Morris Goldfarb: Paul, our order book supports the projected shippings that we have. We have a pretty strong order book. The bulk of it supports moving our existing inventory, which is something we’re very happy with. So, we should be able to rationalize our inventory levels by the end of the year. There’s, I guess, a price to pay for holding all that inventory. Part of it is our freight costs associated with those inventory and with that inventory level; they’re old freight costs where we were paying as much as $17,000 or $18,000 a container. So, that resides in our inventory. The new deliveries are somewhere around $3,200 a container, so there’s a vast difference to old margin versus new margin. And we’re trying to make the best sense of it so we can.
So, we’ll call this a little bit of a cleaning up year. We had more issues than we expected last year in logistics, they came at us every which way, caused by the environment, caused by cancellations, caused by retailers appropriately managing their business and taking the pain off of their shoulders. So, it all fell on us, and we are who we are. We’ll get over it, and then we’ll get back to a normalized G-III in the near future.
Paul Kearney: Thank you.
Operator: Thank you. We have a question from Jay Sole with UBS. Your line is open.
Mauricio Serna: Hi, this is Mauricio Serna from UBS. I was calling — I wanted to ask a couple questions. Sorry, and I don’t know if you already talked about this, I just was able to join now. Maybe you could talk about like what are you thinking about the quarterly cadence for the year just looking at the implied 1Q sales? I think you implied a high teens decline, but you’re guiding to flat sales. So, how are you thinking about the sales progression throughout the year? And if you could also elaborate a little bit more on what you’re seeing on the potential growth or the potential long-term revenues that you could generate from — with Nautica now, and with the new strategy on Donna Karan? Thank you.
Morris Goldfarb: So, the volatility in comps this year versus last year, part of it was a unique anomaly. If you go back a year ago, our business was off the charts. Anything that we had had a home, we were able to ship inventory, and inventory was in high demand, and deliveries were late, retailers were not canceling late deliveries, they continued to take them in which caused some of the problem through the course of the year. So, we had open windows, we had sufficient inventory, and we shipped — if you go back to the prior year, you go back to the pre-pandemic, last year was more than 20% greater than the pre-pandemic years. So, we’re back to a cadence that’s similar to pre-pandemic. We’re managing to the inventories that retailers are trying to maintain.
There’s a high level of focus, as we all know. Retailers have had an overabundance of inventory, and have been busy rightsizing their inventory levels as we are. So, the first quarter this year is close to flat to pre-pandemic, but this year being fiscal 2024 will be close to pre-pandemic levels. And we see the year balancing out where we believe that our business will be pretty much flat to this past year. So, our Q3 and Q4 shipping levels will be accelerated to last year. And at that point we believe that we’ll have right-sized the inventory, we’ll have right-sized real estate as we make adjustments in the real estate that we hold. And it’ll take us a few months to put our business where it needs to be operating with a couple of new brands, going toward eliminating a couple of old brands, and trying to maintain SG&A that’s appropriate for our business.
So, we’re okay with where we are. We’ve done aggressive assessments as to what we need to do. And we’re on a path. And as far as it relates to Nautica and Donna Karan, Nautica won’t be a business of scale until 2025, this 2026, as we enter into additional categories. The first category is going to be the denim business, which is the first category we give back — the jeans business, which is the first category we give back to PVH and Tommy Hilfiger. It’s not a very large business that we’ve giving back. And we should, at a minimum, do far better with Nautica than what we’ve done with the jeans side of Tommy, for an assortment of reasons. And Donna Karan, we’re launching Donna Karan. It’s open to us in all categories, we own the brand. We’ve evaluated the merit of the brand; we’ve outsourced data to make us comfortable that our belief is reality.
And we’re going to be aggressive on the marketing side. We have retailers that have given us commitments to launch the brand and put it in the place that it needs to be. So, we believe that, long-term, it’s easily a $500 million business. And that’s not even long-term, but would say that it’s probably around three years from now — three to four years. And beyond that, it’s a billion-dollar brand, there’s no question. So, they’re both amazingly well-recognized brands throughout the globe. Donna Karan, if you were to think of American designers, Donna Karan is near the top of the list. So, it’s well recognized. And again, true to who we are, we produce appropriate product for the venues that we shop to. So, comfortable that we can produce it, comfortable that we can source it, and comfortable that we can sell it.
So, there’s, again, no reason that Donna Karan won’t be significant in our portfolio.
Mauricio Serna: Got it, thanks a lot.
Morris Goldfarb: Thank you for your question, Mauricio.
Mauricio Serna: Thank you.
Operator: Our next question comes from Noah Zatzkin from KeyBanc. Your line is open.
Noah Zatzkin: Hi, thanks for taking my questions. Just on Donna Karan, I was just hoping you could maybe expand a bit, maybe as it relates to where the business stands today. So, if you could just remind us how large that business is today, general channel positioning, the number of doors it’s in, and then how you expect it to evolve off its current base? And then just on the model, on incremental costs associated with the higher inventory levels that’s contemplated in guidance, hoping you could help quantify the impact of that, ideally from an EPS perspective, but just generally how we should think about the cadence of that impact as you continue to rightsize the inventory position through the first three quarters? Thank you.
Morris Goldfarb: Thank you, Noah. Donna Karan and DKNY were acquired at the same time. They’re two separate brands. Most of the world doesn’t really recognize that DKNY is a derivative or owned by Donna Karan. We realized that early. And we decided to launch DKNY, in 2017, to serve our channel of distribution which, as you know, is Macy’s, Dillard’s, it’s the department store sector. We didn’t position it as luxury. We took it down a notch from where LVMH had had it. And it worked incredibly well for us. When we took it on we were criticized for paying too much money for a brand that provided no profits. So, we didn’t look at the profit as we bought the brand. Fortunately for us, we recognized that there was always a potential that our licensor would take back his brands, and we needed stuff of our own.
So, we plugged in the plan that spoke to our strengths with a great brand, more so than the brand than where it was positioned. And quickly, we found that we made an amazing decision. It worked well. And today, I’d say we’re in a comfortable level because of that acquisition. Alongside of that acquisition came Donna Karan and we were in a thought process of creating a halo brand out of Donna Karan, and doing pretty much what many companies do. They take the halo piece, and create derivatives out of it in the future. And the halo generally is an expense; it’s not a profit-making situation. So, we looked at it. We had out thoughts. We interviewed marquee designers in our industry, and thought about spending $20 million-$25 million a year on creating the halo.
We stepped back and said, “No, we don’t need that halo, we’ll just softly launch Donna Karan,” brought down from designer to — the opening price points for Saks and Bloomingdale’s and Nordstrom’s, and we’ve kept it alive in a small scale with the knowledge that if something happened with Calvin Klein, it would be a great brand to supplement our business and position a notch lower than it is now. So, that is the strategy. We have the tools to not only maintain our business; we have the tools to grow our business. And we have the appetite to even be more aggressive and acquire additional or license additional products to again show our stakeholders what they’ve invested in, and how aggressive and productive this company can be. We’re not sitting in defensive mode; we’re aggressive in how we’re positioning our business.
We believe and we know we’re one of the premiere suppliers of product to the department store sector in the United States. We plan on maintaining that status, and we plan on growing in various other ways. It’s a hungry, aggressive team that is driven by success.
