely where appropriate to remain operational. I wanna remind you that one of our core competencies in our well developed supply chain infrastructure is our well developed supply chain infrastructure, and we are working to leverage our strong vendor relationships. As I mentioned during the tariff wars, we did not abandon these well financed and loyal vendor relationships built over the past forty years.
It is these relationships that are providing us the ability to manage our receipts flow over these difficult times. Based on current updates of factory operations in China and other affected areas, we now anticipate only minimal delays in production and in transit times. That said, sales for both our retail partners and our own retail stores are being impacted. This is a very fluid and evolving situation. We're in a daily contact with our retail partners and vendors.
We will provide additional information when we report the results of our first quarter earnings in early June. We continue to work towards restructuring of our own retail operations, which would greatly reduce the number of stores and losses we're incurring. We see upside potential for the DKNY and Karl Lagerfeld Paris nameplate. Both businesses posted positive comparable sales for the fourth quarter and the full year. The effect of the coronavirus is negatively impacting sales.
The new products for DKNY and Karl Lagerfeld developed and curated under our new leadership is working well. Our ecommerce business for all of brands are doing well with DKNY and Karl Lagerfeld leading the way with strong double digit sales increase. As soon as we finalize our restructured plans, we'll report back to you. With confidence, our strong wholesale business along with a more streamlined retail operation creates a solid foundation for continued growth and improved profits for future. Our success remains anchored by our five power brands, DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld.
We have the flexibility and the ability bolstered by our strong financial condition to adjust and adapt to the challenges and opportunities that lie ahead. Fiscal year twenty twenty was another year of growth for G III. Calvin Klein, our largest brand, continued to take market share. DKNY and Tommy Hilfiger both had strong growth, benefiting from expanded distribution with significant opportunities ahead. This year, we've also broadened our product expertise in the denim category as we launched the collection under the CK jean brand.
This coming year, we're adding comprehensive denim collections for three of our power brands, CK jeans, Tommy Hilfiger jeans, and DKNY jeans, which will make us a significant player in the important denim space. Now let's look at the full year and fourth quarter fiscal twenty twenty results. We reported another year of growth in net sales, adjusted EBITDA and non GAAP net income per share. For the full fiscal year, net sales of our Wholesale and Retail segments were $3,160,000,000 up 3% from last year's $3,800,000,000 Importantly, the wholesale segment net sales grew over 5% to $2,860,000,000 from $2,720,000,000 Our non GAAP net income per diluted share was $3.19 up 12% from last year's $2.86 Our adjusted EBITDA for the year increased to two eighty five million dollars up 6% from last year's $271,000,000
Speaker 3
Fourth quarter non GAAP net income was $0.75 per diluted share, up 37% compared to $0.05
Speaker 2
per diluted share in the fourth quarter last year. Now let's turn to some details of our wholesale business. Our sales growth for the year was led by Tommy Hilfiger, DKNY and Calvin Klein. In the fourth quarter, net sales fell short of our expectations, primarily due to the warmer weather during the important holiday selling season and in the month of January. This negatively impacted our sales of cold weather cold weather apparel, including outerwear.
However, we were able to offset most of that impact of of the net sales mix primarily through good expense controls and non GAAP diluted earnings per share was above our guidance range. Calvin Klein is our largest business with net sales approaching $1,100,000,000 this past fiscal year. The brand remains the dominant resource in the women's apparel market. We were pleased with the soft launch of CK Jeans this past quarter. We believe we've built the right combination of fashion and basics into the line and will remain flexible to tweak the mix as we move forward.
Our Tommy Hilfiger business ended the past fiscal year with net sales of nearly $500,000,000 an increase of 25% from the past year. Although the fiscal fourth quarter growth was impacted by the warmer weather, our Tommy Hilfiger business was up mid single digits. Importantly, for the past fiscal year, the strong growth was broad based across all categories. Tommy Hilfiger jeans line also launches this spring. As we continue to 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.
Speaker 3
Our
Speaker 2
Karl Lagerfeld wholesale business ended the fiscal year with net sales of just over 110,000,000, only slightly up from the prior fiscal year, largely due to the changes at Lord and Taylor. For the Karl Lagerfeld brand, we continue to build the lifestyle appeal and will further work to expand product distribution. Our own DKNY and Donna Karan brands registered another solid year with net sales growth of nearly 25%. These businesses now generate over $450,000,000 in annual wholesale sales and licensing revenues and are a significant profit contributor to g three. This spring, we're introducing our new DKNY jeans line with a soft launch.
The line has been well received by our customers. For this past quarter and year, we saw strong sales increase in our DKNY international businesses, which include better department and specialty stores in Europe as well as distribution around the world. In February, we kicked off our spring twenty twenty advertising campaign for a second season with artist and global mega musician Halsey. We'll continue to have a digital first approach to our strategy, especially now focusing our resources to increasing social media messaging to continue to engage and excite the consumers, keep the DKNY brand top of mind as we work to amplify the brand's awareness. Licensing is another important part of our DKNY and Donna Karan business profile as it is a meaningful profit center profit driver of our business.
We've created a solid licensing base with world class partners. Overall, we're very pleased with the development of DKNY and Donna Karan businesses. I'll now pass it to Neil for a detailed discussion about fourth quarter results.
Speaker 1
Thank you, Now turning to our results. For the fourth quarter, net sales ended 01/31/2020, decreased approximately 2% to $755,000,000 from $767,000,000 in the same period last year. Net sales of our Wholesale Operations segment decreased approximately 1% to $635,000,000 and $639,000,000 with an impact across brands in the cold weather apparel categories, including outerwear, offset by increases in the Tommy Hilfiger and DKNY brands. Net sales of our Retail Operations segment for the quarter were 131,000,000 approximately 16% lower compared to last year's sales of $155,000,000 We reported same store sales decreases of approximately 6% for our Wilson stores, 10% for our G. H.
Bass stores and for DKNY were a positive 3%. Net sales of our Retail Operations segment were also negatively affected by the decrease of approximately 26 stores operated by us as compared to the fourth quarter of last year. Our gross margin percentage was 33.3% in the fourth quarter of fiscal twenty twenty as compared to 33.8% in the prior year's period. The decrease in total gross margin percentage is primarily attributable to the lower penetration of the Retail segment, which operates at a higher gross margin rate. The gross margin percentage in our Wholesale Operations segment was 30% compared to 28.7% in last year's quarter.
The gross margin percentage in our Retail Operations segment was 45.9% compared to 48.9% in the prior year's quarter. SG and A expenses were $187,000,000 in the first in the fiscal quarter compared to $2.00 $2,000,000 in the same period last year. Net income for the fourth quarter of this fiscal year was $25,000,000 or $0.52 per diluted share compared to $24,000,000 or $0.48 per diluted share in last year's quarter. Non GAAP net income per diluted share was $0.75 for the quarter compared to $0.55 per share in the prior year. Non GAAP results in this quarter exclude the impact of noncash imputed interest, asset impairments and a onetime income tax gain.
A full reconciliation to our GAAP results are available in our press release issued earlier today. For the full fiscal year, net sales for the year ended 01/31/2020, increased approximately 3% to €3,160,000,000 from €3,080,000,000 in the same period last year. Net sales of our Wholesale Operations segment increased 5% to €2,860,000,000 from €2,720,000,000 with Tommy Hilfiger, DKNY and Calvin Klein brands the main drivers to the growth. Net sales of our Retail Operations segment for the year were $386,000,000 approximately 19% lower compared to last year's sales of $477,000,000 We reported same store sales decreases of approximately 13% for our Wilsons and our GH VAS stores and a positive 1% comp for DKNY. Net sales of our Retail Operations segment were also negatively affected by the decrease of approximately 26 stores operated by us as compared to the end of last year.
Our gross margin percentage was 35% for fiscal twenty twenty as compared to 36% in the previous year. Decrease in total gross margin percentage is primarily attributable to the lower penetration of the Retail segment, which operates at a higher gross margin rate. The gross margin percentage in our Wholesale Operations segment was up to 32.7% compared to 32.4% in the previous year. The gross margin percentage in our Retail Operations segment was 46.7% compared to 47.7% in the prior year. SG and A expenses were $832,000,000 in this fiscal year compared to $835,000,000 in the same period last year.
Net income for this fiscal year was $144,000,000 or $2.94 per diluted share compared to $138,000,000 or $2.75 per diluted share in the previous year. Non GAAP net income per diluted share was $3.19 for this year compared to 2.86 per share in the prior year. Non GAAP results exclude the impact of noncash imputed interest, asset impairments, net of gains on lease terminations and a onetime income tax gain. Looking at our balance sheet. Accounts receivable increased to $530,000,000 from $5.00 $2,000,000 up approximately 6%.
Inventory decreased approximately 4% to $552,000,000 We spent approximately $38,000,000 on capital expenditures. We had long term debt outstanding of approximately $397,000,000 at the end of the year compared to $386,000,000 at the end of the previous year. The average debt load net of cash for the company, including seasonal borrowings under our revolver, was approximately $450,000,000 And with our strong EBITDA position, our net debt to EBITDA ratio is approximately 1.5x. Our quarter ending cash balance was $197,000,000 this year compared to $70,000,000 a year ago. Further to our strong liquidity position, we have a $650,000,000 revolving credit facility under which, at year end, we had approximately $600,000,000 available and no outstanding borrowings.
Our current liquidity position is as strong as G3 has had in the recent past and leaves us with significant financial flexibility as we work our way through this upcoming trying time. As for our guidance, as the ongoing coronavirus outbreak continues to add uncertainties relating to the ultimate severity, the duration, and the actions that may be taken by the governmental authorities, it makes it difficult for us to forecast the impact of the outbreak on our fiscal twenty twenty one results. Company will monitor the developments associated with the coronavirus outbreaks and its potential impact on our sales, results of operations and supply chain. Accordingly, at this time, we are not providing any guidance. That concludes my comments.
I will now turn the call back to Morris for closing remarks.
Speaker 2
Thank you, Neil. Thank you for joining us today. This past year, we grew our wholesale business. We managed successfully through several rounds of tariffs. We built three new denim businesses for our power brands, CK Jeans, Tommy Hilfiger Jeans, and DKNY Jeans, and we are in the process of restructuring our retail operations.
The coronavirus crisis is greatly impacting our industry as well as many others. It's important to note that we've built an adaptive and agile organization and business model with a real entrepreneurial culture that keeps us flexible. We also have a strong balance sheet, are in a and we are in a solid financial position to weather the challenges and pursue the opportunities that lie ahead. Combating the coronavirus is a global effort. We have some employees who have relocated their families to safe strategic locations around the world while making personal sacrifices to oversee our business.
I'm amazed with all our employees' unwavering focus and ability to execute. The dedication, drive, compassion, and care that they exhibit each and every day is truly amazing. I could not be prouder and more appreciative of the world class team we have here at g three. Our future growth continues to be anchored on strategically leveraging the strength of our global power brand. Our team remains focused on developing our capabilities and elevating our position as a supplier of choice for our retail partners.
I'd like to thank our shareholders, partners, and stakeholders for their continued support. Thank you, operator. We're now ready to take some questions.
Speaker 0
Thank you. We will now begin the question and answer session. If you do have a question, please press star then one on your touch tone phone. If you're using a speaker phone, you may need to pick up the handset first And our first question comes from Edward Yruma with KeyBanc Capital Markets. I
Speaker 4
guess, first, I'm sorry if I missed this. As we look at the outerwear business in its entirety from this past season, I guess, how much was it down due to warm weather in your opinion? And then kind of a broader question. Thanks for all the updates on liquidity. What's your expected kinda cash flow needs for the year, particularly, I guess, as you continue to look to, close some of your retail stores?
Or should we expect the same kinda inventory build that we saw this year, or is is cash usage gonna be lower given some of that restructuring? Thank you.
Speaker 2
Neil, the Yes. The percentage of outerwear and the effective outerwear, can you respond to that?
Speaker 1
Yeah. Sure. So the outerwear season for us, the fourth quarter was down. For the full year, Ed, we were actually were up in outerwear. It it you know, look.
We we were planning for an increase in outerwear in the fourth quarter, so it did it did impact the full year. But, certainly, the fourth quarter is a is not is is a fairly normal penetration of outerwear for us for the whole year. Runs about 30% of the business. So the third quarter is really is our big driver. In terms of free cash flow, we're looking at all of our purchases.
We're looking at all of our expenses. Right now, it really is about keeping the company as strong and financially flexible as possible. So we we will be making adjustments to the inventory flows, obviously, as as the retail stores are closed, and we'll be and we'll be watching all of our cash expenses as well.
Speaker 2
Ed, we Got
Speaker 4
In one follow-up.
Speaker 2
Let me let me add to that if you don't mind. As far as flowing inventory, we're spending most of our time on the last few days on adjusting inventory flows, inventory levels, and less concern, about supply chain delivery on time. That was the battle until about three weeks ago. We had that all in line, and now we're going down the other path, modifying our inventory levels, understanding that clearly understanding that we have cancellations coming our way. We have store closures and pressure and at at retail, we'll probably have credit issues that will also, you know, disarm us and, you know, probably prohibit us from shipping a lot of the accounts that we have orders on.
So we're spending a good deal of of time adjusting the flow of product and the flow of of both finished and piece of product. So it's a tough battle. It's hard to forecast. I don't know what we're up against. We clearly know we don't have the same calendar we did in my entire history of business.
So if we knew the calendar, we'd probably be able to forecast it better. Thank you for your question. Maybe one quick you. I guess next question, operator.
Speaker 0
Thank you. Our next question comes from Erin Murphy with Piper Sandler. Please go ahead.
Speaker 5
Hi. It's Erin Murphy at Piper Sandler. I hope you guys are all safe and healthy. I guess just on the store closures, I would actually think that for you guys in particular, this period of stores not being open could actually be a potential help just given that they have been loss making historically. Could you just speak to the potential P and L impact as stores remain closed?
And then just from a mall operator perspective, several have announced closures entirely. Does that change kind of or give you some help from a deferred rent perspective or any concessions that you would be expecting from operators? I would just love to kind of help or help you guys have you guys help us understand that dynamic.
Speaker 2
I can I can give you the second question, as far as my belief? Clearly, the the store closures, will enable us to negotiate with our landlords, but we also have to understand that landlords are not the bad guys right now. When we're negotiating to get out of leases, it's frustrating. We we both have valid arguments. But without landlords, without real estate, we have nothing.
We don't have malls. We don't have showcases for our product. We don't have department store venues. So, you know, they have their own prices, and I'm sure there are gonna be some major compromises to enable both the retailer and the the real estate developers to to move on. And we're not sure what the government will provide in in aid, but, clearly, there'll there'll be some provisions from the government to to help our developers and ourselves.
Speaker 5
Yeah. And just on the
Speaker 2
For for the moment, we were on a path that as far as store closures, you know, there's a little bit of confusion. But, you know, when we were down a much more aggressive path and I'm I'm not sure how the current situation plays out for us. I'm not sure if it's a good thing or if we're negatively impacted by the store closures. There was a strategy in place that there was supposed to be a trigger date in mid March. And based on all these events, we moved that trigger date to somewhere down the future.
So it it's there's an uncertainty today. There was much more certainty, ten days ago as to our path. Neil, I think the the first the first question Aaron had was the effect the the financial effect.
Speaker 1
Yeah. Yes, sir. The I I
Speaker 2
apologize for the bantering back and forth, but I think you all realize we're we're all in different locations.
Speaker 1
Good. Yeah. Yeah. I I can't help but think that I I I understand the the the underlying part of your question as far as the stores being closed and the full year profits. But the flip side is that if your stores are closed and you're not getting rid of product and you're not getting sales and positive gross margins,
Speaker 3
which we
Speaker 1
do, that's just not a good thing. So it's hard to look at the situation and suggest that there's a net plus to us from from the stores being closed at this point.
Speaker 5
Okay. That's helpful. And then just two other for me, and I'll just ask them collectively, and I know you guys are in different different places. So just in the in the first quarter so far, obviously, in the last week, we've all heard about the store closures. But kind of or prior to that, is there any way you can help us think about kind of what consumer behavior, what consumer demand looked like earlier in the season?
And maybe if you could break that out, what you were seeing physically at stores versus maybe on any of the .com or the thirdparty.com businesses? And then the second question I have is really related to expenses and SG and A. Maybe, Neil, on that one, could you just speak to what drove the 9% decrease in the fourth quarter and then to your flexibility around expenses in 2020? Thank you.
Speaker 2
So, Erin, our business until a week ago was excellent. Going beyond the first quarter, our order book was very strong, for the entire year. We were tracking ahead of last year. We're reviewing the merit of that, that order book today. So we we don't know where we stand, but I will tell you we were in great shape.
Our sales, on a daily basis were really good. Our performance business was good. Our dress business was good. Our social dresses were good. You know, our spring coat business, was very good.
I'm talking about wholesale. So we we were on we were on a very good path for, you know, the first six weeks of the quarter. And even as, you know, the the crisis started to evolve, the stores that were open were posting reasonable sales. You know, today's today's kind of another day. Most stores are are closed, but those that are open are selling our product and selling them fairly well.
As as far as what the future holds, not not really certain of where where we wind up. But our styles are right. Our our brands are right. And the the next focus is a little less about the the fashion that we have. It's more about survival, cash preservation, and coming back and fighting another day.
And I believe we're one of those companies that will live and maybe prosper in this period of time. We're as I said earlier, we're agile. We're composed of a bunch of, entrepreneurs who have, have been fighting battles to all of their working career. Most of them have owned businesses and have struggled with periods of time to make payroll, pay rent, and those are the guys that I want at my time. They're they're they're doing an amazing job of, you know, tempering, you know, the problems that are coming at us.
And we will we will come out a stronger company than we even are today. It's just a matter of time. Our ecommerce business is actually doing fairly well. You know, some sometimes, you know, there's confusion as to, you know, the merit and the understanding. You know, there are different dynamics that we're, you know, we're looking at, the different metrics that we're looking at to measure that business.
But that's holding up both our own business, our own ecommerce business, as well as the department stores and the Amazons of the world that we see. Their business is good. They're actually they're actually looking for more products even in this environment. So there is a world out there. Just have to figure out what that world is.
It'll unravel in in time. Thanks, Aaron. Thank you for your question.
Speaker 1
Yeah. Aaron, with respect to the expenses in the fourth quarter, the the big decreases that we saw were in the payroll area, primarily in bonus, managed some some payroll hires as well. And then our advertising expenditures were also we were able to pull back on some of that. I think in terms of just viewing us going forward, those, you know, are are real variable expenses in terms of SG and A. We have an ad primarily in the advertising area, both national advertising as well as advertising that we spend.
And, of course, payroll would even be larger than that.
Speaker 0
Thank you. Thank you. Our next question comes from John Kernan with Cowen. Please go ahead.
Speaker 4
Good morning.
Speaker 3
Thanks for taking my question.
Speaker 4
Neil, just on look, we'll go back
Speaker 3
to liquidity. On the truncated balance sheet that's in the press release, it's showing $397,000,000 in long term debt. Is there any current portion of long term debt?
Speaker 1
No. There's not, John.
Speaker 5
Okay.
Speaker 1
The debt just and just just to to give you a little more detail on that, the the ABL expires in December of twenty one, so plenty of time on that. The term loan is a $300,000,000 term loan. That that would expire in December of twenty two. The the seller notes, which were were taken from LVMH, those are in the middle and end of twenty twenty three.
Speaker 3
Okay. Great. That's helpful. Just in the managing of working capital in the keeping on the liquidity team, how much can you push back on inventory receipts? How much do you think you'll need to push back in the first half of the year just in an effort to conserve, in an effort to conserve cash?
Speaker 2
We we we have a target. It's a fairly aggressive target as far as pushing that. We we're not sitting with many cancellations, you know, that have come our way from retailers. So we have our own planners, coming up with with an appropriate level of inventory that would not put us in harm's way. So we're we're bypassing what the buyers and merchants are are telling or not telling us.
We're using our own judgment with an understanding that, as I said before, we'll come back to fight another day. We're not we're not looking to, you know, to have an amazing year this year. We wanna come out reasonably well, and that basically means bringing down your inventory levels as far as you can and not taking the risk that the retailer has normally, passed down to us. So, we're using our judgment as as I said before. This is an amazing team that understands what needs to be done and can go beyond, you know, just that straight road that is crafted for us by our retailers.
So there'll be more to come. We're we do need our supply chain. We can't we we can't put them out of business. They're they're very cooperative to date. We've not had a major conflict with any one of them.
They understand the need to take cancellations. They also have no future. In most cases, you know, we're the largest we're the largest customer of most of our suppliers. If we go out of business and they close-up shop. So they also understand that they need to make the compromises to enable us to, you know, sustain tough times.
So we're getting an amazing level of cooperation to date. Now when talk to me in another month. That may be another story, but everybody's working together. The logistics people, landlords, suppliers, people, we're all even our competition, this is a time that people need to work together to, you know, enable the industry to sustain the times that we're in. So to date, I I can't tell you that, we've left anybody in terrible pain overseas, but they that may occur in another month.
Speaker 3
Understood. And just finally on the store closures. On the balance sheet, we can obviously see the non current and current portion of the operating lease liability. This liability would be nowhere near what you would need in terms of closing costs, I would imagine. We have gotten some questions from investors on this.
I just think there's some confusion out there as to what the long term or what the total costs are gonna be from a cash perspective and in total in to close down the the outlet retail stores.
Speaker 2
No. What what you're seeing is the absolute. Nobody ever settles for the absolute. We have our case. The landlords have theirs.
We were we were down a very nice fair path, and what what you're seeing would not have been the result of where we were headed. Not not even close.
Speaker 4
Just to answer that far.
Speaker 1
Yeah. Just answer that, John. The
Speaker 2
Go ahead.
Speaker 1
Don't forget that the liability that you see on the balance sheet is the total company. The the the retail piece of that, would would be probably a half of the total.
Speaker 3
Got it. That's helpful. Thank you.
Speaker 0
Our next question comes from Rick Patel with Needham and Company. Please go ahead.
Speaker 6
Thank you. Good morning, everyone. A question on the wholesale business. How much of your plan one q sales were already in the hands of wholesale customers around the time the virus escalated a couple of weeks ago. Was it half, more or less?
I'm just curious how much of your 1Q business is locked in versus what's at risk given the department store closures? And my follow-up question is on the digital business. With traffic to stores falling in early March and with department stores now being closed, are you seeing an acceleration in your departmentstore.com business and on your own platforms? Or has it been steady state?
Speaker 2
So the the I would say the percentage of of product that's in the hands of our retailers that was that was written for q one It was probably more than half. We even had situations where we had April and May receipts that moved up because inventory levels were low at the department stores and sales, sales were fairly good. So, we had, I'd comfortably say we had about 65% of the the quarter, in, the the the amount of, orders that, we had in house. I'd say we had that's probably the number. Probably 60% was shipped.
And as it relates to I'm sorry, Rick. Would you repeat the question that relates to the Internet, the online?
Speaker 6
Yeah. On the digital side, like, you know, as we think about the last couple of weeks, with traffic to stores falling and with stores now being closed, are you seeing an acceleration in, the .com businesses for your department store partners and on your own platforms?
Speaker 2
On our our own platforms, clearly, yes. On our customers, yes, but not not as much as I would have thought. I think that's yet to come. You know, you you have to remember a lot of stores were were still open last the last few days. They're only they're only closed, you know, for two days.
I think Macy's was open Monday. I I think Nordstrom's is open Monday. So we're, you know, we're only dealing with the digital part of the business on an exclusive side with, you know, major accounts for the last couple of days. I'm I'm sure there'll be growth as well, clearly as a percentage, but there'll be, there'll be significant growth. People are sitting home.
They are buying. Their choices may change. I'm not sure that our social occasion dresses are gonna do incredibly well for the coming months, but I'll tell you that our performance business, is selling incredibly well. You know, people are relaxing at home, and, they're they're buying it. So if I if I give you a dollar value, there there's some some pieces that just kinda dropped off.
There's no real need for a coat today. There's no need for social dressing today. So the social is a big part of let's say it's a it's a Nordstrom's or a Dillard's. There's a prom business that, you know, depends heavily on on digital sales, and then that's, you know, that's gone. There are no problems.
There are no parties. So we have segments that that, faded away, but, you know, we have segments that are that are growing.
Speaker 6
And just the last one, if I may, on the fall order book. I know the situation is all very fluid right now, and it's extremely difficult to to put, you know, firm numbers around anything. But are your wholesale customers assuming that it's going to be a normalized environment in the back half of the year? Or are they planning things to be very cautious? And how are you managing G III's inventory in this environment for the back half?
Speaker 2
We're managing it very tightly. There there are two factions. There's there's the retailer, and then there's ourselves. The the retailer basically has, at all times, the backstop of of the wholesale. So they're able to not not that I'll put it, you know, operate casually, but there's less pressure on being right on the retail side than there is on the wholesale side.
We have to be right. We're tempering our inventory. We're less concerned about the coat business because we believe, you know, fourth quarter will be fine. People will be buying coats. We are less concerned about performance, but there's segments of the business that we're gonna be, you know, very, very careful on how we manage through.
So, you know, it's you know, just respectfully, I'm not as concerned as to what the retailer feels the future is like. I'm more concerned about how our planners and how our operators who are challenged with have been challenged for many years to run their segment of business. It's it's their decision on how to take the risk.
Speaker 6
Thank you, Morris, and stay safe, everyone.
Speaker 2
Thank you, Rick. Thanks for your constructive questions.
Speaker 0
Our next question comes from Heather Balsky with Bank of America. Please go ahead.
Speaker 7
Thank you very much for taking my questions. I guess, first, Neil, can you just remind us what your covenants are for your revolver and term loan just as we kind of go into this uncertain time? And then also, with regards to the uncertainty with inventory, are you in talks with some of your your licensing partners about using the off price channel more as we go through the year as a way to kind of manage potential excess product in certain categories? Thanks.
Speaker 1
So with respect to the covenants, the the ABL actually has a covenant that is a springing covenant based upon availability, and it's a fixed charge covenant that's one to one. That's our EBITDA to fixed charges, are primarily interest expense and income taxes. There's a tremendous amount of room under that one. Obviously, with all of our availability, it's not even applicable at the moment. With respect to the term note, there is a senior a senior debt to EBITDA ratio that is four and a half to one.
As I mentioned, we've got significant coverage significant room on that at the moment. We're we're one and a half to to, one and a half to one now. That's with all debt. So we're even richer than that essentially versus the four and a half, in terms of where we were at January 31.
Speaker 2
Heather, to respond to your off price opportunities, we have as we've verbalized and as is very obvious, we have an amazing relationship with PVH. We've overcome many situations in in the past. They understand the problems as well as we do. We have the brands that we operate for them, at heart, and, they're paramount to the future. If we destroy those brands, we have a problem.
It's not only it's not only a PVH problem. We've we've cited half our business, with PVH brands and and a prepared presentation to a billion one of Calvin Klein and about a half a billion dollars of of Tommy Hilfiger. And, we'll do what's necessary to protect those brands. But, clearly, we'll be sitting at the table with PVH and strategizing as to how to move inventory, in appropriate ways. So currently, you know, we're you know, our distributions for those brands are just North America.
Our distribution with DKNY is under our own control. We're global, and we decide what percentage goes to off price, where we where we dispose of it, you know, throughout the world if we need to dispose of it. But we're as I said earlier, our main focus is not to provide inventory for the off price channel. It's to stop it before it gets here. We're working hard on rightsizing the level of inventory that's coming into the into this country for for potential orders.
So in in a sense, my belief is the off price channel may have less of an offering than they have they've had historically from us. They'll they'll have amazing opportunities throughout, but I'm not sure we're gonna do that one.
Speaker 7
Great. Thank you for answering my questions. Please stay safe.
Speaker 0
Our next question comes from Jim Duffy. Please go ahead.
Speaker 2
Thank you. Good morning, all. Hope you're all healthy as you manage through these difficult times. Not surprisingly, seems the G III team is really rallying to navigate the ship through the stormy seas. Morris, you touched on this earlier.
Can you talk more about how you balance offense versus defense to manage risk for G3 by both planning inventory receipts into an uncertain end market and also managing receivables risks? No doubt difficult decisions around shipping to longtime customers who who may be a credit risk. So some of that let me ask answer the second question first. The receivable risk is, you know, again, we have a partner, and we credit insure the high risk as well as, a percentage of the, the SAFE accounts. So I don't believe we're we we have a major problem.
Again, you know, all bets are off. You know, I can I can give you, I can't give you anything that's factual, and you you understand why? You know, we're we're in a time period that just changes, every 15 minutes. So but I I can tell you I feel comfortable on the receivable side. And now just just disclosing how we're managing inventory, from a strategic competitive point of view, it's a little difficult to fully disclose.
We do have a strategy, and that strategy is come out of this incredibly strong regardless of basically what we need to do. We're we're that company. We we, you know, stood our ground when we were, you know, we were, I don't wanna say beat up, but we were criticized for the level of of inventory and production we were doing in China when everybody was exiting China. Today, that turns out, you know, if we if we look at where we are with our vendor partners and where we are with product flow, it turns out that staying in China and and respecting the relationships that we had, really paid off. We have partners that are willing to take the pain.
Some of them are incredibly financially sound. Some of them are government owned. So, we're, you know, we're, we're developing strategic plans so that we come out of this in in good shape. So that that turned out to be the appropriate thing to do. We're on the ground.
I assure you that we we we're doing the right thing, and we're we're that company that can kinda muscle our way through. We're not gonna be somebody that's pointed to as being collateral damage in this in this environment. There'll be a host that of people that will be, and who knows? We might be the acquirer of of those companies and, you maybe we we we partner with some of the brands that were never available to us because they were, you know, they were funded well for the period of time. So I we're looking at not only protecting the downside, but we're clearly aware of what the upside opportunities are.
We're not only, you know, operating with a strong balance sheet. We're operating with a with a strong team of of, call it, Navy SEALs that that that can accomplish anything. So we're We have as we've provided 700 people in our out of our New York office. I'm not sure you know this, but we had 1,800 people in one building in New York City. 700 of them went home with computers.
And, man, I've I've never seen communications like I have in the last couple of days. Everybody's working all day, every day, to find solutions for their segment of business. It's almost great that, you know, we, you know, we we always explain that we're we operate by segment of business. So there are many leaders that that are autonomous in running a segment. So each one of them is out there fighting for their peace.
And they're, you know, they're with different vendors. It's not it's not a collection of of just sportswear that's run by one team. We have 32 floors. We have many brands, and we have many operating teams, and each one, led by, you know, by by a brilliant general. So, I'm really comfortable we come out of this okay.
Great. And then, Neil, question for you. Recognize it's a dynamic situation, but given the historic circumstances, do you think there's opportunity to flex the covenants working with your lending partners?
Speaker 1
Yeah. Look. I I think that, ultimately, g g three has been and will continue to be perceived as a very strong credit with lots of different opportunities from a financing standpoint. So, obviously, we're we're we're concerned as everyone is about the current situation and so many people being on on lockdown. But, again, I think from a from a financing standpoint, we are as strong as we could be at this moment and as strong as we've ever been.
Lots of lots of room at the moment, and I think that lots of people will be interested in in helping us should we need help go forward. We don't see that near in future as a need, but I'm sure there'll be people out there.
Speaker 2
Thank you very much, everyone, and good luck. Thank you, Jim. Thanks for your support.
Speaker 0
Our next question comes from Suzanne Anderson with Riley FBR. Please go ahead.
Speaker 8
Hi. Good morning, everyone. Thanks for taking my call. I guess maybe just a follow-up a little bit on the wholesale partners. I guess just curious if you've had talks yet around canceling orders.
It doesn't sound like they have canceled any yet. Or then also if you have moved on yet to just talks around markdown money for the wholesale partners or is that still very fluid and no one knows really what the situation is gonna be when the consumer comes back? Thanks.
Speaker 2
I guess I'm gonna use your final sentence. Nobody knows what the what the solution's gonna be when everybody comes back. Quite quite honestly, we need each other to survive. We're we're on cancellation mode. Not we haven't determined what is not needed yet.
We're on it again every moment of the day since this occurred, and we're communicating with our factories, with our retailers. We believe we know what the desires, the wish lists are for our retailers, and we're trying to get as near to it as as we can. But none of it is resolved. It's so complicated. You know, you're you're taking, you know, six months and longer of order placements and and preparation for production and trying to disassemble it in a couple of days, that's that's a tough mission.
We're we're all over it, but I I can't I can't tell you any more than that. I'm not I'm not hiding any of it. It's just impossible to gauge at this very second.
Speaker 8
Yeah. That makes sense. And I guess maybe just a follow-up, on the DKNY retail stores. Nice to see the positive comp there. I guess do you have any color maybe you could give just on the profitability of those stores or improvement versus your other retail stores?
Speaker 2
Oh, the the those are the retail stores that Mhmm. Have the appropriate product with an understanding that, you know, we were we were working through a process in our retail stores. There was no spring purchase made for Wilson's or DKNY. The faucet was absolutely turned off, and we were using this period of time to solve some of the inventory problems that we had that dated back a good period of time. And there was no flow of current product.
And, you know, when when Neil, you know, describes, you know, the the 19% decrease in in sales and and retail, A lot of that is impacted by, you know, just not having forward fashion product in the stores. As as far as DKNY and Karl Lagerfeld, we were tracking we were tracking double digit increases. We we spent a little money on CapEx, and it it paid off. Our international stores for DKNY were were performing amazingly well. So we were down a path of identifying new locations, for DKNY as as we rightsize the rest of our DKNY and Karl Lagerfeld as we were rightsizing the rest of our fleet of retail.
So, you know, the the the story was a good one until recently. You know, store closures and traffic being down to the extent that it was, you know, we got we got the expected results. But, you know, product is right. Training is is has been great. That the appropriate product was in DKNY in Karl Lagerfeld.
We did ship spring for DKNY. We did ship spring for Karl Lagerfeld. And for for that matter, sales are good. Sales are strong in every category. We have you know, we we've got a great leader.
Again, you know, one of the generals that I was referring to is running retail too. You know, there's a couple of amazing people that that have done more than their share to minimize the the damage that we're, you know, we're incurring and probably about to incur incur. So, Susan, thank you for your questions.
Speaker 8
Great. Operator, think Very helpful.
Speaker 2
I I think maybe we'll we'll have one final question, and then we'll let everybody go on with their day.
Speaker 0
Thank you. Our final question comes from Dana Tesley with Tesley's Advisor Group. Telesley, sir.
Speaker 9
Good good morning, everyone, and nice to see the nice to see the strength that you have with balance sheet and the game plan go forward. Two questions. As you think about inventory levels, you've mentioned inventory management and how that's helped you manage the inventory. What are you doing exactly? Is it cancellations?
Is it postponement of orders? How are you keeping the inventory as tight? And then can you just confirm the loss of the retail operations for this year and how you think about it for next year? Thank you.
Speaker 2
So, Dana, the how we're managing our inventory and resolving some of the excess inventory issues that we're going to have is a combination of anything we can find, whether it's, canceling piece goods that that, still haven't left the mills, whether it's, slowing down, production, where it's, where we're having our vendors warehouse product, in, in anticipation of, having to hold it in New York in spite of the fact that there are no cancellations. We're doing everything we can. We're being creative in our process. And as as I said a little bit earlier, if I gave you all of it, we wouldn't be the company that we are. It's it's an internal game plan that maybe is a competitive advantage.
So, we're we are all over it. That's that's paramount to the future of our business. You know? Managing the inventory and not not bringing inventory that into the states that is going to be worth a fraction of our cost, and who knows when we'd be able to market it. So we understand how critical it is, and we have, we have a great team not only in The United States.
We proved it out. You know, we have, a global team that, is managing pretty much managing the impossible. So that piece of it's great. And your your second question that related to to retail, Neil, are you on that?
Speaker 1
Yes. The so, Dan, the retail segment lost approximately $75,000,000, and that that includes about the about a $20,000,000 charge for the the impairment. So pretty much in line with with what we've been what we were expecting at the end of the year.
Speaker 9
Thank you. Stay healthy, everyone. Thank you.
Speaker 2
Thank you, Dana. Thank you for your question. So thank you all for, you know, being part of our call today. I wish you all health, and stay safe. We'll give you the details of what we've accomplished as soon as we can.
Thank you for being supportive.
Speaker 0
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.