Welcome to the G-III Apparel Group first quarter fiscal 2016 earnings conference call. [Operator instructions.] I will now turn the call over to Neal Nackman, CFO of G-III Apparel. Neil Nackman, you may begin..

Thank you. Before we begin, I would like to remind participants that certain statements made on today’s call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in forward-looking statements. Important factors that could cause actual results of operations or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC.

The company undertakes no duty to update any forward-looking statements. In addition, during the call, we will refer to non-GAAP net income per share and to adjusted EBITDA, which are both non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release and on our website.

I will now turn the call over to our chairman and chief executive officer, Morris Goldfarb..

Good afternoon, and thank you to everyone for joining us. With me today are Sammy Aaron, our vice chairman; Wayne Miller, our chief operating officer; Neal Nackman, our chief financial officer; and Jeff Goldfarb, our director of strategic planning. We are pleased across the company to have begun the new fiscal year with an outstanding quarter.

I’m very proud of the focus on execution that permeates every area of our business. Our culture here, as many of you have come to appreciate, refuses to accept less than excellent results. We’ve begun this year by exceeding our plan and we have the confidence and visibility in our business to increase our guidance for the year.

In the first quarter, we grew our total net sales by 18% to a new record level of $433 million for the first quarter compared to last year’s $366 million. The increase was driven by excellent wholesale performance across a range of categories. For our customers, we’ve distinguished ourselves as a leader category by category.

Our results also reflect our continued turnaround and strong comparable store sales at G.H. Bass, which we acquired in November of 2013. G.H. Bass is our latest acquisition that has expanded our opportunities for us to create value for our shareholders.

We reported net income per diluted share of $0.15 in the quarter compared to $0.03 per share in the first quarter of last year. As a reminder, all of our per share results in both years reflect the two for one stock split that took place May 1.

In our wholesale business, our sales growth was broad-based and our margins were strong across all major categories. There is no magic to our performance here. We execute each and every season.

We capture strong sell through rates, booked reorder business, and relative to our peers and to our prior year, had less need for markdown and promotional support. Particularly for our department store customers, we’re the best-performing vendor in most of our categories. We’re demonstrating that value is not driven solely by price.

We drive value with great brands, great design, high-quality products, and compelling, well-merchandised assortments. Not only did we have a strong first quarter, but we have built an order book that gives us visibility for sustained momentum as we’ve moved into summer and then into fall.

Our ability to achieve this kind of performance is not only due to the outstanding brands we have partnered with, especially Calvin Klein, but also many others both licensed and owned. In addition, we’re diversified across many categories and tiers of retail. It also has to do with the fact that our performance reflects our culture.

Simply put, regardless of the direction the wind is blowing, at G-III, we get the job done. Let’s take a look at some more details in our businesses. We are without question the most important supplier of dresses today.

Calvin Klein dresses, now in over 1,200 doors, has annual sales of approximately [$165] million at wholesale and had a strong first quarter. Eliza J, our own brand, continued its strong selling and doubled its volume in the first quarter from last year. It is now in 800 doors. Vince Camuto is in over 500 doors, and also had a solid quarter.

Lastly, Jessica Howard, in almost 1,600 doors, had a very good shipping and selling quarter at retail. We are already the leader, but we have plenty of growth opportunities still ahead of us in dresses. In sportswear, perhaps the most difficult women’s category to do consistently well, we had a solid performance.

We saw the largest increase in Calvin Klein activewear performance, which is now in 1,400 doors and has annual sales in excess of $100 million at wholesale. Our Calvin Klein better sportswear business is in over 1,000 doors. It has annual sales of $150 million at wholesale and is on track to have another really good year.

Our Kensie contemporary sportswear, in over 1,200 doors, is doing well and should have a good year. Our overall sportswear and performance business is on track for another year of good sales and profit growth.

Handbags and cold weather accessories continue to become an increasingly important category and is a $100 million plus business for us this year. Here too we saw a strong first quarter. We are now in over 800 doors with Calvin Klein handbags.

Our fixtured shop program, which we’ve identified as a key strategy and a high return investment for the major doors in this category, continues to gain market share. In many cases, we see a 30% to 40% increase in selling when we install a hard fixture handbag shop. We currently have 15 in place with plans for 34 by year-end.

Cold weather accessories is now in over 600 doors and is expected to exceed 1,000 doors for the fall selling season. Handbags and cold weather will be a strong contributor to growth this year. Our women’s suits separates business showed excellent strength in the quarter.

Our Calvin Klein product is now in over 1,200 doors, and we expect to have annual sales of over $100 million this year. We continue to be the number one vendor and have a number of exciting brands beyond Calvin Klein that will help us continue to invigorate and grow this business for our department store customers.

We are pleased with the continued development of Ivanka Trump sportswear, dresses, and coats. We expect the Ivanka product to show strong growth in its second full year of business with us. I’m confident that this brand fills a void in the market, and we have high expectations for what it will mean to us over the long term.

We also expect a strong year from our team sports business. We should surpass $100 million in annual sales this year, while generating strong profits. We’re aggressively pursuing new opportunities in this area. In the outerwear category, as you know, the first quarter is something of a cleanup quarter.

Inventory at the end of the season was in good shape in all channels across our assortment of brands. This should bode well for the upcoming fall season, which is booked well so far. I’ll turn to our specialty retail business in a minute, but I’d like to take a few minutes to discuss G.H. Bass wholesale and licensing initiatives.

In addition to a great retail business opportunity, this is a brand that can support significant presence at wholesale. We’ve started with G.H. Bass women’s sportswear wholesale with a sportswear wholesale launch. This is going very well. We’ll be in over 200 doors for the fall season. With respect to licensing for G.H.

Bass, PBH, our men’s apparel licensee, is currently selling G.H. Bass in over 1,000 retail doors. The product is performing well and the door count is increasing. Overland, our shoe licensee in Europe, has also had a good launch, with product in key retailers such as Selfridge’s and Harrods. We’re very excited to be working with Genesco, a new U.S.

men’s and ladies footwear licensee. In our G.H. Bass retail concept, we drove a first quarter comp store sales gain of 17% for Q1. This is our first full quarter of year over year comparisons, and we’re pleased with the pace of the improvement. We have comprehensively integrated the G.H. Bass operations.

We have cleared the legacy inventory out of the system, and we’re now flowing strong new product into the stores. We’re focused on a broader repositioning initiative for the brand, with refreshed stores and also with a strong digital footprint and an expanded ecommerce presence, which will launch later this year.

We believe there is plenty of room for growth in Bass over the next several years, and we are confident that this will be another textbook case study of our ability to seamlessly integrate operations quickly, leverage a brand, and create value for our shareholders through acquisitions. Wilson’s certainly is such an example.

While our first quarter comparable sales for Wilson’s were flat, this is within the range of what we expected. The big months for Wilson’s lie ahead in the second half of the year, and we’re confident that Wilson’s is positioned for another good year.

Vilebrequin is an acquisition of an excellent brand that we expect to create long term sustainable value for our shareholders. We now have over 80 company owned stores, up from 60 when we bought the company in 2012.

Vilebrequin’s first quarter performance was consistent with the overall luxury status environment, which is a bit challenged, with significant currency swings impacting the international tourist around the world. Retail comps globally were down by high single-digits.

That said, we’re seeing some improvements besides the environment, and over the last several weeks, our new collection has been well received and comps have turned positive. We believe that bodes well for the summer season, which is very important for the brand.

I’ll reserve a few comments for closing, but I’ll now turn the call over to Neal Nackman, our chief financial officer, for a closer look at the numbers for the first quarter..

wholesale operations and retail operations. The wholesale operations segment consists of our former licensed products and nonlicensed product segments and includes sales of products licensed by us from third parties as well as sales of products under our own brands and private label sales.

The retail operations segment consists primarily of our Wilson’s Leather and G.H. Bass stores as well as a limited number of Calvin Klein Performance stores.

Net sales of wholesale operations increased 24% to $352.5 million from $285.1 million, driven by increased sales of Calvin Klein licensed product, primarily in the women’s performance wear, women’s suit and dress lines, as well as increased net sales of Eliza J and Vince Camuto dresses and Ivanka Trump products.

Net sales of retail operations increased 8% to $102.5 million from $95 million, primarily due to an increase in Wilson’s store count as well as a same-store sales increase of approximately 17% for our G.H. Bass stores compared to the prior year quarter.

Our gross margin percentage was 35.7% in the three month period ended April 30, 2015, compared to 35.5% in the prior year period. The gross margin percentage in our wholesale operations segment was 30.4% compared to 30.1% in last year’s quarter.

The gross margin percentage in our retail operations segment was 46.2% compared to 46.7% in the prior year quarter. Total SG&A expenses increased to $137 million in the quarter from $122 million in the same period last year.

This increase is primarily attributable to increased personnel costs, facility costs, and advertising expenses, which are primarily associated with increased retail store count, increased shipping volume, and required advertising associated with the growth in sales of licensed products.

Regarding our balance sheet, accounts receivable to $209 million from $145 million at the end of the prior year’s first quarter. Inventory increased approximately 15% to $371 million, compared to $323 million at the end of the first quarter last year. Inventory levels at G.H.

Bass at the end of the prior year’s comparable quarter were still in transition and were lower than normal. Excluding the transition to our increased G.H. Bass inventory, our inventory levels increased approximately 5%, which is consistent with our forecasted second quarter sales increase.

We spent approximately $8 million on capital expenditures in the first quarter this year and expect the full year’s capital expenditures to be between $35 million to $40 million primarily due to leasehold improvements for new and remodeled Wilson stores, G.H. Bass, and Vilebrequin stores, as well as fixturing costs at department stores.

At the end of the quarter, we had no outstanding debt and cash on hand of $86 million compared to a prior year net debt balance of $60 million which consisted of our revolving bank debt and promissory notes less our cash on hand at the time.

In addition to the cash flow generated from the operations, this reduction in debt was due in large part to the net proceeds of approximately $129 million from our June 2014 public stock offering. Lastly, I will discuss our guidance for the full fiscal year and the second quarter.

For the fiscal year ending January 31, 2016, we are forecasting net sales of approximately $2.4 billion. This would result in an increase of approximately 14% from the $2.1 billion of net sales in fiscal 2015.

We are increasing our forecasted net income to be between $123 million and $128 million compared to our previous forecast of between $116 million and $122 million. We are now forecasting net income per share of between $2.66 and $2.76 per diluted share, up from our previously forecasted range of between $2.52 and $2.62.

Our revised guidance compares to net income per diluted share of $2.48 in fiscal 2015 and non-GAAP net income per diluted share of $2.26 in the fiscal year ended January 31, 2015. We are estimating a fully diluted share count of approximately 46.5 million shares, which includes the effect of our 2014 midyear stock offering.

We are forecasting adjusted EBITDA to grow between 21% and 25% to between $225 million and $233 million compared to $186.6 million in fiscal 2015.

With respect to our second quarter guidance, we are forecasting net sales to increase to approximately $470 million in this year’s second quarter, an increase of 11% from the $424 million of net sales in the comparable quarter in the prior year.

We are forecasting net income between $6.9 million and $9.3 million or between $0.15 and $0.20 per diluted share for the second quarter, compared to net income of $6.2 million or $0.14 per diluted share in the previous year’s second quarter. That concludes my comments, and I will now turn the call back to Morris for closing remarks..

Thank you, Neal. I hope it’s clear to you that we’re off to an excellent start to our year, and that our results are sustainable. We have good momentum and believe our performance, particularly relative to many other vendors, makes G-III part of the solution for our customers, particularly department stores.

In addition to our ongoing expectation of strong wholesale business, we’re expecting momentum to continue to build in our specialty retail businesses. Wilson’s is positioned well for its key season. Vilebrequin is fundamentally healthy in a tough luxury goods market, and we’re making rapid progress with G.H.

Bass, which should continue to have double digit comp growth and good margin improvements in the coming quarters. We will remain focused on striving for further excellence throughout our company.

We’re pushing hard to make fiscal 2016 another outstanding year of growth, operational improvements, strategic progress, and strong value creation for all of the partners in, and shareholders of, business. Thank you, and operator, we’re now ready to take questions..

[Operator instructions.] And our first question comes from Erinn Murphy from Piper Jaffray. Please go ahead..

Morris, first off, you talked about the comps in the second half and just the visibility that you have on the order book.

Could you just share a little bit more about what you’re seeing right now that kind of supports that underlying confidence?.

Number one, our order book right now is quite strong. It’s a little bit ahead percentage to our plan, relative to last year. So we’re comfortable that our business is going to be strong. Our meetings with retailers as recent as today - today’s a big market day, has got a great deal of encouragement attached to it.

The conversations that we’ve had with our retail partners is indicative of a strong belief that business for third and fourth quarter are going to drive the year. Clearly, some of our retail partners had a difficult first quarter, and their bet is that it’s all redeemed and retrieved in third and fourth quarter. And our bet is very much the same.

We’re excited by the fashion creations that we have, pretty much throughout our building. In all our brands, we’ve created a focus on not accepting a weak classification. All that we’ve done is added design to make sure weak classification turns into a strong classification. And it’s exciting our customers, and it’s working.

Our order book reflects it, the margins that we’re able to get for the product that we’re creating is a little bit better than it has been historically, and the tests that we have out there lead us to believe we’re in the middle of a very good year..

And I guess on the Wilson’s business comping flattish, I recognize that’s kind of in line with your internal plan.

I guess maybe walk us through how you see that business trending throughout the balance of the year? Is flat kind of the new normal for you guys, or is there something that you’re doing strategically or from a product mix perspective that should start to see that [inflect] from a comp perspective?.

The issue at Wilson’s currently is, number one, this is the softest period of time for Wilson’s, which is pretty much two-thirds of an outerwear business and a third of accessories and handbags. So the expectation is not very large. The percentage that we do in the quarter is not significant.

The concern to some degree is the foot traffic that flows through some of our larger outlet stores, Orlando and Sawgrass and a little bit of Woodbury Commons, where we’re seeing a slowdown as expected, as we’ve all heard from retailers and wholesalers, that anything that is connected to tourism and currency, the footfall is clearly off.

So that’s what we’re reading in Wilson’s. Our bigger stores that are in those centers are reflective of the business. Our May business, I might add, I can give you a little bit of visibility on May for Wilsons, is up 5%, and our Vilebrequin business for May is up. And again, Bass is trending better than the 17% that we tracked in the first quarter.

So we’re trending close to 25% in comp increases for the month of May. So I think we’re okay for the year. Our product in all of those retail concepts is something that we’re proud of. A year ago, we had a concern for some of the Bass product.

We were going through a cleansing of the inventory and the support inventory that we had to fill the void was essentially there because it was available. It wasn’t all right. Today, if you walked into a Bass store, you’d see a comprehensive collection that really fits into Bass. And Wilson’s the same, and Vilebrequin also the same.

We just dropped a new delivery for Vilebrequin and the impact, literally overnight, on new delivery, is excellent, both in the United States and the rest of the world. So I hope that answers your question a little bit, Erinn..

No, absolutely. Thank you. And then just last, a clarification question for Neal.

On the restatements, and I do apologize if I missed this, are you simply collapsing the licenses and the nonlicenses [unintelligible] in retail, or that Calvin Klein Performance retail piece of the business, was that in license and it’s now being classified in retail? And then where is Vilebrequin going to sit in this new structure?.

Right, your first suggestion was the right one, Erinn. We are really just simply collapsing the licensed and nonlicensed businesses together. So for modeling purposes, it should be very simple for you. The elimination stays exactly the way it was.

The only intercompany sales we had were from those segments to the retail operation, so the elimination [unintelligible] stay the same and the Vilebrequin business was always in with our nonlicensed business, and that’s, again, collapsed with the licensed for the wholesale operations..

And our next question comes from Ed Yruma of KeyBanc Capital Markets..

Morris, as you think about the first quarter, how much of the relative outperformance was due to potentially lower outerwear markdowns and cleanup versus what you would consider as more organic growth that was booked in the quarter?.

Our business was not necessarily an improvement on markdowns in outerwear. Those markdowns are accrued through a longer period than the first quarter, quite honestly. And we ended up quite clean at the end of the year. The real reflection is really the performance of sportswear and dresses in all our areas.

The contribution that we had to make in the first quarter to help the department stores move the product was minimal compared to the past. So it’s better performance in our seasonally appropriate product, not an improvement on dated product..

You also had a major competitor that exited the market in Jones, I guess.

What has your success been in either claiming some of the former space or, in your opinion, just kind of getting maybe share that was up for grabs?.

The competitor that has walked away from the business or is transitioning out of the business is leaving open some real estate that we’re trying to make accommodations for. We don’t plan on leaving that real estate empty.

We’re fighting for it in many ways, expansion of our own existing brands and we’re on the lookout for brands that are appropriate for that real estate. And the department stores are cooperating with us. We see a little bit of a build on the back end of the year. The orders are a little bit more aggressive.

The depth of inventory in individual doors is increasing. That’s been our mantra regardless of having competition or not. When our inventory is right, the depth of inventory within an individual door is the battle that we fight for. And today, with proven results, we’re winning the battle.

Our improvements, particularly in Calvin Klein, where we get expansion of SKU count and depth of inventory and we dominate the space, we get larger space, and the formula works well..

I know it’s harder to tell, Neal, since you guys have kind of merged in your systems, but how should we think about the financial implications of Bass for the year?.

Like we’ve said before, this is a year for significant improvement in G.H. Bass. We saw it start in the fourth quarter of last year with double digit comps. We continued that in the first quarter. We’re anticipating that. As we just mentioned, we were very strong in the month of May. We continue to expect good double-digit growth.

And we will move that business from really a detractor to us last year to a positive result for this year..

And how positive is that?.

We’re not quantifying it specifically, but it’s a significant increase from last year’s significant loss..

And our next question comes from Rick Patel from Stephens..

Can you talk about the handbag business? It seems like some of the aspirational luxury players out there are becoming more and more promotional, but you still seem to be doing really well.

So have you had to implement changes around pricing or markdown support in order to compete? And what gives you confidence that you can continue to do well in accessories given the increasingly promotional marketplace out there?.

We’ve clearly picked up market share. We’ve expanded our assortment of product, we’ve expanded our design capabilities, and the last thing that I would respond to really is the markdown assistance I guess that you referred to. We’ve been operating cleaner than ever. Our product is selling through very well.

You have to remember, we were only in this business a short period of time, and really in record time, we learned it well. We know how to build the assortment, we know how to deliver it, we know when to deliver it, and we know how to price it, and we help our retailers with a markdown cadence that’s appropriate for the product that we ship.

And all of that pretty much adds up to a resource that’s deserving of greater market share, and we’re getting it. Pretty much all the doors that we are in show tremendous improvement over the prior year. We look at sellthroughs and quite honestly, I’m amazed to see week after week how the improvements kind of resonate through that area..

And then a question on the changes you’ve implemented at Bass. Very strong comps there since the fall. Seems like the product is where you want it to be.

But has your vision overall been completely implemented at this point? Or does it still remain a work in progress in some areas?.

What we have done is we’ve worked hard at cleaning up let’s call it the back of the house. We’ve worked hard at staffing appropriately, both the field, the store personnel, as well as the merchants and the leaders of the area have pretty much all changed.

So they walk at a faster pace, they think at a faster pace, they’ve been given freedom and support to build the brand that we absolutely believe in and we’re showing our belief in. What we haven’t really done yet, you haven’t seen the marketing that’s going to support this yet.

There’s been virtually no marketing that has been done to support the brand, other than several ads in VNR/Women’s Wear. But we have an aggressive campaign. We just finished a shoot, and this shoot will support both the retail and the wholesale initiatives that we have. PBH is really the only wholesale product that is out there.

As you know, they license the brands from us in men’s sportswear and currently they’re in over 1,000 doors and the space is growing for them. They’ve shipped nice product, it’s retailed well, and we’re supporting them with more marketing.

And based on what we saw through their wholesale initiative, we decided that it was time to launch sportswear on the women’s side. And the product looks absolutely great. It’s in line with what my expectation was, and right out of the box, we have orders for over 200 department stores that have not had the brand on the women’s side.

So we’re excited by that potential. The European licensee has done a fine job of building product, a little different than what’s been distributed in the states in footwear. It’s a little bit upscale, a little more upscale than the States’ product. And it’s performed exceptionally well.

The reorders flow through every day, so we’re excited by the added feature of getting distribution globally that was never there before. And we have interest. Pretty much every day, there’s somebody knocking on the door for an opportunity to license the classification under Bass.

So we’ve created a buzz, as one would say, for the brand, and I guess the buzz will permeate a little further when we get wholesale product into the couple hundred stores that we plan on distributing this year..

And our next question comes from Joan Payson with Barclays..

In terms of the 24% wholesale revenue growth that you posted in the quarter, it sounds like trends were pretty strong across the board amongst different brands and categories, but which of them would you say outperformed the most versus the initial plan?.

Well, strangely, the one that you would sit back and say that maybe we have pretty strong penetration would be Calvin Klein. But I will tell you that Calvin Klein outperformed the rest.

Proudly, I would tell you that we have a company brand called Eliza J, which is a dress brand that we recently expanded into outerwear and we’ll expand it even further into other classifications. But Eliza J, I’m told, in Nordstrom’s it’s the number one dress brand.

It’s a brand that we work hard at making quite unique and quite special in our assortment. So we have a plan that’s almost double that of last year, and we believe we’re going to achieve it. So with that, another dress brand for us is Vince Camuto, and our performance there is stellar as well.

So there are very few pieces that I could point to that I give you that are disappointing. The highlights, I believe, are Calvin Klein, maybe Eliza J, Vince Camuto, and Jessica Howard as well, our moderate dress business..

And for the Calvin Klein brand overall, I think it finished last year with around $750 million to $800 million in revenue, somewhere in that territory.

And you usually provide us, I think, with a number of different targets by category, but how are you planning the collective growth for the brand this year?.

Hopefully, we’ll celebrate a billion dollar brand. So we have a plan that is north of a billion dollars for Calvin Klein and our order book performance and the support that we believe we have from both our licensed store as well as the retailer, leads me to believe that we’re going to get there.

So you know, we’re probably talking 15% to 20% increase in the brand..

And just one follow up in terms of your guidance for the full year. It looks like you’re raising the full year EPS by more than the upside to the quarter. And I was just wondering if it’s related more to second quarter trends that you’re seeing right now, or more to the back half and if it has more to do with the G.H.

Bass business or the rest of the business, excluding Bass..

I think it’s a function of us having a lot more clarity in terms of our wholesale order book, a lot more comfort with how our Bass business is performing. So it really is just one more quarter smarter, and a more developed wholesale order book that helps us refine the projections..

[Operator instructions.] And our next question comes from John Kernan of Cowen & Company..

If we could circle back to G.H. Bass, I think you’ve laid out a plan for this to become a billion dollar brand, which includes north of $200 million in women’s wholesale.

I know there’s a big launch this fall, so how fast can this wholesale business ramp toward that $200 million mark? Any progress you could give us in terms of taking this brand to a billion dollars plus?.

First of all, I heard you say that this is going to be a big launch this fall, so let me step back a little bit. It’s going to be a soft launch this fall. We have 200 doors that we’re excited about shipping, but the number that’s going to be associated with that is not going to move us significantly.

The $200 million at wholesale is a very achievable number, and I believe we get there between four and five years, we should have a $200 million wholesale business. There’s great support for it. I don’t use the term white space often, but this brand does address the white space in women’s.

And what we’ve done is we’ve taken a team of fashion people that are responsible for a contemporary brand in our business, the Kenzie Group, and they’ve taken on the challenge of putting a twist to this lifestyle casual brand that’s about life at leisure and putting a very feminine twist to it.

It doesn’t have the manly twist that generally is associated with this product mix. So I think we have a look that’s somewhat different than what has been out there, and we’re excited to get the product shipped. The early shippings should give us a good indication. That will happen in late August, early September.

And we have some shops that we’re going to be building out. There’s a Herald Square shop. Dillard’s is very supportive of the brand. [unintelligible] is supportive. So you’ll see the brand out there. It will be very obvious to you. And you’ll probably look at me and tell me that $200 million number is a low number. So we’re excited by it.

We have opportunities for the first time that permeate through the product that we’re going to be making in shipping, licensed product, and we’re proving out our thesis of outlet stores does work. Integrating the back end of Bass into Wilson’s is working extremely well. Management teams are perfect for what we’re trying to achieve.

So you can still hold me to the billion dollar number..

Any additional thoughts on the acquisition front? Are there any particular categories that look appealing to you? And I guess Neal, what would be the upper bounds of leverage on the business segment that you’d look to take on, if the right acquisition came up?.

So, the right acquisition is one that is an important lifestyle brand, one that either has a strong management team that’s in place and building product that needs additional distribution, additional sourcing, and additional financing. That would fit well in our assortment.

And it doesn’t really matter whether it’s men’s or women’s or if it’s focused on accessories. I think we’ve proved out that we can take on a challenge. We’ve even taken on footwear with Bass as a challenge, and have succeeded.

So it can be pretty much any classification of apparel we feel comfortable with, if it adds the right metrics that fit the profile of what we’re looking at, and that it can be a standalone brand that we can build from inception. So there’s several different areas that we can look at, and we are looking at. We don’t ignore what we have.

We’ve got plenty of organic growth that will take us a good distance. We have opportunities that we’re looking at now, and it just takes time to find the right deal and to close on it..

In terms of leverage, there is no magic number that we associate with that. Certainly, the company is very underlevered at the moment. We really only borrow now in the peak season. We’re looking to generate significant amounts of EBITDA. We’ve been generating nice free cash flow for the last three years. We expect to continue that.

So as we continue to be out in the marketplace and look at opportunities, the company’s balance sheet is only getting stronger, and we don’t see limitations from a financial standpoint to stepping into the right acquisition..

And our next question comes from Jim Duffy with Stifel..

Very encouraging trends in the Bass stores. Morris, I was hoping that you might be able to speak in more detail around specifically what it is that’s resonating so well.

Are you indeed seeing improvement in traffic? Or is the high teens comp just better conversion?.

It’s not traffic. It’s conversion, but it’s caused by better product. The major increase is coming out of apparel. We’re showing comp increases in the apparel segment that are not far from 50% comp increases. Footwear comps are strong. Needs a little better refinement. We’re working on that.

And it’s better execution, better people, better systems, and just a focus on getting it right. There’s still plenty of room left for improvement. We seem to be on the right path..

And with Wilson’s, you used to speak about sales per square foot productivity.

Can you share relative to the Bass stores, where you stand on a sales per square foot basis and what you see as the opportunity?.

We picked up the business and we were probably around 225. We’re up around 240 per square foot now. Certainly with the kinds of double digit comps that we’re looking for, we’re looking for good improvement this year.

We have not put a number on where we think we top out or what the total potential is, but we see lots of good room for growth in terms of the productivity..

Neal, is there a way to think about the leverage potential on that comp improvement?.

Well, not necessarily by formula, Jim, but we see no reason why this business isn’t a double digit operating margin type business. So we expect for this year to get improvement both in gross margin, several hundred basis points in gross margin over the past year, as well as a couple hundred points of improvement in terms of the SG&A leverage.

So that should move us from a negative to certainly a low positive operating margin for this year. But we see this business as a low double-digit operating margin business for us when it’s being done right..

And our next question comes from Eric Beder of Wunderlich..

Can you talk a little bit about the Ivanka Trump line and how you see that continuing to expand in the next few quarters and few years?.

The Ivanka Trump brand is doing well. We made a strategic error last year. We weren’t prepared to launch the brand with sportswear, so we launched it with a classification called suits separates. And the product really needed to be exposed appropriately in sportswear. So our dresses sold well, our coats sold well.

What did not sell well our first season were suits separates. And suits separates is a classification that we as a company own. We’re best in class. So with that knowledge, we took a shot. We thought that we’d bring the brand out with suits separates as the lead.

So today, if you would shop the area, you’d clearly see an amazing collection of Ivanka sportswear that’s been well received and is being shipped as we speak. So we’ve cleaned up the problem on the suits separates. The dresses have booked well, and the coat area is expanding. And our margins are very good with the brand. We’re excited about the brand..

When you look at the handbag business, you have Kensie, you have Calvin Klein, would you want to take on additional licenses potential for that segment to grow at even more? Or is it really just only going to be through acquisitions that you expand that out?.

You know, we never negate an opportunity. We look at it. Let’s call it the preference. The preference is really not to license. But if the opportunity came up for an amazing brand that lent itself to just further expansion of the handbag business, we wouldn’t hesitate. We’d license it. But we’re on a search for a brand that we can do many things with.

The best thing for us is acquiring a brand that we can do all classifications with and have an equity stake in it. So we believe we’ll find it, and that doesn’t stop us from meeting with people that can provide us with opportunities through licensing. We still do that. We do it every single day..

And finally, you talked about the M&A criteria.

Do you want primarily domestic or international? Or is that not a key differentiator when you’re looking at buying a brand now?.

You know, our competencies really lie domestically. I’d respond, again, my preference would be a domestic situation, a brand that we could distribute and be recognized in the States. But that wouldn’t keep me away from an opportunity that might exist in Europe or any other part of the world. But we do have our preference.

The preference is we don’t fool ourselves, we know that our strength really is designing, marketing, and distributing product in the United States..

And our next question comes from David Glick with Buckingham Research..

Speaking of licensing, I’ve been watching the developments around the Jones New York sale and wondered if there were opportunities, or certainly some sort of legacy strengths, from a classification perspective, at Jones, whether it’s suits or dresses, obviously outerwear.

But are there some licensing opportunities potentially there that could help augment your growth?.

No, for some undisclosed reasons, we are not interested in Jones as a brand. It’s a brand that we won’t participate with. We won’t license any of their assets..

Okay. And then a question for Neal on the gross margin front. Obviously, Q1 was probably largely a function of the mix of wholesale versus retail.

How do you see the gross margin playing out for the year that’s embedded in your plan relative to the performance on the gross margin line in 2014?.

I would tell you that we had, similar to the slight improvement that we had in Q1, that’s probably the type of improvement that we’re looking at for the whole year. Not a year where we see anything dramatic happening as far as gross margin improvement, but we would hope for some slight gross margin improvement for the whole year..

And then last question, now that the outerwear booking season is behind you, obviously it’s less important as a percentage of total of your business as other businesses go, but still very important.

Where did your order book end up, and what are the categories within outerwear that you think can continue to grow the business after a couple of good seasons?.

Our order book is ahead of last year. Our plan is ahead of last year. The classifications that are strong are no different, quite honestly, than last year. The down business is booked very well.

The wool business, I focused on something a little earlier, I guess on another question, where we took a classification that wasn’t the strongest last year and we designed into it. And the designs that we came out with are just superb.

We believe the product that we created across all our brands that are driven by the wool fabrication are going to reinvigorate the wool business. We have a faux leather business that’s very strong. We have a cotton business that’s emerging a little stronger than it’s been historically. It seems to be a little bit of a trend.

And disappointingly, the leather business is weaker than I’d like it to be. And for those of you that don’t know, the roots of this company are in the leather business. It wasn’t a big business last year and it certainly won’t be a big business this year..

And I show no further questions at this time. I will now turn the call back to Morris for closing remarks..

Thank you all for listening in, and thank you for your questions. Have a good day..