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G-III Apparel Group (GIII) Q1 2019 Earnings Conference Call Transcript


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G-III Apparel Group (NASDAQ: GIII)
Q1 2019 Earnings Conference Call
Jun. 5, 2018 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the G-III Apparel Group first-quarter fiscal 2019 earnings conference call. My name is John, and I'll be your operator for today's call. [Operator instructions] Please note the conference is being recorded. And I will now turn the call over to Neal Nackman, chief financial officer of G-III.

Sir, you may begin.

Neal Nackman -- Chief Financial Officer

Good morning, and thank you for joining us. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in forward-looking statements.Important factors that could cause actual results of operations or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC. The company undertakes no duty to update any forward-looking statements.

In addition, during the call, we will refer to non-GAAP net income and loss, 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, which is available on our website.I will now turn the call over to our Chairman and Chief Executive Officer Morris Goldfarb.

Morris Goldfarb -- Chairman and Chief Executive Officer

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, executive vice president. We're pleased to have begun the year with a solid first-quarter performance. Although the retail landscape continues to change with consumers having unprecedented access to information and online and brick-and-mortar shopping options, we continue to demonstrate our ability to prosper in tough environments.

Strong brands, great product and execution and diversified distribution continued to be our winning formula. We know how critical it is for G-III to continue to be a supplier of choice that understands the marketplace, the trends and the consumer shopping habits, regardless of where the transaction occurs, whether in the store or online. To that point, today, we are a dominant resource to our retail partners in many major categories, including outerwear, sportswear, dresses, suit separates, performance apparel, handbags and footwear in North America. We are also increasing our presence in important markets around the world.

Our wholesale business continued to drive our results in the first quarter, which, again, exceeded our expectations, with respect to both the top and bottom line. Our retail business performed as expected, and we continue to right size our operations as we push to return this business to profitability.A few financial highlights for the first quarter. Net sales were up 16% to $612 million, an $83 million increase compared to last year. This outperformed our plans for the quarter.

Our first quarter non-GAAP net income per diluted share was $0.22 in our first quarter, compared to a non-GAAP net loss of $0.18 per share in last year's first quarter. Net sales and net income were both above our plans for the quarter. And as Neal will detail shortly, we've raised our guidance for the fiscal year. Now let's provide you some more details on our results, starting with our own retail operations.

We continue to make progress in improving this business. While down slightly compared to last year's first quarter, Bass comparable sales performance improved sequentially from the fourth quarter and the full year of fiscal 2018. We've created merchandising changes at Bass, with a larger emphasis on apparel, which we believe will result in benefits in the second half of the year. Wilsons is doing much better and had a first quarter comparable sales increase of approximately 19%.

We're continuing to work on creating a better assortment at Wilsons and on improving the value to consumers. We're leveraging the skill set and expertise of our wholesale outerwear merchants to lead the building of the outerwear lines for the Wilsons stores, and it is paying off. We've continued to rationalize our store portfolio for both Bass and Wilsons. From our starting point of 350 stores at the beginning of last fiscal year, we are now on target to close about 105 locations by January 31, 2019.

As of today, we've already closed 60 of the 105 locations. We have repurposed nine stores that were in high-profile outlet centers to Karl Lagerfeld, all with long-term leases that would have been very expensive to exit. These stores have performed well and are tracking to deliver annual profitability. This swing in performance is helping us to achieve our goal to lessen the financial drag of retail on our overall results.

Year over year, we expect to achieve a reduction of roughly $10 million to $15 million in losses in our retail operation segment. We will continue to do what is necessary to eliminate operating losses from this business, and ultimately return it to profitability. Our wholesale business had another stellar quarter, and we'll drill down to the brand level to give you a better sense of where our strength is coming from. Our Calvin Klein business was up double digits, our dress and suits separates category were among our strongest outperformers for the quarter.

Our Calvin Klein business is large and well diversified across the women's market. This kind of solid performance requires great execution by us across a variety of categories. And importantly, the expertise in marketing and brand management that PVH has consistently shown in supporting the ascendancy of this great brand. Tommy Hilfiger, one of the world's strongest fashion brands, is becoming a great business for us.

This business grew double digits in the quarter, and we're pleased to see our vision become reality as the U.S. women's business returns to the forefront as a very important brand for consumers. Again, PVH's expertise has been critical in broadening the consumer audience from millennials to boomers. Our business under Karl Lagerfeld also posted an outstanding quarter.

Net sales were up 50% in the quarter, and we see lots of opportunity for this iconic European brand through extended point of view on fashion. We're looking to expand and further penetrate our distribution, both in stores and online. Our DKNY and Donna Karan businesses also performed well in the quarter. We're seeing strong performance across our product categories.

As we've stated in previous calls, we now have a significant income stream with licensing revenue for both the DKNY and Donna Karan brands. We have some great licenses, including PVH -- licensees including PVH, Estée Lauder, Hanesbrands,Fossil and [Inaudible]. This licensing revenue will prove to be an important component of the profitability and margin structure of this business. The development of scale in our business will also be important, and we've begun to see this benefit as our net sales of DKNY and Donna Karan product doubled in the quarter.

We launched DKNY dresses this spring, and we're satisfied with the launch performance. Additionally, we launched DKNY luggage in approximately 200 Macy's stores. Although a small business, it extends the brand into an additional lifestyle category that broadens our customer base for the brand. PVH, a DKNY men's sportswear licensee, launched the men's collection this spring into 150 Macy's stores.

We are making progress across the board in the development of both the DKNY and Donna Karan brands. With continued investments in marketing, the participation of great retail, licensing and distribution partners and our ability to execute, these brands are reclaiming a top spot in the marketplace. Our five global power brands; DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld, are the cornerstone brands in our portfolio. At the same time, we also have other important businesses.

Our Eliza J, Jessica Howard and Vince Camuto dresses continued to do well. Our outerwear business, led byCalvin Klein, Tommy Hilfiger, DKNY and Levi's, was also a strong performer for us in the quarter. Lastly, Vilebrequin, our status swimwear and resort brand, had worldwide comparable sales in the low-single digits. We opened two new stores in Europe, one in the Netherlands, one in Spain.

We're continuing expansion with our distribution partners with up to six stores opening in mainland China and two stores in the Middle East. We also signed a license with GIADA to produce 100% made in Italy premium denim. Launching in spring of 2019 through premier department and specialty stores in Europe, North America, the Middle East, Africa, Japan and Korea. GIADA currently is the producer and seller of Jacob Cohën, the luxury jeans line that sells for an excess of EUR 350 per pair.

We're excited to see Vilebrequin's continuous extension into new lifestyle categories.I will now turn the call over to Neal to provide some additional detail on our financial performance for the quarter and our increased guidance for the year.

Neal Nackman -- Chief Financial Officer

First, regarding our first-quarter results. Net sales for the first quarter ended April 30, 2017, increased 16% to $612 million from $529 million in the same period last year. Net sales of our wholesale operation segment increased 16% to $528 million from $453 million. Net sales of our retail operation segment increased 5% to $105 million from $99 million.

We reported a same-store sales increase of 19% for our Wilsons stores and a 2% comp decline at G.H. Bass. Our gross margin percentage was 38.5% in the three-month period ended April 30, 2018, compared to 38.1% in the prior year's period. The gross margin percentage in our wholesale operation segment was 35.4%, compared to 34.2% in last year's quarter.

The gross margin was negatively affected by approximately 100 basis points due to our new classification of deducting our co-op advertising expenses from net sales. The new classification is pursuant to the adoption of new accounting rules under Accounting Standards Codification Topic 606, commencing in fiscal 2019. The gross margin percentage in our retail operation segment was 46.3%, compared to 47.1% in the prior year's quarter. Wilsons and G.H.

Bass both saw increased margins in the quarter as compared to the first quarter last year. Donna Karan gross margins continued to be above the average for the segment, but were down in the quarter compared to the prior year. The prior-year gross margins for Donna Karan reflect the reversal of valuation reserves from the acquisition accounting. Total SG&A expenses increased to $203 million in the quarter from $197 million in the same period last year.

This was significantly driven by employee cost, which increased $9 million, primarily related to increased bonus expense and salaries. In addition, the SG&A expenses in the quarter do not reflect approximately $6 million of co-op expenses, which have been treated as a reduction of net sales in accordance with the new accounting rules starting in fiscal 2019. Net income for the first quarter was $10 million or $0.20 per diluted share, compared to a net loss of $10 million or $0.21 per share in last year's first quarter. Non-GAAP net income per diluted share was $0.22 for the first quarter, compared to a net loss of $0.18 per share in the same period of the prior year.

Non-GAAP net loss per share excludes noncash imputed interest expense of $1.2 million in this quarter, compared to $1.4 million in the first quarter last year and professional fees related to the acquisition of Donna Karan of $1.1 million in the first quarter of last year.The aggregate effect of these exclusions was equal to $0.02 per diluted share in this year and $0.03 per share in the first quarter last year.Regarding our balance sheet. Accounts receivable increased to $429 million from $256 million at the end of the prior year's first quarter. This increase is predominantly related to the company's adoption of the new ASC 606. This adoption requires that liabilities recorded in connection with variable consideration, which were previously reported as an offset to accounts receivable, now be reflected short-term liabilities.

Excluding the impact of the new classification, accounts receivable would have been up 13% and slightly below the sales growth in our wholesale segment of 16%. Inventory increased approximately 13% to $503 million, compared to $446 million at the end of the quarter and aligns closely with our forecasted sales. We spent approximately $5 million on capital expenditures in this year's first quarter, primarily related to additional fixturing cost at department stores as well as improvements in remodels of our retail stores. At the end of the quarter, we had long-term debt outstanding of approximately $448 million in the current year, compared to $493 million last year, which we incurred in connection with the purchase of Donna Karan.

In addition, our cash balances at the end of the quarter was $71 million this year, compared to $67 million in the previous year. Regarding our guidance. For the fiscal year ending January 31, 2019, we are raising our guidance and are now forecasting net sales of approximately $2.97 billion, and net income between $112 million and $117 million or between $2.20 and $2.30 per diluted share, compared to our previous guidance of net sales of approximately $2.94 billion and net income between $97 million and $102 million or between $1.90 and $2 per diluted share.This compares to net income of $62 million or $1.25 per diluted share in fiscal 2018. We expect non-cash imputed interest expense of approximately $5 million or $0.07 per diluted share. On an adjusted basis, excluding non-cash imputed interest, we expect non-GAAP net income of between $116 million and $121 million or between $2.27 and $2.37 per diluted share compared to our previous guidance of non-GAAP net income of $101 million to $106 million or between $1.98 and $2.08 per diluted share.

This compares to non-GAAP net income of $79 million or $1.60 per diluted share in fiscal 2018. We are now forecasting projected full-year adjusted EBITDA for fiscal 2019 between $236 million and $246 million, compared to our previous forecast of between $218 million and $227 million. This compares to adjusted EBITDA of $201 million in fiscal 2018. We continue to anticipate mid-single-digit comp increases at both Wilsons and Bass for the full year and reducing the retail losses in our Wilsons and G.H.

Bass operations by $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 second quarter of fiscal 2019, the company is forecasting net sales of approximately $590 million and net income or loss between a net loss of $3.5 million and net income of $1.5 million or a net loss of $0.07 per share and net income of $0.03 per diluted share. This forecast compares to net sales of $538 million and a net loss of $8.6 million or $0.18 per share reported for the second quarter of fiscal 2018.

This forecast includes non-cash imputed interest expense of $1.2 million. On an adjusted basis, excluding imputed interest expense, the company is forecasting a second-quarter non-GAAP net income or loss between a net loss of $2.6 million and a net income of $2.4 million or a net loss of $0.05 per share to net income of $0.05 per diluted share. This compares to non-GAAP net loss of $7.2 million or $0.15 per share in the prior year's second quarter.That concludes my comments. I will now turn the call back to Morris for closing remarks.

Morris Goldfarb -- Chairman and Chief Executive Officer

Before we take your questions, I'd like to take a moment to look beyond our excellent first-quarter results. Disruption in the retail industry has never been greater. The increased level of competition, particularly from the new giants of e-commerce, has forced companies in our marketplace to raise their game to a new level or be left behind. We have always evolved our organization and remained keenly focused on execution.

Over the past 15 years, we created opportunities and continued to develop skill sets that enabled us to diversify and expand in new directions. We are intensely focused on building a special company that is capable of pursuing growth wherever it exists. Ultimately, we supplemented a world-class portfolio of license and private-label businesses with our own suite of powerful brands. As a result, we now have the ability to truly chart our course forward and to continue our own destiny.

As we look to the future, we're increasingly focused on a global set of opportunities. We're now among the most important resources for the retail market here in the United States. And while there is certainly continued opportunities in the U.S., there are many throughout the world. We've only scratched the surface of what we believe we can become in the global arena.

You can be sure that, as always, we will continue to push ourselves to be an extraordinary company. Thank you, operator. And now we're ready to take some questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] And our first question is from Edward Yruma from KeyBanc Capital Markets.

Edward Yruma -- Keybanc Capital Markets -- Analyst

Hey, good morning, guys, and congrats on the strong results.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thanks.

Edward Yruma -- Keybanc Capital Markets -- Analyst

Morris, some very interesting comments you made just now about international. I know that you've moved a senior leader for Donna Karan abroad. I know that you've, obviously, been abroad with [Inaudible], how should we think about the longer-term opportunity internationally with your portfolio? And kind of what would an investment case look like or investments spend as you look to build all those capabilities? And then second, I know that you had an issue. So, there was a $0.30 negative impact to Bon-Ton, just kind of any update on that, based on maybe what you shipped before they finally closed? Thanks.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thanks for your question, Ed. DKNY, when we acquired it, had a very important office based in Milan, with some incredible people. As we acquired the company, we learned that the luxury sector that was represented quite well by LDMH taught associates how to think a little bit differently than we teach our associates. So we were having some communication issues that needed to be cured.

Thus, I sent one of our key associates, Jeanette Nostra, who is a prior president to G-III, to live abroad for six months. So she was the point person, to translate exactly what we were looking for from the New York site. The initiative worked well. Our people are communicating much more clearly today, and we're on a path of growth, which was the intention.

The office had great talent, didn't have the best of all product when we acquired it. We bettered the product, we broadened the distribution. And I would say one may term it, we're kind off to the races in Europe. We're looking for some wonderful contributions from many of the European countries as well as our distributors.

We have distributors all over the world that we were faced with a similar problem with. And they had a history -- let's say, a three-year or four-year history of nonperformance with the brand with the ownership of LBMH. We're turning that around. It's not as easy feat.

I wouldn't tell you today, we're in a perfect spot. But I would tell you, we're in a much improved spot. And as we get better at it, as we understand the product needs, and we understand how to distribute on the calendar that is more appropriate to Europe, we'll have a contained business that is European inspired, European fashion that is in broad demand. So everybody, our associates, our distributors and our New York team, is excited by the prospects of the future in Europe.

So to respond to your second question was the Bon-Ton question. Neal you want to do that?

Neal Nackman -- Chief Financial Officer

Yes. So, we had originally anticipated about $100 million fall-off in sales, about $0.30. We did ship under $20 million, just under $20 million for the first quarter. And it probably contributed about $0.05 to our results.

So, we are probably looking at now a $0.25 impact for the year, and probably still hurting to the extent of about $80 million for the balance of the year.

Edward Yruma -- Keybanc Capital Markets -- Analyst

Great. Thanks so much, guys.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you, Ed.

Operator

Our next question is from Erinn Murphy from Piper Jaffray.

Erinn Murphy -- Piper Jaffray -- Analyst

Great. Thanks. Good morning, and let me add my congratulations. I guess my first question is for Neal.

Just on the guidance, trying to understand what you're seeing in the back half. If I look at how you've effectively guided the first half, I think sales are up 13% and the back half of your updated guidance would imply roughly a 2% gain in the back half. So it seems very conservative, but just curious if you can help us whether it's order book or just what you're seeing at wholesale that creates that deceleration in the back half?

Neal Nackman -- Chief Financial Officer

Sure, Erinn. I think single-most -- the single largest impact would be the Bon-Ton loss, which is the strongest in the third quarter, and that had a reasonable fourth quarter as well. The second thing to probably mention in terms of order book, we are forecasting the outerwear business to be probably down low single digits. It had a very, very strong fourth quarter last year.

And we're also up against just stronger comps overall as far the retail business last year and even the Donna Karan performance as it rolled into the second half of the year. So look, we continue to feel that our core company growth, absent Bon-Ton, would have been in the mid- to high single-digit area. We see lots of strong growth continuing still in the Donna Karan business. And as we've mentioned, strong improvement in retail.

Morris Goldfarb -- Chairman and Chief Executive Officer

Erinn, to add a little bit to the Bon-Ton issue. Bon-Ton's geography has been great for the coat business. The amount of business that we did with Bon-Ton was skewed into the third and fourth quarters, the bulk of it came there. And our concern is we might miss that piece of business.

Bon-Ton was always important on the coat side. So thus, maybe there's a conservative number with anticipating maybe a loss of a little bit of their business there.

Erinn Murphy -- Piper Jaffray -- Analyst

OK. But then maybe just on the order book commentary, I guess, that Neal you mentioned. You said down low-single. That includes the Bon-Ton fall-off.

So, if you were to back out Bon-Ton, just given where inventories and the channel are, are the rest of your retailers ordering outerwear up year over year or flat? Where is that trending?

Neal Nackman -- Chief Financial Officer

Our business -- our order book is up low-single digits comp to last year. We had a good coat year. Usually, there's a concern that the buyers don't go after a second good coat year. This year, they did.

And I will tell you, with fewer doors some of our department stores have better than the flat business.

Erinn Murphy -- Piper Jaffray -- Analyst

Got it. And then maybe just on the conversions, I would love to hear a little bit more. You talked about the nine Karl Lagerfeld conversions to date. Just maybe helping us think about kind of their performance? And then what is -- you continue to see kind of outside performance there.

How do you think about the balance between retail and wholesale for the Karl Lagerfeld brand over time?

Morris Goldfarb -- Chairman and Chief Executive Officer

So, the conversions that we executed with Karl Lagerfeld were really our most expensive real estate. They were the best outlet centers in the country, the most populated with tourists and the highest traffic winters in town. Those stores performed extremely poorly for Bass. Bass is really not a tourist brand.

And we were losing as much as $700,000 to $800,000 in given doors. And what we did is we converted them to Karl Lagerfeld stores with the help of one of our key real estate developers. CAPEX was minimal. It was in a sense one would say was shared.

And today, we've made up in pretty much every door, those nine doors that we described were they're headed toward breakeven, where a year ago, I would have told you that the loss was approaching $3 million for that bulk of doors. So, we're very happy with it. We recently converted our Soho DKNY store for short-term efforts. We're testing it to see if flagships are going to be important for us.

The store is working. That store is a hybrid of the European product and the U.S. product. And the higher retail, the better the performance is in those stores.

So we're learning that there is more room to expand to better product, higher retail and much better margins than we were accustomed to in our outlet centers. So there's a lot to learn. Too early to say how many stores we would roll out or whether Karl Lagerfeld becomes direct-to-consumer through real estate that we might build out or through wholesale. We're testing both and more to come.

All I can say is that we're extremely happy with the performance.

Erinn Murphy -- Piper Jaffray -- Analyst

Thank you, guys. Best of luck.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from John Kernan from Cowen.

John Kernan -- Cowen and Company -- Analyst

Good morning, guys, and let me add my congratulations.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thanks, John.

John Kernan -- Cowen and Company -- Analyst

Neal, Morris, just wanted to go to Donna Karan. Still approaching $400 million in sales this year. Just wondering what you're thinking about the overall level of profitability that we should expect in model, not just for this but also as we go into next year as it's obviously a big swing factor in the model?

Neal Nackman -- Chief Financial Officer

Yes, so what we've commented on the portfolio hasn't changed, although Donna Karan did have a slightly better result first quarter to plan. Last year, they lost just under $25 million. We're adding roughly $140 million of sales. I continue to think that the operating margin delta on that will be about 20%, give or take, so we will be up slightly profitable, small profits on the $400 million business.

I think when you roll out into next year, there's no reason to think. It's early for us to give you specific guidance on sales, but again, this should be highly leveraged sales growth and highly profitable, probably in that similar range in terms of operating margin improvement per sales dollar.

Morris Goldfarb -- Chairman and Chief Executive Officer

John, what we touched on in our earlier presentation was the licensing royalty that we would begin to receive. That's really not happened in most cases, it's just beginning. So, may be toward fourth quarter, I guess, we'd begin to see the benefit of that. And then, again, another opportunity we have a partnership in China that hasn't started yet.

That's about to be launched so there's some releasing opportunities with this brand at that we really haven't even scratched the surface with. So we are excited to own it, we're excited to operate it. It doesn't come for free. It's contributed a great deal of stress to the company to try to execute our vision.

But I think the worst is passed and this will turn out to be the best acquisition this company has ever made.

John Kernan -- Cowen and Company -- Analyst

Exciting stuff. Can we shift back to retail? you, obviously, laid out what you expect from profitability standpoint this year. I think it's $10 million to $15 million improvement. You've got about $4 million in losses going away from closed stores.

How do we think about the profitability within the next couple of years in this retail segment? Because this again is another big swing factor in the overall company's P&L. This used to be a mid-single-digit operating business when it peak out. But it sounds like you have a lot of initiatives in place between repurposing stores, improving comps, closing unproductive stores where the profitability here could make a big improvement over the next couple of years. Can you just talk about what your internal expectations are around profitability for this business as we go beyond just this year?

Morris Goldfarb -- Chairman and Chief Executive Officer

John, if I could cite one thing that you missed in what we have today for retail that we didn't have before, I would tell you it's brands. We have DKNY, and I don't think you could compare DKNY as a brand in the outlet centers to a Wilsons or a Bass. So we have a premier brand for the first time to be able to utilize some of the great real estate that we do have. The real estate we have is really not the problem.

The product, I would say, that's our miss. We could have done better on the product execution. And we now have two brands that we can expand with and build a retail platform and we desire to do that. The second one is, again, as we touched on, was Karl Lagerfeld.

So, if we get serious about retail -- I can't tell you that I'm there yet, because we still have our problems with the appropriate products and the appropriate execution on DKNY retail. And if we can't figure that out, we'll find another solution. We're a resourceful company. We don't stay focused down one path and beat it to death as it tells us this isn't the path.

So we're doing -- in my book, I would tell you we're doing extremely well on turning it around, we're just not there yet.

John Kernan -- Cowen and Company -- Analyst

Can I have just one more follow-up to Neal? The core Calvin and Tommy business growth rates you expect out of that kind of excluding the Bon-Ton business, it feels like there's a lot of momentum for Calvin and Tommy right now in the U.S. wholesale channel, so I'm just wondering what your expectations are for the top line out of those brands for the remainder of the year?

Neal Nackman -- Chief Financial Officer

Yes. Again, the Bon-Ton business impact -- the loss of the Bon-Ton business impacts Calvin a bit more this year, probably would have a mid-single-digit type, low- to mid-single-digit type growth in the Calvin, except for Bon-Ton. And without the Bon-Ton sales, unless they get picked up somewhere else, which is always possible in our plan -- in our anticipation at this point, we would see a small decrease for this year in terms of the Calvin Klein business. And Tommy, we had sized that business up at $1 billion.

There's lots of growth without giving you specific growth percentage, it's a nice double-digit increase this year for us, coming off of nice double-digit increases before that. And again, with lots or runway for the brand overall.

John Kernan -- Cowen and Company -- Analyst

That's great. Thank you. Best of luck, guys.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you, John.

Operator

The next question is from Eric Tracy from Buckingham Research.

Eric Tracy -- Buckingham Research -- Analyst

Hi, everyone. Good morning, and great execution. I guess, Morris, for you if I could just touch on -- follow up on Donna Karan. You sort of made some comments that you're satisfied with the Macy's exclusive launch.

We'd just love to hear a little bit more on again sort of the learnings, maybe some of the execution issues. And then as we think about beyond just the license opportunity, just in the core, what that opportunity looks like.

Morris Goldfarb -- Chairman and Chief Executive Officer

So my terminology is satisfied, let me explain that. First of all, we had two brands to launch, both Donna Karan and DKNY. And contrary to most mono brand operators, we were very strong on creating classification businesses. So now dissect every piece, DKNY and Donna Karan, we now have about 15 subclassifications, if you drill down to it.

So we had to launch dresses, so we had to launch suit business. We launched denim business, we launched the footwear business, we launched the handbag business, and we did that and what I believe there are more to be done. It's just the beginning. We launched swimwear as well, believe it or not.

So to have executed as well as we did on this broad array of classifications, I would say that job extremely well done. Are they perfect? No. I would tell you one of the classifications is perfect. Are they good? Yes, I would tell you, they were all good.

What we have is a retailer that's supporting it and the classification that are exclusive for them. We have vendor base that stepped up and did miracles to create the product, delivery it on time. We've got a design team, merchant team that sound imaginable that we were able to do all of these in this range of time. So, now we're into call it the easier phase.

We just have to make a little bit better in each classification. So if I were grading it, I'd tell you that we did an excellent job. From an economic point of view, it kind of matches up. We did OK Would are doubling our business from last year.

Our margins are getting better. Our inventory levels are in check. So I would say as the CEO this company, I'm proud of what was accomplished. As far as -- I'm sorry.

Go ahead, Eric.

Eric Tracy -- Buckingham Research -- Analyst

Oh, no, Morris. Sorry. No, sorry. Please go ahead.

Finish.

Morris Goldfarb -- Chairman and Chief Executive Officer

The backside of your question, which was license product. The PVH just launched the men's apparel. They did a great job of staffing it quickly, creating the product and getting it into over 150 doors at Macy's. There's a team that's excited about doing the product.

It's not often that you -- we have the experience. This is a licensed category or licensed brand for PVH. And for them to put passion in this when they have so many wonderful things going on, it's a good vote. And the team that's executing this has also done a wonderful job.

If you look at Estée Lauder, who's our largest licensee, they launched a fragrance, specifically because of the Macy's initiative called Soiree. Their business with us is great. They're high energy. I don't want to speak for them.

That might be a call you would make, but my belief is they're very satisfied with the partnership. They're satisfied with what we're doing to help the brand and help them execute in areas that maybe we might be better suited for them. We have a jewelry license that has done very well. And again, at a smaller-scale launch, pretty much sold through.

We've got eyewear, we've got watches, and have the kids area that has also launched and done well. So, I'd say we're giving you all this stuff to process, but go back to the calendar. We just bought this brand. We bought it from a European company, with a culture that is definitively different.

We have signed nine licenses, we were executing our product, we -- I don't know that we've announced it yet, but we have a men's underwear license that was signed by to exist. So there's teams of people that are executing at every level, whether it's marketing, the pieces that you're not seeing yet. Whether it's licensing, marketing and production, our overseas team, this is selfishly, I tell you it's a masterpiece. It's been done really well.

Eric Tracy -- Buckingham Research -- Analyst

That's great to hear. I really appreciate the color. Just a quick follow-up on Bon-Ton. Within the assumption, is there any recapture rate sort of assumed within that be it rev or earnings hit to that?

Neal Nackman -- Chief Financial Officer

Yes. We have not anticipated a recapture rate. So where those dollars ultimately flow, I think that is an opportunity for us. But in our estimates, we have not anticipated a recapture rate.

Eric Tracy -- Buckingham Research -- Analyst

OK. Great. Thanks, guys. Best of luck.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you, Eric.

Operator

Next question is from Susan Anderson from B. Riley FBR.

Unknown speaker -- -- Analyst

Good morning. This is [Inaudible] on for Susan. So I was just wondering how should we be thinking about the outlook for marketing spend for the remainder of the year? I believe last quarter you talked about have been built a budget for an aggressive marketing campaign around DKNY. And I was just looking for any update on how that is progressing against expectations?

Morris Goldfarb -- Chairman and Chief Executive Officer

It's progressing well. I'm not going to give you the exact number, but we're spending far more than we did last year. Last year, as we were focused on the getting the product right, we felt that the spend would not have done us enough good. This year, we're spending a good deal of money, more than regular brand would to get the recognition and retain the statures that the branches have had historically.

As our product matches up to what we want, we will spend much, much more, and we're pretty close to it. If you're familiar with Sammy Aaron, who has led the charge on the product side of not only DKNY, but most of the important brands of the company. It's hard work that is finally beginning to pay off and match with that as we seek perfection. We were budgeted to spend a disproportionate amount of money on the marketing side.

We are just waiting for, let's call it, the product to be a little bit more right. We've identified the marketing companies we're going to do to launch. Or I guess, relaunch some of what we attempted to do earlier and we have a plan to do something that would be probably considered as disruptor in the marketing side of the world. We're just not there today.

Unknown speaker -- -- Analyst

Got it. Thank you. What sort of your longer-term expansion opportunity for the luggage beyond sort of the 200 doors it is in now for DKNY?

Morris Goldfarb -- Chairman and Chief Executive Officer

Well, I don't know if you're aware, but we have a luggage business with Calvin Klein, with Tommy Hilfiger, a little bit of Karl Lagerfeld. And with our ownership of DKNY, we launched the luggage under DKNY. And so beyond Macy's, our own outlet stores are doing exceptionally well with luggage. It's a strong business for them, and there's a department store business that we can service with luggage and there's a global initiative with luggage.

And we have this, for the first time, we have the ability of taking a premier brand and marketing it globally with luggage. And I'm sure we haven't tested that yet. We're trying to get logistics correct for that. One of the biggest problems that we have in the luggage business is the logistics side of it.

So we're trying to get to the bottom of what our best solution for the global distribution will be.

Unknown speaker -- -- Analyst

Great. Thank you. Thanks for taking our question. Good luck next quarter.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Chetnan Mallela from Barclays.

Chethan Mallela -- Barclays -- Analyst

Hey, good morning. Just on retail side of the business. Can you talk about the traffic trends during the quarter, what you're seeing from foreign tourism? And just how you're thinking about that channel, in general, more broadly going forward?

Morris Goldfarb -- Chairman and Chief Executive Officer

For the quarter, our February traffic was better than last year. Our March traffic was OK. And our April traffic fell off the cliff. We were well behind for our traffic count in April and pretty much all of our brands, so our business suffered in the month of April.

Had April been a good month, we would have posted significant increases. April was the tough one. May turns out to be very much better than April. And I think we're down a path to what where identifying as bettering the retail business and bringing it to profitability in the short term.

Chethan Mallela -- Barclays -- Analyst

OK. And then just on the wholesale side of the business, you're still generating pretty good growth -- very good growth in Tommy Hilfiger and Karl Lagerfeld even as you're lapping the initial launch of kind of the new product categories. And so can you just talk about how much more white space you see in terms of space gains for these businesses versus how much of the future growth kind of velocity first, per point of distribution?

Morris Goldfarb -- Chairman and Chief Executive Officer

So space gains are difficult to get today. We have them identified. We have -- we're occupying some of the premier space in the department store sector today. Clearly, at Macy's, Tommy is what would be considered a Macy's brand.

So, with Macy's brand, they generally give us the best real estate in the house, and we have it. A bunch of it was procured by PVH using place when we took over the distribution and the work involved in bringing Tommy to the market. And then, we have classifications that we never had before, which has become a little bit of battle to fight for space. But we have a great department and uniquely, believe it or not, it's composed of some of the talents that worked at Macy's that is negotiating with Macy's for space and is succeeding.

So we've hired legions of people to help us execute at store level. It's not only products it's where the products sits, it's how the product appears on the floor and how it's kept on the floor versus the backroom, and it's hard work doing. We're best-in-class today in getting products on the floor to what I would classify as some of the premier real estate in the stores. It's not -- we focus a little bit too much on Macy's, but I would tell you, it's no different at a Dillards or Lord & Taylor, or the Bay.

Our communications and our awareness of every department of where we sit is key to our success. It's another metric that we use on a weekly basis when we have our meetings to see if -- store appearance and department presence is where we want it to be. And as we gain scale and relevance to the retail world in the U.S., the respect is there to help us get some of the better space.

Chethan Mallela -- Barclays -- Analyst

Very helpful. Thanks so much.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Jim Duffy from Stifel.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Thank you. Good morning, guys. I have a question, one for Neal, and then a couple for Morris. Neal, on the retail business, in fiscal '18 first quarter, you lost $23.4 million.

Did you make good progress on profitability in the first quarter fiscal '19 in retail?

Neal Nackman -- Chief Financial Officer

Yes, Jim, it's approximately just under $5 million of improvement in the retail segment.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Specific to the first quarter?

Neal Nackman -- Chief Financial Officer

First quarter.

Jim Duffy -- Stifel Financial Corp. -- Analyst

OK. And then Morris, you shared some good insights on where you stand with Donna Karan, some of the challenges that you're going through, some of the opportunities. Can you give us an update on just a relative momentum you're seeing within the components of the business, maybe more detail on DKNY versus Donna Karan and which classifications are getting the best traction?

Morris Goldfarb -- Chairman and Chief Executive Officer

Sure. DKNY is a major focus. The classifications that have picked up momentum, and I would say, maybe performing the best would be footwear. Footwear is doing extremely well.

Our turns our best-in-class -- best in the classification when you compare it to some of our universal brands that we sit in. Handbags is doing well. Europe, the highlight of Europe would be handbags. And the U.S.

is doing well with handbags. Dresses, we finally picked up momentum in dresses. Our dresses are performing exceptionally well. And our performance area is, actually, that's doing great.

Performance apparel never existed in some of the countries that we're shipping it into. It's performing exceptionally well in the Middle East. It's doing well in Russia. It's doing well in parts of the Far East.

And it's doing exceptionally well in the United States. So we picked up -- I would say, the -- in retrospect, I would tell you the piece that is operating it close to perfection would probably be the performance area of what we have. To Donna Karan, Donna Karan came second. We had a commitment to launch DKNY for Macy's, we accomplished that.

They're supporting everything they committed to. And as we achieved that, we hired a design team, a sales team. We now have Donna Karan launched, and Donna Karan is a smaller business. It's a little bit better.

It services all the other department stores and bits and pieces of the Europe. The focus today should really be on DKNY.

Jim Duffy -- Stifel Financial Corp. -- Analyst

OK, great. And then, Morris, in your closing comments, you spoke about I think you characterized is growing where the growth is. Can you elaborate on that some? For a big-picture standpoint, I thought that was an interesting comment, I'm just hoping you can share some more perspective on it.

Morris Goldfarb -- Chairman and Chief Executive Officer

So you, of all people, who have watched this company has basically seen that we're not down one path, we're generally down the best path. This company has changed its model, probably a dozen times in my career. As retail changes, we kind of move with it. We know who guides the business.

It's generally the retailer. The demands of the consumer go through retail, and then find their way to us. And what we do is try to service at best. If that means we become an online business and convert it to more to online, that's what we'll do.

If we need to become a vertical retailer down the line, that's what we'll figure out. You've got to remember, this company started out not as a mono branded, not as a private-label company, this company started as one leather jacket. It was a brown bomber jacket. That's all we did when we took this company public.

So, to say that we have moved would be an understatement. Today, we'd probably be classified as pretty much close to all things for all people in our sector or business. We're not a bomber jacket, we're not a coat company. I remember being criticized for being just a coat company.

That's what you do with the offseason. I remember being criticized for being a leather company. So today, there's no criticism for the categories we're broadest as can be, and we have achieved success in pretty much all things that we've taken on. And the things that we failed with, we found a way out.

We've discarded brands. We've discarded businesses, and we -- we're not about glory, we're about executing to earn at the end of the day, to earn money for ourselves as well as the investors.

Jim Duffy -- Stifel Financial Corp. -- Analyst

OK. I'll leave it at that, I suppose. Thank you.

Operator

Next question is from Rick Patel from Needham & Company.

Rick Patel -- Needham & CO. -- Analyst

Good morning, guys. Very nice execution. Hoping you could provide some color on wholesale performance for the department stores versus digital pure plays. Curious if there any disparities in performance across the brands or categories? And secondly, can you update us on how much digital pure plays represent in terms of your sales penetration? I'm assuming this penetration will fall this year as you ramp exclusive with Macy's, but curious to get your thoughts.

Morris Goldfarb -- Chairman and Chief Executive Officer

OK. So most people forget that Macy's has an online component to their business, and some of that category at a given time represents as much as 50% of the business. The coat business, during the height of the season, is 50% done online by Macy's. So if I were to give you pure play and include retailers that have an online component to it, I would tell you that we're probably north of 30% in pure play businesses.

So we're building our own. We're -- it's early on. And we have an online business with every department store group in the country in some form or another. And we don't promote it as heavily as maybe we should to our investor, but we have a business with Amazon.

We have marketplace on Amazon as well as product at Amazon purchases. The brands that we do not have Amazon are strategically kept from them for continuing to do as well as we do in the brick-and-mortar that we have. We also have -- in our team license business, we have a major initiative with Fanatics. Fanatics is probably 20% of our business in team license and they're pure-play retailer in team sports and a fan-based product.

So I would say we're probably around 30%. I don't have that number handy, but if you're curious, you can call back, and Neal will be happy to give it to you.

Rick Patel -- Needham & CO. -- Analyst

I appreciate it. And just a quick one on handbags. It sounds like Donna Karan is doing pretty terrific there. Are Calvin Klein handbags holding up well as DKNY ramps, just curious about how you think about these two brands coexisting in accessories?

Morris Goldfarb -- Chairman and Chief Executive Officer

Well, it's not Donna Karan, by the way it's DKNY that's doing well. They coexist, but they coexist alongside of Kors and Coach and Tommy Hilfiger in an assortment of many other brands. We find our way. They're doing well and they're performing it at least as well as DKNY's performing at least as well as the department average.

And Calvin Klein is doing fine. We're retooling some of our design. We were much more aggressive on the fashion side a year ago and we're reassorting it, and I believe we recapture and go well beyond where we were with Calvin Klein in the next few months. But today, if I were to take a snapshot, I would tell you it's not at its peak, and we'll bring it back to its peak very soon.

Rick Patel -- Needham & CO. -- Analyst

Thank you very much. All the best.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you. Operator, we'll take one more question, please.

Operator

Actually at this time, we have no further question.

Morris Goldfarb -- Chairman and Chief Executive Officer

Thank you. Thank you for your time today, and thanks for staying with us.

Operator

[Operator signoff]

Duration: 63 minutes

Call Participants:

Neal Nackman -- Chief Financial Officer

Morris Goldfarb -- Chairman and Chief Executive Officer

Edward Yruma -- Keybanc Capital Markets -- Analyst

Erinn Murphy -- Piper Jaffray -- Analyst

John Kernan -- Cowen and Company -- Analyst

Eric Tracy -- Buckingham Research -- Analyst

Unknown speaker -- -- Analyst

Chethan Mallela -- Barclays -- Analyst

Jim Duffy -- Stifel Financial Corp. -- Analyst

Rick Patel -- Needham & Co. -- Analyst

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This article appears in: Personal Finance , Stocks
Referenced Symbols: GIII


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