Ladies and gentlemen, thank you for standing by, and welcome to the G-III Apparel Group Fourth Quarter and Full Year Fiscal 2021 Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker host, Mr. Neal Nackman, CFO of G-III Apparel Group. Please go ahead, sir. .

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 were discussed in the documents filed by the company with the SEC.

The company undertakes no duty to update any forward-looking statements..

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

Good morning, and thank you for joining us. Also joining me today are Sammy Aaron, our Vice Chairman and President; Wayne Miller, our Chief Operating Officer; Neal Nackman, our Chief Financial Officer; Jeff Goldfarb, Executive Vice President; Priya Trivedi, Vice President of Investor Relations..

For all of us, 2020 was a year like no other. We've had to manage through a global pandemic, which has lasted for more than 12 months. The pandemic has impacted the way we live our lives and conduct our business.

At the outset, the pandemic caused significant disruption to our business as retailers were required to shut their doors across the country for an extended period of time. As stores began to reopen, we've seen a steady improvement in our business..

At G-III, we powered through this tremendous adversity, adjusted our strategy and adapted to the changing conditions, which -- with determination and grit. The resiliency and flexibility demonstrated by our high-performing teams has been nothing short of amazing.

Throughout the pandemic, our warehouses remained operational, and I'm grateful to the staff who manage that process..

The well-being and safety of our employees has always been important to us. Our human resources team did a great job engaging our people and sparing no resources in implementing safety protocols throughout our operations.

I'm so incredibly proud and thankful to our employees, who have collectively enabled G-III to emerge from this past year as a leaner and more efficient organization. .

Our entrepreneurial culture, with a merchant-led focus on product selection and development, proved to be invaluable. As the casual, outdoor and work-from-home trends took over the world, we quickly reallocated resources and revised our product lines to capitalize on the changes in consumer demand that accelerated throughout the year.

We were able to provide the right merchandise to our retail partners, gain market share and further elevate our position as a key supplier of choice for a broad range of casual and comfortable clothing and accessories..

This past year, we also completed the liquidation of our G.H. Bass and Wilsons Leather stores. This was the project that we were working on pre-pandemic and are pleased to have the restructuring completed. Looking ahead, we feel good about our remaining stores under the DKNY and Karl Lagerfeld Paris nameplates..

Our new retail model is now positioned on a path to profitability. We ended our 2021 fiscal year on a positive note, with improvement in our wholesale operations. As we enter the 2022 fiscal year, we're managing our business with cautious optimism and closely working with our retail partners to match our product offerings with consumer preferences..

We will continue to lean into the casual trends that remain strong sellers. We are already beginning to see the signs of recovery for dressier apparel. Our designers are developing great product and newness in categories like social dresses and suit separates and career sportswear.

Our year-end inventories ended down 25% and are in excellent shape, positioning us well going into the new fiscal year. .

We are aggressively working to grow our digital business with the goal of becoming best-in-class with this increasingly important distribution channel. With a portfolio of global brands, we understand the importance of e-commerce. The pandemic has accelerated our efforts.

Over the past year, our marketing, IT and logistics teams have keenly focused on supporting digital sales. Overall, our strong financial position and liquidity provides us with significant flexibility to run our overall business and, again, look at acquisitions..

Now let's look at the fourth quarter and full year fiscal 2021 results. Net sales for the full fiscal year were $2.06 billion compared to $3.16 billion last year. Net sales for the fourth quarter were $526 million, down 30% compared to last year's fourth quarter net sales of $755 million and in line with our internal expectations.

Importantly, in the wholesale segment, less -- net sales for the quarter were $488 million, down 23% compared to last year's $635 million..

Full fiscal year GAAP net income per diluted share was $0.48 compared to last year's $2.94. These results include the impact of operations and restructuring costs for the G.H. Bass and Wilsons Leather retail operations of $1.14 in the current year and $0.65 in last year..

Fourth quarter GAAP net income was $0.30 per diluted share compared to $0.52 per diluted share in the fourth quarter last year. These results include the impact of $0.17 in the current year and $0.33 in last year's results related to the operating results and restructuring costs for G.H. Bass and Wilsons Leather stores..

Now let's look at our wholesale business and take a closer look at the product categories that drove our sales and results for the quarter. As expected, we saw demand for athleisure continue to accelerate across our brands throughout the fourth quarter.

This is exactly what our customer is wearing on a day-in, day-out basis as she works from home or spends time outdoors. With that in mind, we designed our athleisure collections to provide a wide range of design choices in a variety of looks and functionality. .

For example, our expanded sweatshirt collections included fashionable styles for that important virtual meeting as well as styles that incorporated technical functionality to support the active and outdoor lifestyle.

We continue to see significant opportunities to grow athleisure for our power brands, Calvin Klein, Tommy Hilfiger, DKNY and Karl Lagerfeld Paris..

As for our new jeans collection, the recent launch for 3 of our global power brands, Calvin Klein, Tommy Hilfiger and DKNY, happened at an opportune time as significant entry into the jeans category enabled us to negotiate some prime placement on our retailers' sales floors as well as in digital sites..

The jeans category lends itself perfectly to casual and comfortable fashion. Our offerings span a wide variety of woven and knit tops as well as relaxed bottoms. These lines are off to a very good start and expected to garner much more success in 2022. We are a dominant player in jeans and are well positioned to capture greater market share..

As the fourth quarter progressed and the weather turned cooler, we saw a good sell-through in our outerwear business. As expected, the business was driven by mid-weight styles featuring packable puffer and layered jackets. The weather continued to be cold into the first quarter of this year, further fueling outerwear sell-throughs.

We have a clean inventory position, which sets us up well for the fall 2021 outerwear season. We believe consumers will maintain active outdoor lifestyles for the foreseeable future, and we will continue to provide trend-right product to meet that demand..

Our casual offerings continue to drive the sportswear category. Our knit product lines have remained strong sellers. We also saw growth in casual bottoms featuring some great stretch fabrics that offered functionality and variety. Sneaker dresses, which are essentially extended knit T-shirts that are easy to wear and comfortable, also performed well.

As a matter of fact, we're seeing early signs of good selling in social dresses, both online and in stores in many parts of the country. We're in good position in the casual assortment of our sportswear collections and look forward to improving trends as this year progresses..

The footwear and handbag businesses also continue to outperform based on our strategic shift to focus on casual offerings. In our footwear business, we saw a notable strength and strong sell-throughs in booties and soft-soled shoes such as fashion sneakers.

As for handbags, our assortments featured a good mix of casual and tailored styles with a contemporary aesthetic. The handbag collections were merchandised well and resonated with consumers, also resulting in great sell-throughs. In both these categories, higher conversions resulted in improved margins.

We'll continue to drive growth in footwear and handbags..

I'm pleased to announce that a couple of weeks ago, we launched the Karl Lagerfeld Paris Women's brand in 75 new doors at Macy's. We've developed a casual collection that works well with the brand's Parisian-chic DNA. The early results of selling have been really good..

In Karl Lagerfeld Men's, where we began with just outerwear, we have now expanded the collection to include sportswear and footwear. These collections have gained good traction and have quickly found distribution at Macy's, Bloomingdale's, Nordstrom Online and Neiman Marcus.

We look forward to continuing to grow the brand's distribution in both women's and men's apparel and accessories..

Our digital businesses continue to experience accelerated growth. Our power brands are also participating in the growing digital businesses of our retail partners, where digital sales penetration is now approaching 40%, up from last year's approximately 25%.

Our own websites delivered another quarter of strong results for both DKNY and Karl Lagerfeld Paris, posting comparable sales increases of approximately 40%. As for G.H. Bass, although we closed the brick-and-mortar stores, we will build the brand's digital business..

We remain focused on capturing market share opportunities across the digital landscape with investments in internal talent, a new CRM and loyalty program, re-platformed e-commerce sites and enhanced logistics capabilities. These efforts are supplemented with increased spending on focused digital marketing to target customers where they're shopping.

The CRM and loyalty programs will help us better analyze the behavior of our customers online and in stores and will aid us in communicating with them more effectively..

The re-platform of our own e-commerce sites will upgrade the technical operations as well as the visual look of the sites. The sites will fully be revamped to offer rich experiential content and better showcase our products.

We're looking to create a more seamless interest -- a seamless shopping experience and strengthen the customer connection and brand affinity for both DKNY and Karl Lagerfeld Paris. We're also working to further develop our direct-to-consumer logistics capabilities to enhance the customers' experience of receiving product from our brands..

Internationally, our own brands are developing a digital presence as well. For DKNY, we have a global site service from North America. In Europe, DKNY product is also distributed via premier online sites such as ASOS, Zalando and Farfetch. In China, digital sales penetration increased sequentially each quarter this year.

A status resort and swimwear brand, Vilebrequin, also saw a significant traction in their global digital business, with digital sales up nearly 30% as compared to last year. We're really excited about the significant digital opportunities that lie ahead for us..

With the liquidation of our G.H. Bass and Wilsons Leather stores completed, we expect to eliminate a substantial portion of approximately $50 million of annualized losses. We currently operate 36 DKNY and 13 Karl Lagerfeld Paris locations.

Similar to trends we experienced in the third quarter, store traffic remained challenged but our product continues to resonate, driving higher shopping conversion and AURs as well as expanded margins..

improve store productivity and increase sales online to ultimately bring the retail business to profitability..

Let me discuss our international opportunities next and start with our status swimwear brand, Vilebrequin. The brand is celebrating its 50th anniversary this year and has an incredible slate of innovative product launches and collaborations planned.

We're proud of the great job Vilebrequin has done to incorporate -- that incorporate sustainable fabrics developed from recycled plastic bottles and plastics removed from the oceans.

Impressively, this coming year, 60% of their globally recognizable swimsuits will incorporate these sustainable materials with the goal to get to 80% of total products made with sustainable fabrics in 2025..

As for DKNY, sales of our international franchisees were up 10% in the fourth quarter, predominantly driven by the Middle East. DKNY in China saw a significant growth in fourth quarter sales. Further, as I've previously mentioned, China e-commerce sales also grew significantly during the quarter.

We remain very optimistic regarding our DKNY businesses in China..

Our DKNY business in Europe continues to be challenged with widespread COVID shutdowns. As DKNY is a well-recognized brand throughout Europe, our goal is to establish a substantial business in that market as well. International represents a significant growth opportunity for G-III. We're in the early stages of developing this business..

As brand owners, DKNY and Donna Karan licensing income continues to represent an important profit driver. We've created a solid licensing base with world-class partners in categories, including fragrance, watches, intimates and sleepwear, bedding and bath and children's apparel.

In Europe, we're now growing DKNY men's through licenses for underwear, sports and golf apparel. We will continue to strategically develop and grow our licensing business. We see tremendous opportunity to expand our reach and grow through our ability to take market share with our global power brands and diversified product offering. .

For the upcoming year, we are optimistic about the business. But there continues to be some uncertainty as to how the pandemic will impact shopper behavior and our business. As a result, we are only providing guidance for the first quarter of fiscal 2022.

Looking ahead to the remainder of the year, we're confident that when more opportunities open up, we will be in a position to work with our vendor and retail partners to capitalize on them..

I'll now pass the call to Neal for a detailed discussion of our fourth quarter and full year financial results as well as the guidance for first quarter of fiscal 2022. .

Thank you, Morris. The results for our fourth quarter ended January 31, 2021, continued to be impacted by the ongoing effects of the pandemic and the restructuring of our retail operations. Let me begin with the retail segment..

We have completed the restructuring of our retail operations and closed our Wilsons Leather and G.H. Bass stores. In connection with closing of these stores and our restructuring of our retail operations, we incurred aggregate costs and charges of approximately $100 million for the full fiscal year 2021.

These costs and charges include $85 million for the 4-wall losses and restructuring charges for these stores and approximately $15 million of allocated overhead. We anticipate that some of this allocated overhead will continue on a go-forward basis to support the ongoing retail operations of DKNY and Karl Lagerfeld Paris..

As for a breakdown of sales, full fiscal year 2021 net sales for the retail segment were $170 million, of which $92 million came from the Wilsons Leather and G.H. Bass stores that were closed. The remaining $78 million were generated from the ongoing retail segment operations.

We have included some relevant data relating to the 4-wall retail operations in our earnings release issued this morning. .

Net sales for the fourth quarter ended January 31, 2021, decreased approximately 30% to $526 million from $755 million in the same period last year. Net sales of our wholesale operations segment decreased approximately 23% to $488 million from $636 million.

Net sales of our retail operations segment for the quarter were $44 million, approximately 66% lower than last year's sales of $131 million. Retail sales for the Wilsons Leather and G.H. Bass stores were $15 million in the quarter and $86 million in the previous year's quarter..

Our gross margin percentage was 35.6% in the fourth quarter of fiscal 2021 as compared to 33.3% in the prior year's period. This increase in gross margin was primarily driven by the gross margin percentage in our wholesale operations segment, which was 35.5% compared to 30% in last year's quarter.

Wholesale gross margin percentages were positively impacted by the reversals of higher royalties that were previously accrued as a result of favorable negotiations with our licensors..

In addition, inventories were clean, resulting in lower promotional activity and lower markdown accruals.

The gross margin percentage in our retail operations segment was 32.2% compared to 45.9% in the prior year's quarter and decreased -- and the decrease was primarily as a result of the final stages of store liquidations for Wilsons Leather and G.H. Bass. .

SG&A expenses decreased by 20% to $151 million in this quarter compared to $187 million in the same period last year as a result of cost-reduction efforts undertaken in response to the pandemic and reductions in sales.

Net income for the fourth quarter was $15 million or $0.30 per diluted share compared to $25 million or $0.52 per diluted share in last year's fourth quarter. Net income per share included a 4-wall loss of $0.17 and $0.33 per share for the Wilsons Leather and G.H. Bass store operations in the current and prior year's quarters, respectively..

Net sales for the full fiscal year ended January 31, 2021, decreased approximately 35% to $2.06 billion from $3.16 billion in the same period last year. Net sales of our wholesale operations segment decreased approximately 33% to $1.92 billion from $2.86 billion.

Net sales of our retail operations segment for the year were $170 million, approximately 56% lower than last year's sales of $386 million. Retail sales for the Wilsons Leather and G.H. Bass stores were $92 million in the year ended January 31, 2021, and $252 million in the year ended January 31, 2020..

Full year gross margin percentage was 36.2% in fiscal year 2021 as compared to 35.4% in the prior year's period. This increase in gross margin percentage was primarily driven by the gross margin percentage in our wholesale operations segment, which was 35.9% compared to 32.7% in the previous year.

Full year wholesale gross margin percentages were positively impacted by the reversal of previously anticipated markdown accruals due to our reduced wholesale sales volume. The gross margin percentage in our retail operations segment was 33.6% compared to 46.7% in the prior year and resulted from the liquidation for Wilson's Leather and G.H. Bass..

SG&A expenses for the year were down 27% to $605 million compared to $832 million in the same period of the previous year. Current year's expenses were significantly reduced by cost-reduction efforts in response to the pandemic.

These reductions resulted from expense savings initiatives implemented to preserve cash and included employee furloughs, layoffs and other payroll reductions; reduced discretionary spending for marketing and travel; as well as lower variable expenses associated with reduced sales.

As part of our cost-reduction efforts, we streamlined the headcount in our global wholesale operations..

Full year net income was $24 million or $0.48 per diluted share compared to $144 million or $2.94 per diluted share of the previous year. The full year's net income per share included a 4-wall loss of $1.14 and $0.65 per share for the Wilsons Leather and G.H. Bass store operations in the current and prior full year, respectively..

Looking at our balance sheet. Accounts receivable were $493 million, down 7% as compared to $530 million at the end of the previous year. Inventory decreased approximately 25% to $417 million from $552 million, and we entered the new fiscal year in a clean inventory position.

We ended the year in an improved net debt position of $160 million compared to $200 million as of the prior year-end. We had cash and availability under our credit agreement of approximately $825 million.

We ended the year with a stronger liquidity and financial position, which is a -- which is truly a testament to our managing through a year like no other..

As for our guidance, we are still uncertain as to the continued impact of the COVID-19 pandemic to our results. Accordingly, we are only providing guidance for the first quarter of fiscal year 2022, which ends on April 30, 2021.

For the first quarter of fiscal year 2022, we expect net sales of approximately $460 million, an increase of 14% as compared to $405 million in the same period of the previous year. Excluding net sales of $19 million from the closed Wilsons Leather and G.H.

Bass stores in the first quarter of fiscal 2021, our forecasted net sales would be approximately 19% higher..

GAAP earnings per diluted share for the first quarter of fiscal year 2022 are expected to be in the range of $0.05 to $0.15 per diluted share. This compares to a GAAP net loss of $0.82 per share in fiscal '21's first quarter, which included net losses per share of $0.33 associated with the Wilsons Leather and G.H. Bass stores. .

I also wanted to provide a modeling point. In the first quarter, gross margins will significantly improve as compared to last year's first quarter, primarily as our wholesale gross margins in the prior years were negatively impacted by the royalty reserves, which are not expected to occur in this year..

That concludes my comments. I will now turn the call back to Morris for closing remarks. .

Thank you, Neal. At G-III, we pride ourselves on our proven track record of success. An important part of that success is the strong relationships we've developed and fostered throughout the industry. We've built a powerful entrepreneurial culture and have the most talented group of passionate and loyal individuals in our industries..

As I stated at the beginning of this call, I'm very thankful and grateful to all of our employees who've worked tirelessly throughout this year to help us preserve shareholder value. I've never been more confident than I am today and the ability of our teams to weather any situation thrown their way..

We've thrived as a company for decades, holding and growing our dominant U.S. wholesale position. We've only just begun to tap into the opportunity and white space we see internationally.

A diversified portfolio anchored by our 5 global power brands, DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris, will continue to fuel our growth and market share across all our major classifications. We see numerous possibilities for continued revenue and profitability growth..

To that point, our Donna Karan International acquisition has proven to be successful. As you may recall, when G-III relaunched the brand, it was a Macy's exclusive.

Now we've expanded the brand to have a well-balanced distribution across major retailers here in North America and importantly, with a known brand that we're just beginning to grow globally..

We're in a strong financial position, which we believe will fund our growth domestically and internationally and enable us to take advantage of other opportunities, including acquisitions..

On behalf of the entire G-III organization, I'd like to thank all of our stakeholders for their continued support. Operator, we're now ready to take some questions. .

[Operator Instructions] And our first question coming from the line of Edward Yruma with KeyBanc Capital. .

Congrats on navigating a really difficult year. First, just a quick housekeeping question for Neal. I know you said gross margins will improve in the first quarter because of the reserves.

Any kind of more context behind that?.

And then, Morris, kind of a bigger picture question. We've heard a lot about vendor-managed inventory drop-ship by a lot of wholesale partners. I know you guys have some of those capabilities.

If that grows in interest, like what does that do to your margin structure balance sheet? And then finally, as it relates to jeans, kind of how big was the business last year? And how big could it be this year?.

So Ed, with respect to gross margins, look, we had significant things happened last year that sort of moved our wholesale gross margins up and down. In the first quarter, one of those that moved it down was that we did see significant reductions for the full year in terms of sales. We have not fully renegotiated our license agreements at that point.

And therefore, we were in a position where we had to accrue up higher royalty expense in the first quarter..

Ultimately, we were successful in negotiating more reasonable arrangements with our licensors, and those did reverse throughout the year. Overall, when you look at the prior year, our gross margins are up most significantly because of the reversal of markdowns..

I think that with that question, it's important for me to give you a little bit of a sense of what we're thinking about as we go into this year with respect to gross margins on the wholesale side.

And that story is a little bit different than what I've really been saying in the past, which is that I expect it to get back to anniversarying previous -- the 2 prior year-ago gross margin percentages..

We're now feeling a bit more bullish and thinking that we really will see lift in the gross margin percentage in the wholesale business. That's relative to 2 years ago. So we're feeling that we will be trading a little bit tighter and be able to avoid some of the promotionality that did hit us in this past year. .

Ed, this is Morris. Your question, I believe, related to drop-ship and how we manage through that business today and how it might affect us on our balance sheet, if I heard you correctly.

Is that correct? Is that where you want to go?.

Yes. .

Okay. So currently, our digital business as it relates to our key customers, in many cases, is north of 40% of digital business. A small percentage of that is handled internally through drop-ship. We are now in the process of evaluating. We're very close to signing a contract, quite honestly, to provide drop-ship for many of our customers.

We're going to do it slowly because it involves a great deal of training, new systems, new hardware, new warehouse, new employees..

So we're not going to let it all flow in immediately. We're still going to request that our customers take and own the inventory to drop-ship to their customers. We'll take on initially our own internal sales as well as certain categories that involve less handling. We believe it will be a major advantage.

There is a need for this company to be best-in-class to provide every bit of service that the customer is looking for. We'll be in control of how our product is presented when it arrives. We'll be in control of how it's distributed. We'll have the appropriate analysis that enable us to do -- to enhance our profitability..

As it involves our balance sheet, Neal, to that end, what effect is all of this going to have, we believe it's fairly balanced. We're not taking on an acquisition of the building. We're leasing for a term that is somewhere around 5 years.

And we'll appropriately -- and we have the ability to terminate our lease over a period of time if the partnership is not what we believe it will be with our warehouse partners -- warehouse and logistics partners..

Neal, do you want to add to that?.

Yes. The only thing I would add is that we're not anticipating any significant increase just yet in terms of impact on the inventory carry. As Morris said, we're going to get into this slowly. So I think we'll be fine. .

Got it. And just I was trying to think kind of more broad-based with it.

If the vendors ask you -- excuse me, the retailers ask you to carry more inventory, do you think you'll be able to get a better margin for it than maybe the traditional kind of wholesale relationships?.

Yes, Ed. Currently, there's a service charge that we impose on drop-shipping for our vendors. And in the future, the fact that we will be taking part of the inventory risk, yes, that certainly will enhance our margins.

And we are dealing with a couple of our retail partners inasmuch as they're creating a marketplace where we're sharing on the retail revenue..

So that's coming into its own form in the coming months. That is a little bit outside of what I was describing, but it's another initiative that we're taking on that we believe will be accretive to our earnings. .

Our next question coming from the line of Erinn Murphy with Piper Sandler. .

My first question is around what you're seeing on the global logistics front. I mean port congestion and logistics have just been on the forefront of a lot of conversations. So I would love to know if you're seeing any delays in product getting here to the United States and kind of on the floor at your retailers.

If that impacted any of your Q1 revenue guidance? And then how you're expecting that, if at all, to potentially impact Q2 just given that's typically a replenishment or a reorder quarter?.

Erinn, thank you. We've incurred some delays, nothing monumental, nothing that I would tell you is critical to -- or was critical to Q4 or currently in Q1. We've moved a lot of our receipts into the East Coast, which is working much better than the West Coast. We accommodated for traffic on the West Coast by taking on another port.

And we've put some of the liability of timing on our vendor base, which is not the norm. Generally, they're not responsible for the logistics part of how we handle life. In this case, we saw it coming, and we made them play an active role in how product and when product left ports..

So we were malleable. There were some additional costs incurred. We contracted for pretty much our entire year's needs for containers and traffic, and we had to modify that.

We either stood firm and said they can't deviate from our contract and face the reality of life, which would have been further delays or supplemented the contract and enabled our people to get product onboard and here on time. .

So internally, I would say we're really in good shape, and we're clearly aware of the issues. We're not faced with the drama that surrounds us. .

Great. That's helpful. And then my second question is really around your comments, Morris, during the prepared remarks on what you're seeing in social occasion dressing.

It sounds like you're seeing a little bit of traction in certain regions in the United States as kind of vaccinations or measures are starting -- vaccinations are rolling out or measures are relaxing.

So can you share a little bit more about kind of your optimism on some of these kind of green shoots in these categories?.

And then bigger picture, at least in '21, how are you planning the mix of business between some of the athleisure that you've developed into the denim versus some of the going-out-again categories?.

Good question, Erinn. The -- as I walked in this morning, an e-mail was forwarded to me against a text. Let me read it you. It's from one of our largest accounts. It says, "Get ready. Swim is on fire and dresses is right behind it. Need product. Haven't said that in a year. It feels good." That's from one of our largest retailers.

And quite honestly, I'm in the same form. I haven't heard a lot of that. And we see it coming. We've seen it for the last few weeks. One of our other accounts, who's got a huge prom business, all of a sudden is selling an important piece of this inventory in prom, some of it carryover. Very little of it was newly bought product.

And there seems to be a pent-up demand in some of the classifications that we were concerned with, all for a very good reason. .

So there is hope. There is good hope and there's a reality. The -- we all watch TV if we're in regions where we're careful with our lives. We watch it on a screen. And we see life as normal in many parts of the country. And those parts of the country are opening up most on social dressing. And the rest -- hopefully, the rest is yet to follow.

We can't totally bank on it, but the risks seem to be better than they were 60 days ago. .

And the athleisure piece of the business is taking on its own life. It's a category on its own. Every one of our brands has a component in it. We leverage our manufacturing to enable us to produce fairly and productively and competitively. And in many cases, those factories are full. We dominate many of those factories, many of the larger factories.

And supply has not been a problem. Demand has not been a problem, and it's an area that we are aggressively growing. .

So the casual way of life is a way of life. The outdoor living is a way of life. And we're geared up for the prom as we are for the mountains. We're a company that's well diversified. A kind of a friend of mine used to describe CEOs as wartime and peacetime CEOs. I believe we're profiled as a wartime company. And we've done it.

We believe we've come out on the other side, and we're positioned for growth in the future and prosperity that comes with it. .

And our next question coming from the line of Susan Anderson with B. Riley. .

Nice job managing through a really tough year. I was wondering if maybe you could give some color on the DKNY Europe business and how that has performed in the fourth quarter.

I'm just curious, is it similar to the U.S.? Or are you seeing different performance there? And then also, what are your expectations for that business in the first quarter than this year? Are you expecting similar improvement?.

Susan, thank you for your question. And again, that's a good one. And quite honestly, inasmuch as we view that as white space and opportunity for growth, I would tell you, it's probably the worst piece of our business. Countries were totally shut down. Q4 was not good. Q1 is worse than Q4. But again, fortunately for us, it's a tiny piece of our business.

It's an area that we cite as a significant opportunity, but fortunately, it was not a big plan..

Yet today, we're seeing the same thing I was just describing on our dress business and some of our other categories. We see retailers in Europe teeing up for what they believe is a pent-up demand that will be taken advantage of by the retailers that have sufficient inventory to serve it..

So our backup for inventory there is really teed up for success, not in Q1, maybe parts of Q2 but certainly Q3 and 4. So -- and it is an area that we're concentrating on growth and repositioning. And the digital side of the business there is quite good. .

Great. And then yes, just a follow-up on the digital side of the business for DKNY and Karl. I guess I'm just curious, like where you're at with investment there and with what are your investment plans for this year..

And then also, are you expecting that business to continue to grow this year as stores are open, at least in the U.S.

and then also as consumers kind of get out more?.

So the investment in digital for us is quite significant. We're building the appropriate distribution centers and logistics team in-house. We have top talent that's been engaged to focus on our digital business for DKNY and Karl Lagerfeld.

I've reminded our investors in the past that many of our brands -- several of our brands, we are not in control of the direct-to-consumer that emanates from our building. We supply it to places like Amazon and our brick-and-mortar accounts, but we can't do direct shipping on license product..

So DKNY and Karl Lagerfeld, and we shouldn't forget about Bass, those are 3 platforms that we are building aggressively. The investment is significant in talent, space and technology. So we're trying to provide the best customer experience. .

And I would suggest that if you have the time, look at our sites, look at DKNY and Karl Lagerfeld. And if you've seen them before, this is a good reference to where we're going. We're -- we believe strongly in that business. .

Great. And then if I could just add one last one. Not sure if you could give some color just on your updated mix of wholesale partners versus, say, 3 to 5 years ago.

How much has that moved to more online players or even specialty retailers versus your traditional department store?.

Our department store business is -- customer-wise is shrunken. We no longer do business with Lord & Taylor. We no longer do business with the accounts that have left us, Stein Mart and some of the specialty chains. But quite honestly, the wholesale business overall is growing for us. We're a dominant wholesale provider. We're not a vertical retailer.

And we like that business. It's a profitable business for us. Relationships are excellent in all of our department store partners..

And what we -- we have to remember that brick-and-mortar is not what it looks like. Our largest customer is Macy's. And Macy's, as Jeff Gennette had stated, will be a $10 billion digital business in a couple of years. I can't name very many $10 billion digital businesses. So as they grow digitally, so do we grow.

And our brick-and-mortar business, as they close stores, they're the poor-performing stores. So we're not impacted dramatically as door count shrinks. .

We focus on the better stores. We better penetrate those stores, and we're happy to support it. It works -- it has worked for us historically. And I have no reason to believe that the future is not consistent with part of the past. It's just the mix is a little bit different.

There's clearly a digital focus that we still believe brick-and-mortar needs to support. .

So I guess maybe that's a long answer to what might have been a short question. But the stores that are left, we play a greater role in our percentage of their overall business. I would tell you, I can't think of a case where we're not increasing in penetration in the remaining well-balanced department store business. .

And our next question coming from the line of Paul Kearney with Barclays. .

Just a quick one.

As you continue to shift to digital and you're also partners continuing to digital, can you help us think about how we should kind of model out or think about the change in profitability between your existing business and that shift over the long term?.

So the profitability in digital as we build our own sites, we're retaining retail margin versus the wholesale margin that we ship into department stores. So clearly, digital should be accretive after we get past the hurdle of getting the tweaks out of our business. We are currently profitable. So that's a good thing. .

And as it relates to the digital business for our customers, part of that's a little problematic. I prefer to ship the inventory for digital sales to our department stores and let them hold and distribute to their unique customers.

But there's going to be a hybrid where we'll have to hold some of that inventory, which is not my favorite position in the world. But for that, we will be bonused in margin. So at the end of the day, there should be a margin enhancement on the unique ways that we're going to handle digital. .

And our last question coming from the line of Jay Sole with UBS. .

Jay, are you with us? Did we lose Jay?.

No.

Can you hear me now?.

Yes. Now we can hear you. .

Great. Sorry about that. My question is on the first quarter guidance. It looks like that the sales guidance implies that sales in the first quarter should be down about 27% versus the first quarter of calendar 2019.

Can you just walk us through some of the puts and takes? Some of the -- obviously, there are stores that have been closed, then there's some of the growth opportunities and then the Power 5 brands.

Can you just give us an idea of like where the biggest drivers of the guidance are for the first quarter compared to 2019?.

Yes. Look, we see the business certainly in the first quarter is driven by the power brands. It's a spring business, and we see it across all of them fairly evenly. .

Got it. And then is it possible to talk about -- you mentioned that swim is on fire, dress is not far behind. That was the comment that you got in the text today.

Could you just talk about sell-through in general, like what you're seeing in terms of like the movement of the product, especially the last week since stimulus started getting distributed across the country..

What have you seen from your sell-through? And what does that sort of tell you about what your -- what the progression in the growth rate versus 2019 might look like as we get into 2Q and beyond?.

So we're evaluating it right now. And clearly, there's always a connection with the level of inventory and the sell-throughs. So we're tracking a better turn on inventory than we did in 2019, quite honestly, but the inventory levels are lower than they need to be.

So the adjustments need to take place to rightsize the inventories and our retailers, and we'd have a better analysis that we could go through. .

So right now, we can look at the digital side of our business because nobody knows if there's 1 garment in the warehouse or 1,000 garments when they're buying it online. When they walk into a brick-and-mortar location, they're looking for what the retailer or what the buyer or designer thought was right.

And if it's displayed aggressively and there's the commitment from the retailer that this is what to buy, that's what you buy. And that's not in place right now. All that is, I believe -- not I believe. I know our trading partners are working on rightsizing the inventory as business opens up.

And we're in a position in many categories to provide for that. Not a lot of people are at that same level on the wholesale side. So we believe we'll be one of the companies that can take advantage of that. .

Thank you, Jay, and thank you all. I wish you a good day. And hopefully, there'll be a greater normality coming our way. Thank you. .

Ladies and gentlemen, that does concern you for your participation. You may now disconnect..