Neal S. Nackman - CFO Morris Goldfarb - CEO, President and Chairman.

Edward Yruma - KeyBanc Capital Markets John Kernan - Cowen and Company Rick Patel - Stephens Inc. David Glick - Buckingham Research Jim Duffy - Stifel Nicolaus Erinn Murphy - Piper Jaffray.

Welcome to the G-III Apparel Group First Quarter Fiscal 2017 Earnings Conference Call. My name is Ellen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Neal Nackman, Chief Financial Officer. Mr. 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 Web-site.

I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb..

Good morning and thank you for joining us to discuss our first quarter results. With me today on the call 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 grew our net sales at a solid mid-single-digit pace in the first quarter of fiscal 2017 and our progress and performance is consistent with our overall plan for the year. Our wholesale business transcended the tough environment in the first quarter and is gaining momentum.

We continue to invest in major new business and brand initiatives, particularly with Karl Lagerfeld and Tommy Hilfiger. These initiatives and their many recent and upcoming product launches are a source of excitement and newness for our retailers and their consumers. We believe that our strategic position remains powerful.

As a result, we remain enthusiastic and confident about our outlook for the balance of the year and beyond. Our specialty retail businesses are a different story. Our Wilsons and Bass stores are fundamentally sound.

That said, unlike our wholesale business, they've not been able to avoid the impact of soft traffic and deep promotions across much of the industry. We're executing well in these businesses by improving our design, sourcing better, controlling inventory carefully, and monitoring our real estate portfolio closely.

Even with those improvements, we do not expect to see improved store productivity until the second half of this year. Now I'd like to provide some first quarter financial highlights. We grew overall sales by 6% to a new first quarter record $457 million.

This is all organic growth, driven by a strong wholesale business across a number of important categories. We expect that growth to accelerate in the back half of the year. Operating income in the first quarter was $5.4 million.

This includes startup and incremental overhead expenses for our growth initiatives and is slightly ahead of where we expect it to be. Our net income per diluted share in the quarter of $0.06 was better than we expected.

Although the negative comparable store sales in our retail business created pressure, we more than offset this through a strong performance in our wholesale business. We are reaffirming our previous full-year guidance. Our business opportunities and our execution capabilities provide us with the confidence in our ability to achieve our forecast.

Also, at this point in the year, the numbers we're seeing in our first quarter results, our order book, and our sell-through performance in department stores gives us comfort with our forecast. We are in a great position to build our leadership position in the market by offering our customers new brands and fresh product in our key categories.

Our expectation, and that of our retail partners, is that our expanded assortments and portfolio will help retailers drive traffic and offer better conversion and selling opportunities regardless of the challenging economic environment. Now let's review our business in some detail. I'd like to begin by addressing our business with Macy's.

It is excellent, particularly in view of the tough environment. In the quarter our sales to Macy's grew over 13% versus last year and our retail sell-throughs continued at a strong double-digit rate. We're seeing this kind of outperformance broadly in department stores because simply our product represents good value for consumers.

We make some of the best product available in nearly every major department store category, and we expect that business to be a great solution for our customers and a deep well of value for our shareholders. In dresses, we're very pleased with our performance. Calvin Klein remains the market leader.

Tommy Hilfiger dresses had an incredible launch and retail selling is strong in several department stores. We will be up to 500 doors and 50 shop-in-shops by the third quarter. We also sustained the momentum we built during holiday for our Company-owned Eliza J and Jessica Howard brands.

The spring collection of Karl Lagerfeld dresses is consistent with the strong fashion heritage of the brand. We see women looking to Lagerfeld for that soft Parisian chic influence. Our women's sportswear business continues its strong trajectory. Calvin Klein continues to be a leading brand and competitive winner in this department.

Tommy Hilfiger sportswear, which will launch for the 2017 season next January, will reinforce this growth. Our Karl Lagerfeld sportswear for this spring is also performing well. The customers responded very well to product with pretty feminine details. We are excited to drive greater awareness with our new U.S.

marketing campaign this fall for Lagerfeld. Turning to Calvin Klein handbags, here too we’ve sustained our momentum, and the business is performing very well and continues to take floor space from key competitive brands. Calvin Klein handbags had a strong double-digit pace of growth and we expect this growth to continue.

We are looking forward to expanding our presence with Karl Lagerfeld handbags. We think it is an important category for the brand and we expect that business to grow as we extend out to a more meaningful launch of handbag products. Karl Lagerfeld's footwear is a natural complement to handbags.

We have coordinated our soft launch of both in the same set of doors. We're pleased to see casual and dress shoe styles performing well. Our Calvin Klein women's suit separate business is also performing well with a strong double-digit gain in sales for the first quarter. Our Karl Lagerfeld suit separates product begins shipping in August.

We are working hard to dominate this department at our major customers. We think we clearly have that opportunity. For holiday, we will conduct a coordinated simultaneous launch of Tommy Hilfiger performance, denim, sweater, and suit separates categories.

This should dramatically reinforce the presence and awareness of the brand for women's apparel in the United States. Turning now to outerwear, we continue to have it planned mid-single digits down. Our order book and the trend in bookings continues to support our view that our sales and margin plan for this coming year are achievable.

Our team sports order book is filling out well, led by the NFL again this year. We are especially excited about the growth prospects of Hands High by Jimmy Fallon. We are launching the product in over 40 universities this fall holiday season, following our launch of product for professional sports leagues last fall.

In general, the outlook for our wholesale business is good. We continue to see double-digit gains in our non-outerwear businesses which will more than offset our planned decrease in outerwear for the upcoming fall winter season. As I mentioned at the beginning of the call, specialty retail is more of a challenge.

Our first quarter comp sales were negative 13.6% at Wilsons and negative 5.1% at Bass. At Wilsons, the warm weather this past winter led to a difficult holiday season. We have worked hard to get our inventory levels back in line at the expense of lower sales and margins in the first quarter.

We expect to see improvement in sales and gross margin in the second half. At Bass, this spring we saw the same traffic and cool weather impacts that affected all of specialty retail. We have returned our inventories to a clean position and note that the performance of newer spring merchandise, especially in apparel, is improving.

Shoes represent 55% of the Bass product mix and we believe the upgrading of the design and quality of our shoe collection, especially with our licensee Genesco's help, will begin to resonate with consumers. We are pleased with our Bass online business. It is up significantly from the prior year.

Although online is small today, we believe it can grow into a sizable business over the next several years. As with Wilsons, we expect our Bass stores to have improved sales and margins in the second half of the year. We are focused on a continuous improvement in merchandising and execution, and believe the Bass brand is getting steadily stronger.

If you get the opportunity and want to see a view of the future of our Bass stores, please visit our new locations at Woodbury Common in New York and Manchester in Vermont. The fixtures and floorings are remodelled, the product is really well designed and presented and the overall store appeal is greatly enhanced.

Apart from our Bass retail business, we have expanded our wholesale collection to include men's and women's outerwear produced by us. We continue to also work on what we believe is a significant women's wholesale sportswear opportunity.

Our Bass license portfolio continues to expand including licenses for men's sportswear with PVH, wholesale shoes with Genesco here in the U.S., and wholesale retail shoes with Overland in Europe and Asia, and our most recent licensee for hosiery with Leg Apparel.

We are also building the global wholesale and retail distribution of Bass and have hired a senior executive to drive international development. We are supporting our global brand strategy by aggressively marketing with digital and print as well as live events.

Our Vilebrequin business and the brand remains fundamentally sound but are under pressure from a persistently challenging luxury market. We are investing in new and innovative products and also on the online shopping experience we offer to consumers.

We will selectively open new store locations and are working hard on developing the wholesale and distribution side of the business as well. We have a strong management team in place and are confident in Vilebrequin's future success.

I will reserve some comments for closing and will now turn the call over to Neal for a closer review of our financial performance..

Thank you, Morris. Net sales for the quarter ended April 30, 2016 increased 6% to $457 million from $433 million in the same period last year.

Net sales of our wholesale operations segment increased 9% to $382 million, from $352 million, primarily as a result of increased sales of Calvin Klein licensed product with the largest increases occurring in women's suits, women's outerwear and handbags as well as increased net sales of Ivanka Trump product.

The increase was also the result of net sales from our new Karl Lagerfeld licensed products and our Tommy Hilfiger dress line. Net sales of our retail operations segment decreased 7% to $95 million, from $102 million in the first quarter, primarily due to decreases of 13.6% in Wilsons’ same-store sales and a decrease of 5.1% in G.H.

Bass same-store sales compared to the same period in the prior year. Our gross margin percentage was 36.2% in the three month period ended April 30, 2016, compared to 35.7% in the prior year's period. The gross margin percentage in our wholesale operations segment was 32.5% compared to 30.4% in last year's quarter.

This increase was mainly the result of an increase in gross profit of our Calvin Klein licensed products, primarily woman's dresses and sportswear. In addition, we achieved improved gross margins in our Jessica Howard and Eliza J dress businesses.

The gross margin percentage in our retail operations segment was 43.5%, compared to 46.2% in the prior year's quarter. The decrease in gross profit percentage was driven by offering deeper discounts in order to sell excess inventory. Total SG&A expenses increased to $153 million from $137 million in the prior period.

This increase was primarily due to increased personnel costs, advertising expenses and facility costs. Net income for the quarter was $2.8 million, or $0.06 per diluted share, compared to net income of $6.8 million or $0.15 per diluted share in last year's first quarter.

Regarding our balance sheet, accounts receivable and inventory levels are in good shape. Accounts receivable increased to $214 million from $209 million at the end of the prior year's first quarter. The inventory increased approximately 10% to $407 million compared to $371 million at the end of the first quarter in the previous year.

This increase is still impacted by carryover inventory levels from the prior fall season. We spent approximately $6 million on capital expenditures in the first quarter of the year. We also invested approximately $35 million for a 19% ownership in the parent company of the group that holds the worldwide rights for the Karl Lagerfeld brand.

At the end of the quarter we had no outstanding debt and cash on hand at $95 million, compared to the prior year's cash on hand of $86 million with also no outstanding debt. Lastly, I will discuss our guidance for the full fiscal year and the second quarter.

For the fiscal year ending January 31, 2017, we continue to forecast net sales of approximately $2.56 billion. This would result in an increase of approximately 9% from the $2.34 billion of net sales in fiscal 2016. Our forecasted net income is expected to be between $120 million and $125 million.

We are forecasting net income of between $2.55 and $2.65 per diluted share. Our guidance compares to net income per diluted share of $2.46 in fiscal 2016 and non-GAAP net income per diluted share of $2.44 in the fiscal year ended January 31, 2016.

We are forecasting adjusted EBITDA to grow between 9% and 12% to between $228 million and $236 million, compared to $210 million in fiscal 2016. With respect to our second quarter guidance, we are forecasting net sales to increase to approximately $485 million from $474 million in the prior year's second quarter.

We are anticipating that our sales growth for the second quarter will be impacted by reduced outerwear shipping in July for the upcoming fall season. We are forecasting net income of between $7 million and $9 million or between $0.15 and $0.19 per diluted share.

This is compared to net income of $12.5 million or $0.27 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. Following a good first quarter, we continue to be excited about the year in front of us. Fiscal 2017 will prove to be strong and a steppingstone for further growth in 2018 and beyond.

In this uncertain environment, because of who we are, because we have an uncommonly strong culture, we are moving aggressively to capture market share and to further cement our leadership position.

We intend to show we've embraced the ideals that success can only be won through hard work, creativity is the means for us to capture business, that flawless execution is how we keep it and good results are achieved by earning them.

The addition of Lagerfeld and the increased presence of Tommy Hilfiger in our portfolio have energized the entire Company. We are fortunate to have strong brand partnerships across our operations.

As the year progresses, we expect to show our partners, our customers, our shareholders and our competitors, why without question G-III is the true leader in the industry. Thank you, operator. We're now ready for some questions..

[Operator Instructions] Our first question is from Ed Yruma with KeyBanc Capital Markets..

Congrats on the solid results in a really difficult environment. First as it relates to Bass, obviously I know you guys said the comp was certainly weaker than you would have hoped.

How should we think about – I know you've indicated you see improvement in the back half, but have you kind of internally lowered your assumptions for retail? And then I believe Wilsons, you had specifically guided for up high single digit comps.

Has that moderated and maybe is there some offset from your wholesale business?.

We have taken down the Q2 guidance in particular. For the full year, we are now looking at really mid-single-digit comps for both Wilsons and Bass, which we feel are very achievable..

Got it. Just maybe a final post-mortem on the outerwear season, I know that on occasion I guess some of the accruals can ship a little bit in 1Q.

Did you have any impact, positive or negative, from the way that the outerwear season closed out?.

The accruals were appropriate. We were fine, our plans were on target. Our business going forward seems like it's on track. We are forecasting a mid-single-digit decrease in the last year and I believe that's fairly conservative. My recent conversations with the retailers are that they are planning a flat business to last year.

So there's opportunity there..

Got it. And one final follow-up. Certainly lots of buzz about Amazon in apparel recently.

I guess, how do you think about Amazon as a potential channel for you and I guess how do you manage the inherent conflict with some of your biggest department stores?.

Amazon is the flavor of the day, there is no doubt. We are very active in business with Amazon through most of our brands. We manage our business uniquely. Lot of the product that is on Amazon is not available at the store level. We've tried to discriminate how the distribution works.

We are currently building a site for one of our brands on Amazon and we take them seriously. Yet we look to protect our business with our department stores. They also have online businesses that we support. And currently we are managing our businesses really well.

We are looking at initiatives with Amazon that would provide them with private label product, with unique brands, either their own or some of our brands that aren't distributed to department stores. So it serves their desires and it solves some of our issues with our department store retailers..

The next question is from John Kernan with Cowen..

Congrats on strong results in a tough environment, particularly on the gross margin side of things.

Neal, can you walk us through your assumptions for the wholesale business on the top line in terms of the back half of the year? I guess we can kind of back into it given you're still maintaining the same store sales guidance, but just any comments on what we should expect from the wholesale side of the business on the top line, and can you quantify the benefits from the Hilfiger and Lagerfeld launches in the back half?.

Sure, John. We are forecasting a low-double-digit growth in the wholesale side of the business. That will be a low-single-digit growth for us in Q2, and again that's primarily because of what we are seeing in the outerwear order book as well as what we are expecting in terms of outerwear shipments.

In terms of the new businesses, let me be clear on the first quarter increases. For Karl Lagerfeld and Tommy Hilfiger combined, it was just under $20 million of incremental sales. And as we've said earlier, we expect that that will ramp up as we go throughout the year. So that just gives you some indication of kind of where that should be annually.

But Tommy Hilfiger in particular, other than the dress business, is really purely a second half event for us. Karl Lagerfeld was shipped throughout the year..

Okay.

And then what's giving you the confidence in that what appears to be a fairly significant acceleration in top line sales in the back half of the year? Obviously there is an assumption that retail same-store sales reaccelerates fairly significantly, but what's giving – is there something in the order book from your department store and wholesale partners, but what gives us confidence and what gives you confidence in that big reacceleration in top line for the back half of the year?.

Clearly, our order book is a good guide. Our order book is in good shape. It leads us to believe that we are comfortable, as we stated, with our guidance. Our retail performance, -- better than our order book, our retail performance is stellar. In difficult times, we are the callout for product that is retailing well.

If this was a good year, we'd be happy with overall performance. We're operating as if this is a banner year. Our sales in dresses with our brands is best in class, our suit separate business is very strong, our performance business is very strong. There is no disguise to good selling.

So that leads us to believe that our next collections that are in place to be delivered should be equally good or better. We are at the beginning of the season. We have not even touched on our coat business.

There is very little distribution, we're guessing, on our coat business, although there were callouts from department stores that their spring coat business was excellent. That was one of the callouts on one of the earnings releases for a dominant department store group.

So, when you produce great product, you price it appropriately, you take control of your presence on the store floor, it makes a huge difference, and we are getting better at it every day. So we are comfortable with what we are suggesting is the year to come..

Our next question is from Rick Patel with Stephens..

I'll also add my congrats on the strong wholesale performance. Can you give us an update on your second quarter to date trends in retail? I think you mentioned at one point that apparel at Bass was improving. I'm curious if that's showing up as better comps or if traffic is still a challenge.

And what are your assumptions for better retail performance in the back half? Are you expecting traffic to bounce back or is conversion going to pick up, how do we see that improvement?.

Rick, I believe you are addressing the retail part of that business..

That's correct..

Okay. So, traffic is improving, conversion is improving at a better pace, our margins are getting better, and our product is getting better every day. We had a couple of years of improving the footwear component to Bass. Bass, as I said earlier, is 55% footwear.

We've opened an office to service the needs of our own stores in Southern China for footwear specifically. We have hired some great talent to help us develop, help us source. Our pricing is significantly less than it was two years ago. We are becoming, soon to become best-in-class in footwear.

So the assumption is that our business at Bass will continue to improve. What we can't depend on is traffic improvement. The amount of people out there shopping and specifically going to outlet centers where we have most of our stores is down. We don't control that. What we do control, we are taking seriously.

We are spending all our time in training better, in store appearance. As I said, there are two new concept stores that just opened. The cost of opening those stores is not dramatic. So we can afford to improve a whole bunch of our stores if this test works and we'll go down that path.

We have a marketing effort that's consistently working to better our presence online and let the consumer know about all the wonderful things I'm telling you that we are doing. So it's working. It's a slow build. It's something that all the pieces that we control are working well.

The pieces that we can't control, we simply can't control, we can only guess that. So retail boxes, our own retail boxes are the bigger problem. The wholesale piece, as we've shown you, as I've spoken to, we're very comfortable with that..

I know your margins for Wilsons and Bass came in below your expectations.

Can you update us on where you plan to end the year and has your thinking changed in terms of what the long-term margin potential could be for both of those concepts?.

We're looking for improved margins in both businesses. And I would tell you that our expectation for the long-term has not changed at all. We think both businesses really should be able to achieve 50% gross margins and there's nothing that in terms of long-term performance has changed our viewpoint on that..

The next question is from David Glick with Buckingham Research..

Just a couple of questions, just a follow-up on retail, and I ask because I think investors are focused on that. I think you've got a lot of wholesale momentum.

But I just wonder, Neal, can you get a little more specific, like what's your Q2 comp plan, what's the second half plan and what's sort of the flexibility that you have in your model and your plan for the balance of the year to potentially exceed in wholesale performance to offset if you fall a little bit short on retail? Then I have a follow-up on Tommy Hilfiger women's..

David, just to give you some more guidance, you and the rest of the world, our planned combined comps for the second quarter is about flat. So we're still working our way out of a tough retail environment.

In the second half we do expect high single-digit to low double-digit comps, and that brings us into the mid-single-digit comp that I talked about in answering the earlier question. I think it's worth noting that the productivity in Wilsons, last year we had significant negative double-digit comps in both Q3 and Q4.

We had lower comps in the Bass business. Those were mid-single-digits and high single-digits in Q3 and Q4. And when we start to look at the sales productivity per square foot, we're fairly comfortable that we're not overreaching..

Okay.

And it's fair to say that you've made some progress form I guess combined negative high single digits in Q1 that you're getting, quarter to date you're making some progress toward that flat number?.

That is our expectation..

Okay.

And then on Tommy Hilfiger women's, Morris, as you look at your three initiatives, Bass wholesale, Karl Lagerfeld, and then Tommy Hilfiger women's being the more recent addition, which do you see as the largest business, which do you see as ramping up the fastest, and I'm suggesting it might be Tommy Hilfiger women's but I just wanted to get your sense of that and how quickly you can ramp it up and to what levels?.

So your suggestion is right on target, David. Tommy is the largest opportunity. There is a good reason for it. Tommy is a brand that is known nationally. It has a defined DNA. What needed to be corrected is product. We do product better than anybody, faster than anybody, and probably cheaper in the appropriate zones than anybody.

So Tommy is ramping up very quickly. This is going to be a power brand for this Company. I wouldn't be surprised if given time it matches up to what we do with Calvin Klein. We have brought the product to market quickly.

We have several new collections and classifications that have been viewed by retailers and I've never seen more excitement in the showroom than the shopping experiences that these department stores are going through in our space. So Tommy is very exciting. Karl Lagerfeld, also exciting but in different form.

We are positioning the brand a little bit higher, a little bit more carefully. We are undertaking the marketing and advertising initiatives for the brand. We are creating a DNA. And we have wonderful partners that are supportive of us, both domestically and internationally. But it's a slower build, it's a more careful build, but it is also a mega brand.

There aren't many houses in the fashion industry that have the ammunition that we have to build – as you see, we are building it – a mega company. It's quite unique where a company has some of the most powerful brands in the fashion industry and manages them all uniquely well.

So I guess long-winded, Tommy is probably the greatest initiative for the short-term..

The next question is from Jim Duffy with Stifel..

So my question is around use of financial capacity.

In light of the evolving environment, are acquisitions still top priority, is the environment creating more opportunities? And then where would you like more exposure? Are you rethinking the portfolio positioning at all in light of store traffic and e-commerce trends? And then finally, how are you thinking about share repurchases in this context?.

Okay. Thank you for your questions, Jim. I won't deal with each one as you asked it, but my memory of the portfolio issue, we are dealing with some of our nonessential and less important brands, not because of the environment, because of the need to focus on the brands that I have described.

The power brands are taking space, taking talent and utilizing the resources that we have. So we are reallocating some of the resources that we have and looking at some of our smaller initiatives that made sense over time and today may not make as much sense. The financial position that we are in, we have a fair amount of cash.

We have I believe $95 million in cash available. We're going to have significant cash flow this year. So we are in good shape for M&A. We look at them as they become interesting. There is no telling when we find the appropriate deal. It can be tomorrow, it can be a year from tomorrow. We can't depend on it. We are just continually on the search.

We travel, we look and we evaluate the fit. So there is an opportunity.

But what we've done efficiently, I don't know of many situations where you will have the opportunity to license a brand, take all the classifications in a gender and bring it to market and tell a story that it can be as much as $1 billion brand over time, and not pay for it upfront. It's a unique situation.

I'd say that one is one of the most applauded this Company has ever done. This signing of Tommy Hilfiger is huge for us. We have an amazing partner, one that we have experience with. The PVH organization couldn't be more cooperative in helping us build this brand.

It's good for them, it's good for us, and they have the confidence level that we can deliver what we say. We have done it before and we'll do it again. So, did I miss one, Jim? I'm sorry, share repurchase.

Share repurchases, as long as there is opportunity in acquiring companies and we look at situations that may make sense, we are hesitant to repurchase our stock. We believe that cash will play a better role in making an acquisition than buying back our stock today. That can change.

If we don't find an acquisition in the near future and we believe that our cash will sit idle for a while, we'll buy back stock..

Our next question is from Erinn Murphy with Piper Jaffray..

I am toggling between calls this morning, so I apologize it's going to be a bit redundant, but I guess first on the gross margin side, it was a little bit better than we thought in the first quarter.

Could you just maybe talk or speak to how you're thinking about gross margin in your second quarter guidance as well as for the balance of the year? And then secondly, you obviously made a number of investments this year, you built out those longer-term growth drivers.

Can you just remind us what the major buckets are this year, how much of that spend are you through thus far, and then just maybe like first half versus second half as we think about kind of the investments you're making?.

Our thinking hasn't changed all that significantly in terms of gross margin for the balance of the year. We are still looking for a slightly up gross margin for the full year. We're actually still thinking that our gross margins on the wholesale side of our business are just up slightly.

That's maybe a little bit more robust before than when we were flat. We had a very strong performance in the first quarter in wholesale gross margins. Our businesses performed extremely well. We don't know that that continues throughout the balance of the year.

So that really should result in a relatively small increase to gross margins on the wholesale side of the business. I did commented earlier that we are expecting improvements in the gross margins at both Wilsons and Bass.

I think the second part of the question with respect to investment spending, we'll have increased investment spend as the year rolls out and these businesses continue to grow and develop people, and that is a part of a continuing expectation that we'll have SG&A deleverage primarily on the wholesale side of our business, and that is really both a combination of the investment spend as well as right now a plan to be down mid-single-digits in the outerwear business.

And those two pieces still leave us thinking that we are going to have SG&A deleverage for the full year..

Got it, Neal. But then maybe just to parse out, so the major buckets of investment, is people still the biggest one? I know you guys are taking incremental space as well to kind of showcase or have kind of greater showroom presence of some of these newer brand initiatives.

Maybe are there any other things we should be thinking about as we tick through those investments to say that you are just not being able to match it with the revenue, just really trying to understand more the detail behind that?.

It's people first, Erinn, and people more significantly. We have taken on additional space, we will do more advertising, there will be co-op advertising, there will be fixture spending, but people is probably the most significant piece of our incremental spend..

The next question is from Rick Patel with Stephens..

Thanks for letting me squeeze in one more question here. I just had a question on outerwear. So it looks like shipments are going to be holding down 2Q to some extent.

Is there any way for you to quantify the drag that outerwear will have in the third and fourth quarters if this category does end up being down mid-single-digits as you're planning? I know sales are going to be back-half weighted for the most part, but we're especially interested in 3Q, given the potential for this to move our models and given that's your big selling quarter?.

Rick, the third quarter, there is no concern. That's when we ship product. The fact that our order book is pretty good makes us comfortable that all that product will get shipped. The concern a little bit more is fourth quarter.

But if we look at the weather pattern last year for fourth quarter, if I were a betting man, I would say that Christmas in New York is not going to be at 75 degrees. So we believe we have a conservative fourth quarter plan and we believe we are fairly insulated from a difficult, a more difficult coat season than we are forecasting..

That's great. Thanks, Morris. All the best..

Our next question is from Erinn Murphy with Piper Jaffray..

Thanks for letting me back in. I just had one other follow up on the mid-single-digit decline in the outwear business as planned for the year.

Can you just parse out what you're thinking about from off-price versus the department store channel?.

So Erinn, uniquely one would expect that you end up with a difficult coat year that your first quarter would be drowning in shipments to the off-price channel. Our shipments to the off-price channel for Q1 in outerwear were less this year than they were last year.

We protected our distribution, we found unique situations globally that gave us the opportunity to move product in different regions. And we believe that off-price has a great deal of pent-up demand for our brands. They are not saturated. Tommy is not in the off-price channel to any degree, neither is Calvin Klein or any of our brands.

So we believe that we do two things by accomplishing that. Number one, our department stores appreciate that they are not competing with the off-price channel. So we do that to protect our department stores, to enhance our margins and enhance theirs.

And timed appropriately, there is product in the off-price channel to service their needs and to actually in many ways help the department stores when we take inventory risk to support their needs. So if the question is targeted toward are we saturated in the off-price channel, the answer is, no, not at all..

Got it. Thank you..

We have no further questions at this time. I'd like to turn the call back to management for closing remarks..

Thank you very much for being with us today and hopefully we will deliver everything we say we will. Have a great day..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect..