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Perry Ellis International (NASDAQ:PERY)

Q4 2013 Earnings Call

March 21, 2013 9:00 am ET

Executives

George Feldenkreis - Founder, Chairman and Chief Executive Officer

Oscar Feldenkreis - Vice Chairman, President and Chief Operating Officer

Anita D. Britt - Chief Financial Officer and Principal Accounting Officer

Analysts

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Eric M. Beder - Brean Capital LLC, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Perry Ellis International Fourth Quarter and Year-End Fiscal 2013 Conference Call. You should have received a copy of the press release that went out this morning, including the income statement and our balance sheet. If you have not received a copy of this release, it can be found on our website at www.pery.com.

Before we begin, I would like to remind you that some of the comments made on the call, either as part of the prepared remarks or in response to your questions, may contain forward-looking statements as they're made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information is subject to risks and uncertainties as described in the press release and in the document that we have filed with SEC.

Joining us today for the call from Perry Ellis International are George Feldenkreis, Chairman and CEO; Oscar Feldenkreis, Vice Chairman and President; and Anita Britt, Chief Financial Officer.

I would now like to turn the call over to Mr. George Feldenkreis, Chairman and CEO. George?

George Feldenkreis

Thank you very much and good morning. We are very excited about the results from the last quarter, 3 consecutive quarters of decline in revenue versus prior years. The fourth was the first positive quarter comp for fiscal year 2013 and the largest fourth quarter in the company's history. Our sales increased by 13% to $258 million and our gross margin increased by 138 basis points.

While we are disappointed that during last year our revenues fell well below expectations, we feel that the fourth quarter performance proved that our current strategies are working.

Last year, some of our brands were performing well below expectation which triggered our decision to overhaul the management team in some of our key brands like Perry Ellis and Rafaella. The new products, some of which were shipped last quarter, are receiving favorable reports and higher bookings from retailers.

We feel that the difficult decision that we made at the end of 2011 and 2012 were the right ones, and we believe last quarter performance and the current bookings for the Perry Ellis, Rafaella and Original Penguin brands are a testament to this. The retailers are very enthusiastic about the product that they are receiving, and we're experiencing high sales growth and great editorial coverage from the media.

Despite significant pressure from an uncertain economy, unprecedented weather conditions and heavy promotional activity, we navigated through this potential setback by investing in products and delivering quality and a credible value proposition, which led to increases in both average unit retail price and market share for the fourth quarter.

Our marketing efforts at Perry Ellis have resulted in a very successful Very Perry campaign, as well as new initiative in marketing activity with the Rafaella brand and all the Golf brand. We are glad to report about the amazing new Callaway hardware which is receiving rave reviews from golfers and is becoming a big story. We are very excited of this success and what it means to the new development for the future of the Callaway brand.

Our balance sheet remains extremely strong. We ended the quarter with approximately $55 million in cash. And for the third quarter in a row, we ended with no borrowings on our credit facility. Our team has made progress with inventory management and reduced it by 8% by the end of the year versus prior year.

Our revenues in Canada and Mexico grew by double digits for the year. These are 2 areas of the world that we are focused in growing and expect to grow much faster in the future than it has been done in the past. In the U.K., currently, a difficult market, our business grew by single digit. We continued to work on the expansion of our U.K. facilities in order to establish a better platform to be able to service the needs of the continent and to take advantage of opportunities as the recovery in Europe starts to materialize.

During the year, we sold the John Henry brand in Asia. This transaction closed last month, so it would be reflected as a gain of $0.20 per share during the current quarter. This transaction represents a very strong endorsement to the value of our brands, which is our biggest asset. We're glad to inform you that during this month, we will have the soft opening of the first Laundry by Shelli Segal store in China. A distributor opened in the first store in Beijing in one of the best shopping centers. A formal opening will be in May. The Laundry brand is doing exceptionally well in the USA and this opened the door to growth for the brand in China.

Our licensing division had a very good year of sales by our licensees overseas, and in the USA, continued to grow. Royalties increased by 8% versus prior year, and we expect that this year we'll do better than that.

Our Direct to Consumer business grew by 17% versus last year. Today, our Direct to Consumer business represents growth to 90% of company sales compared to 7.5% last year. This is a very healthy trend for our company as we see Direct to Consumer as a major growth area.

As you are all aware, e-commerce is the most promotional field in retail today and also the fastest growing. It is the growth engine of the future and we are investing in the development of our current sites to improve their performance.

We approached the market in 3 different ways: our own websites; our indirect sales through brick-and-mortar e-comm, sites like macys.com, golf.com, et cetera.; and sales to pure e-comm players like Amazon and Zappos. Our sales through Amazon last year grew by over 130%. Aggregating all our e-commerce business, we grew by 30% last year.

Social networking is an integral part of the marketing effort to create brand awareness and build a culture of service to our loyal followers. We are redeploying assets and continued to invest in digital commerce, which we expect to continue growing considerably this year and in the future.

On the retail side, we ended this year with 71 directly operated stores, including the 8 stores in the United Kingdom. Our retail business is focusing on maximizing the power of Perry Ellis and Original Penguin Brand, and we are starting to experiment with the Cubavera and Farah concept to drive positive comparable sales and improve profitability.

We are also focused on improving and strengthening the quality of our managers of all our Direct to Consumer operation, whether it's retail or e-commerce. We continue to work in a very challenging retail environment. In my opinion, it will continue to be challenging in the future even more than the present.

The changes in retail are irreversible. The consumer has drastically changed. Young consumers' shopping habits are completely different than their parents. Stores most only -- not only offer great products and provide a unique shopping experience, but also remain price competitive not only with other brick-and-mortar stores but with everyone online.

This is affecting how we think, not only about retail but about brand and wholesale. Brands today are more important than ever because the connection between the consumer and the brand will grow stronger if brand managers know how to build that relationship with the consumer and are willing to invest in improving and maintaining that relationship.

We feel that, today, to hire and train good management is more important than it has ever been for the survival of a company. In addition, consumers have reduced budget for apparel purchases in an uncertain economic environment, both in the U.S. and overseas. We remain focused on improving the quality of our products, offering merchandise that is fashion-forward that consumers want to buy while, at the same time, we maintain a disciplined approach as a company to growth and expenses.

Our goal is to expand our business to achieve a 10% EBITDA. We have not yet achieved that goal but we feel that this year we should make great progress toward that number. We have taken the necessary steps to build a much stronger organization going forward. And our success in building our Golf Latin brand, as well as Laundry by Shelli Segal, coupled with improvement that we are seeing now in Perry Ellis, Rafaella and Penguin brand should make this a good year for our shareholders and associates.

As usual, we continue to work very hard to achieve those goals and we want to thank you one more time for your patience. I would like to turn the call over to Oscar who will provide additional insight into our business.

Oscar Feldenkreis

Good morning to everyone. I will be walking through an update on key brands and businesses. We are very pleased with the progress that we have made in the Perry Ellis and Rafaella collection and are extremely energized by the continued momentum in Golf and our contemporary ladies business.

First, let me speak about the Perry Ellis brand. Fiscal 2013 marked the year we elevated our Perry Ellis brand team and products. The team was challenged to bring Perry Ellis to a new level, focusing our product details and infusing strong elements of styling with colors and trim, enhancements that the consumer would recognize and appreciate, marketing initiatives under the Very Perry campaign which has reinvigorated the brand.

With the new products offerings, we have experienced strong results at retail for spring 2013 and selling at a higher AUR than last year. We also kicked off the year, following a very strong performance in January, with a significant lower holiday carryover than last year's transitioning into spring, a target strategy to drive higher AURs and profitability.

Our Perry Ellis portfolio bottoms business, which carried the number one market share in dress pants for 2012 in both dollars and volume according to NPD, remains very strong with new programs rolling out in March, and momentum has continued.

Our Perry Ellis accessory business posted solid increases during the fourth quarter. Driven by our gift business, the start of the spring season has been solid, bringing with a strong -- beginning with a strong Valentine's Day performance in wallets, as well as in our license categories such as neckwear and fragrances.

Finally, our spring products has been delivered and set in all domestic stores. Product is supported with new branding and marketing campaign, both of which have been received strong retail response.

On the international distribution front, we are now in 80 doors at the Hudson Bay in Canada, both with the collection business as well the complementary license product categories. Performance has been strong in these accounts.

I would also like to highlight our expansions of the Perry Ellis, adding casual offerings under the Perry Ellis America brand for this coming new year. This is a collection we are developing for men's weekend casual attire. The assortment is built with solid foundation in denim and denim-inspired products to fully complement the Perry Ellis lifestyle. We are launching this collection for this fall in over 200 doors and we'll expand the distribution as we read and react to performance. We believe it will broaden our audience, outfitting a consumer from career to casual.

Turning to Golf. Our portfolio of Golf lifestyle brand is built to engage the passion of a wide variety of golf players around the world, including in aspirational golf fans. Today, our products are carried in over 14,000 doors, and our Golf division achieved an impressive growth rate in calendar 2013.

Our Golf business grew over 55% for the fourth quarter and over 30% for the fiscal year. We drove growth by focusing on this new fresh initiative and innovative product in our assortment for each brand.

Regarding our distribution for Golf, our key retail partners are adding doors and we're also expanding our geographic reach. As we mentioned recently, we extended our licensing agreement with PGA TOUR and Callaway to distribute the apparel across the entire Western Hemisphere. PGA TOUR is off to a solid start with Sears Canada where we have an all-door commitment this season. In Mexico, we are shipping both PGA TOUR and Callaway apparel to Liverpool department stores in both men and women.

We have just shipped Ben Hogan this spring season to over 2,000 Walmart stores as a Golf lifestyle collection, and we are encouraged by the sales performance at retail.

Our ladies Golf business is off to a tremendous start as we launched products this spring season. For the PGA TOUR brand, ladies spring 2013 collection is in over 400 department stores and sporting good doors, and we see an opportunity to increase our door count by 100% in the next 2 years.

For our Callaway ladies launch, we penetrated over 800 green grass doors, and we will continue to focus on capturing market share for all our ladies Golf brands across all channels of distribution.

We will be supporting our Golf brands with a strong marketing campaign supported by player endorsements with Jason Dufner, Kevin Na, Jeff Maggert, D.A. Points, Marc Leishman, John Huh, Phil Mickelson and Sandra Gal just to name a few. These golf ambassadors will further authenticate our Golf brands.

Finally, we are targeting over 100% growth for fiscal 2014, combining e-commerce sales including both direct and third-party channels.

Turning to our women's business. In Rafaella, we are in over 1,100 doors. The brand's spring styles had a solid launch in retail with strong performance in both pants, jackets and tops. We also recently completed the fall 2013 market where the responses to product overall was extremely positive from both retailers and editorial praise.

We have also focused on growing our replenishment program, which is currently only 12% of our business. The goal is to drive it to 30%, which we project will be achieved during the second half of this year. This is an important in our strategy to maintain a more profitable business.

We also know through the market studies that Rafaella translates extremely well with the Hispanic consumer due to the various fits we offer within our bottoms. We are focused on target growth within these demographics through new brand marketing and partnering with Hispanic celebrity ambassadors to execute our strategy. We are optimistic to the performance of the brands for this year.

Turning to our contemporary dress business. The environment was challenging for the fall and holiday season. However, despite the environment, our Laundry brand business grew over 40% and 30% for the quarter and year, and respectively. Despite cold weather affecting spring sales through our retailers, Laundry's performance remains solid. The consumers' love of the brand has led us to target building a niche in the sportswear arena. Laundry sportswear is a natural segue and we have assembled a team working on a spring 2014 launch.

The Laundry license business continued to gain momentum in areas of growth: dresses, accessories, outerwear, as well as the anticipated launch of our fragrance line this spring. The success of our bedding license is opening up doors to possible licenses in other areas of home, which is extremely prosperous category. We are also looking to expand into handbags and footwear as we develop the Laundry brand, completing the entire Laundry brand lifestyle.

Nike, finally wrapping up the Nike Swim, a powerhouse brand which was recently ranked as the #1 swim brand by WWD. Q4 shipments were up 6% over last year, and sales in the second half of the year were up double digits, driven by the increase in team dealers and sporting goods channel. Also, our Nike business in Mexico grew by 32%. For this next year, we see double-digit growth driven by stronger products and more innovation.

In closing, we have conveyed a lot of hard work that has been underway at the Perry Ellis over the last 18 months. I am extremely pleased with the teams that we have assembled and their execution across the business. While I continued to say that I'm cautiously optimistic to ensure that the macro environment challenges creating headwinds don't catch us off guard, I do believe that we have successfully course corrected our strategy and we will continue to drive profitable improvement in the year ahead.

And now, I will pass the call over to Anita Britt who will summarize our financial results for the quarter end and year. Anita?

Anita D. Britt

Thank you, Oscar, and good morning, everyone. In this quarter, our results reflected double-digit revenue and earnings growth on a comparable year-over-year basis. This was achieved through our focused initiative that positioned our core businesses to regain positive momentum. To this end, we generated nice, steady improvements in the retail performance of our Perry Ellis and Rafaella collections sportswear businesses.

Our Golf businesses posted solid double-digit increases in the quarter and for the year. We also saw increases in Laundry by Shelli Segal. At the same time, we remain disciplined with our inventory management, our infrastructure spend and delivered solid operating cash flow.

During the quarter, our attention to our core businesses remained extremely focused. Beginning with our men's business, revenues registered an 18% increase. This growth was driven by the Perry Ellis sportswear and accessory business, as well as our Golf apparel businesses, which experienced increases across all key brands. Ben Hogan, which was acquired and added to our portfolio in February 2012, added approximately $8 million revenues for the quarter.

In the women's platform, our revenues declined by approximately 7%. Our women's performance reflects lower than desired replenishment flow in Rafaella due to our lean inventory levels. Our other women's collection categories businesses performed solidly and we expect continued improvement in trend with the start of the spring season.

Direct to Consumer continued to be a strong platform, delivering a 10% increase in revenues during the quarter, inclusive of a 5.6% increase in comparable store sales. Sales included a 10% increase in average unit retail, partially offset by lower units per transaction. We see this as a positive direction. While consumers are continuing to be cautious and buying more selectively, they are willing to pay more for great style and quality.

We ended the year with 64 domestic locations and 5 European locations. By channel, 22 were full priced and 47 were outlets. And across concept, 44 were Perry Ellis, 22 Original Penguin and 3 other store concepts.

Our direct e-commerce revenue decreased 8% during the quarter, primarily driven to lower promotions that we offered across our sites.

And finally, licensing income was even in the quarter with increases in Perry Ellis footwear and Original Penguin accessories, offset by softness in seasonal products such as outerwear.

As we complete fiscal 2013 and begin our 2014 year, we are proud of the tremendous headway we made on our goals. First and most importantly, as Oscar reviewed, we successfully positioned Perry Ellis and Rafaella collections for an upturn in performance that we saw this past holiday, and believe both businesses are poised for solid profit improvement as we head into the spring and fall season.

Second, we capitalize on our core competencies in the Golf arena area to grow this important category and expanded our -- as well as expanding our distribution mix in Direct to Consumer.

Third, we focused our resources on our business with the strongest opportunities for growth while completing a number of asset sales, as George outlined, and continued to assess and analyze our businesses on an ongoing forward basis as we want to make our business model as efficient in the future.

Gross margin for the quarter was 32.6% as compared to 31.4% for the prior-year period. The 120 basis point increase in margin reflects reduced promotional levels in our collection businesses, coupled with higher gross margin in our Golf lifestyle apparel. These increases were slightly offset by lower gross margins of those -- the product that was transitioned in our acquired Callaway businesses, as well as the exit of our corporate Cubavera brand.

Operating expenses as planned increased by $9 million.

During the quarter, we recognized approximately $4.6 million in incremental costs associated with our streamlining and consolidation efforts, as well as the impairment of some long-lived assets. We also realized higher costs in advertising, mainly related to our Perry Ellis campaign. We continued to manage our expenses well with headcount travel and other cost areas very tightly controlled. We also recognized an incentive comp reversal in last year's expenses.

Turning to the balance sheet. Our net debt position totaled $120 million, reflecting a net debt to total capitalization of approximately 24.5% as compared to 32.1% last year.

Our receivables totaled $174 million, a 20% increase from the prior year. And our aging is extremely strong and the overall health of our retailers is solid.

Inventories totaled $183 million at quarter end, an 8% decline from the prior year of $198 million. Our inventory turnover improved to 3.9x from 3.3x in prior year, and this continues to be a key focus area for our business, for our company by businesses. I just want to keep the use of capital in our business as tight as possible. We also continued to see very tight current goods and our aging is in excellent shape.

For the full year, we generated $77 million in cash flow from operations or over $5 a share as compared to a source of $1 million in prior year. The capital spend for the year approximated $10 million, thereby resulting in free cash flow of $67 million for the year. Inventory management and current inventory driving an increase in accounts payable were the principal drivers of this increase.

Turning to our strategic initiatives. To supplement the business discussion that Oscar and George provided, I would like to reiterate what we have accomplished today.

On the exits of brands and businesses, we have completed our regional target and are continuing to assess the portfolio. We do believe that there will be additional businesses that we will streamline as we move through fiscal 2014.

In terms of streamlining and consolidating of operations, we consolidated both our East and West Coast retail operations to leverage our most efficient distribution partners during the year. We also added a consolidation strategy in our U.K., Europe operations at the end of the fourth quarter, bringing more throughput and productivity through our Witham operations. We have closed our foreign sourcing office in Korea, as well as consolidating multiple offices in Hong Kong under one roof. This allows us to leverage the capabilities of the core base.

We completed the relocation of our U.K. head office to London to help design and share rooms in an effort to be better positioned for previewing lines with key accounts and attract design and merchandising talents from the city.

We are also executing on the men's and women's business consolidation in our New York offices. We expect to complete these moves and have our teams centralized during the second half of fiscal 2014. These moves will provide for more efficient collaboration within teams, as well as market appointments with our customers. We believe these qualitative benefits will provide revenue drivers, as well as reduce some duplicative costs to partially offset new rent structure which I'll talk to.

We will generate approximately $7 million of cost savings related to these initiatives, of which $2 million was realized in fiscal 2013. The full incremental impact of approximately 2% of overhead is expected to be realized in fiscal '14. These savings will allow us to invest in growth initiatives for our Perry Ellis brand, in women's with Rafaella and Laundry by Shelli Segal, as well as our vision to grow Golf to reach $500 million in the future.

Now turning to our outlook for fiscal '14. We are planning our total revenues to increase by 3% to 5%.

To go through the businesses by a year. Men's wholesale, sportswear and swim business revenues are expected to range from $725 million to $735 million. This reflects men's wholesale in a range of $565 million to $570 million. We expect Perry Ellis to be relatively even with prior year, again, with the focus on driving stronger profitability. We expect high single to low double-digit growth in all of our other men's businesses, driven principally by Golf lifestyle apparel.

Swim revenues are expected to increase in the high single-digit range to $85 million to $80 million. International revenues are expected in the range of $72 million to $77 million, reflecting growth across the U.K., Mexico, as well as Canada. We expect to achieve these revenue targets within men's despite exiting approximately $20 million in revenue associated with private label programs, as well as licensing of dress shirts.

Women's revenues are expected to increase low to mid-single digits to a range of $155 million to $160 million. This does not yet reflect Laundry sportswear that Oscar spoke to, which will launch to benefit next year, and we will see that in calendar '14.

Direct to Consumer domestic is expected to increase by mid to high single digit to a range of $88 million to $92 million, driven by a low to mid single-digit comp expectation and increased revenues from new stores opened over the last 12 months, as well as the confirmed plans for 8 new stores during our fiscal '14. This will be partially offset by a few -- our closures that we do every year.

Finally, licensing revenue is expected to be even to up modestly for the full year.

We continue to expect adjusted gross margins to expand by approximately 100 basis points for the year, driven by higher full price selling and lower promotional support in our collections sportswear businesses, as well as the higher-margin businesses in Golf, as well as Direct to Consumer.

We expect SG&A to increase in the range of 6% to 7%, reflecting the 2% reduction from cost savings implementation that I talked to. We expect a 4% to 5% increase in salaries and core percentage, as well as the addition of $4.5 million in advertising and marketing initiatives, and $2 million in new rents from the consolidated offices of our New York women's and men's businesses.

The core increase also reflects the additional headcount that Oscar spoke to, as we build the launch of Laundry by Shelli Segal sportswear for calendar '14.

Overall, we continued to expect earnings per share in a range of $1.50 to $1.60 on an adjusted basis.

Now turning to Q1. We are expecting our top line to be relatively even versus last year. This reflects the addition of Ben Hogan, as well as the Callaway channels which we have taken on, which will be offset by the private label program assets that I spoke to.

Organic growth should still be realized in our core Golf, as well as Direct to Consumer.

We are expecting gross margins to expand 100 basis points in line with our full year guidance based on the improved performance at retail of our collection sportswear businesses as compared to prior year, as well as the higher contribution from Direct to Consumer and Golf. And we would expect our expense growth to be consistent on a percentage increase by quarter year-over-year.

For the full year, we are expecting depreciation and amortization in a range of $15 million to $16 million. Interest should range from $14.5 million to $15 million. And we are expecting a tax rate in the range of 31.5% to 33% for the full year. In addition, shares outstanding are expected in the range of 15.5 million to 15.7 million.

We expect our cash flow from operations for fiscal '14 to generate approximately $50 million for the year. And we are forecasting capital utilization of approximately $25 million for our New York office consolidation, new and remodeled stores in our Direct to Consumer, as well as regular maintenance CapEx.

We expect inventories to remain relatively even throughout the end of the first quarter, as well as the year. We are focused on accelerating our turnover throughout fiscal '14.

And with that commentary and outlook, I'm going to now turn the call back over to the operator to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Edward Yruma of KeyBanc Capital Markets.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

It sounds like you've got a lot of positive momentum on the Perry Ellis business. It sounds like your new advertising campaign is taking hold. I guess, I'm just trying to dissect why then model flat Perry Ellis brand business for the upcoming year, given all these positive things that you've called out.

Oscar Feldenkreis

Ed, this is Oscar. Good morning. The main reason, Ed, is really we need 6 months behind us to make sure that everything that happened in January and February and these current sales results will continue to march forward. We are taking a position on inventory where we think that the product is right to ensure the we're able to keep that momentum strong. So unfortunately, when you go through these transitions, both in Rafaella and Perry Ellis, you base yourself on last year's business and that's how the plans are derived. But we are performing better and we are constantly reviewing the product that is performing and chasing products as we are looking to build the volume -- the revenues as we move forward. We've also exited a lot of smaller doors that were unprofitable for us. And that's another reason why we are bringing sales to be flat because we want to become much more profitable. And as you know, we've been working diligently to execute to a 10% EBITDA, which really is our goal, and that's what we're trying to achieve.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Got it. I know this also that you yanked back promos within the e-comm business and obviously saw some sales deterioration there. Now how do we think about promotional cadence in e-comm, and do you expect to normalize that in the upcoming year?

Oscar Feldenkreis

We plan to -- as my father mentioned, we are investing in new talents. We -- that is a much more -- has a much more of a merchant marketing background for e-comm. And we decided to pull back on the amount of promotions because, as you know, today, it's not about only us, what we do, but also what our brick-and-mortar partners are doing as well and we don't want to compete with each other. And at the end of the day, we are fighting against each other. So we have to be in sync in how we approach the brand, and also the equity of the brand is very important and what is brand right. So we are pulling back but also we are going to be growing our revenues by doing different things that are much more intelligent than just giving away gross margin dollars.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Great. And one quick miling question, Anita. How significant was the incentive comp reversal in the quarter?

Anita D. Britt

The comp reversal in the quarter, it approximated about $4 million last year. And then, we had additional comp that we recognized for this year. But the positive from last year was about $4 million.

Operator

[Operator Instructions] And we'll go next to Robbie Ohmes with Bank of America Merrill Lynch.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Just a one follow-up question on Perry Ellis. Oscar, for the -- and maybe, Anita, help us as well. But Perry Ellis America launch, can you just give us some color on the size of that launch and the timing of when you'll be shipping that this year, which quarters have what impact and how we should think about that? And the second question, on the Golf business, I think did you guys say, if you -- were you guys saying that if you include D2C in all aspects of your Golf business, it will double this year versus last year? And then if so, could you just walk us through by brand the biggest drivers to the doubling of the Golf business for this fiscal year?

Anita D. Britt

I'll take that second question and let Oscar take the first. On double...

Oscar Feldenkreis

On the Perry Ellis brand, our Perry Ellis America specifically, we plan to start delivering that product in the third quarter, and that will be our entrée. By the way, we have previewed Perry Ellis America with retailers in Europe, specifically in the U.K., and there has been a lot of interest. It's an updated product to what you're currently -- it's more contemporary, and the reception has been very strong, not only on domestic side but as well as on international side. So we're talking to some retailers right now and that will be our entrée into -- on the international side. We probably -- we have confirmed to roll out America onto 200 retail doors, and we are excited about that. That's not only what we're doing as well, but as well as, hopefully, expanding that into better specialty stores.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

And Oscar, who is the key partner on the initial 200 doors?

Oscar Feldenkreis

It will be Dillard's.

Anita D. Britt

And then Robbie, on the doubling of the Golf...

Oscar Feldenkreis

As well as The Bay is also part of that process in Canada.

Anita D. Britt

And then on the doubling of the bricks and -- on the indirect e-comm, that was just -- that's our -- that's just the Golf growth on a year-over-year basis. That was not the whole Golf lifestyle including wholesale, just to be specific on that. So that's your amazon.com, any of our [indiscernible].

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Oh, gosh. So the up 100% is the stuff you are doing with Amazon and the stuff you're doing on the Web away from your in-house?

Anita D. Britt

Correct.

Oscar Feldenkreis

That's correct.

Anita D. Britt

And any of our retail partners.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

So I apologize if I missed it, so could you tell us just if you isolate Golf in aggregate, how much you think it will be up year-over-year?

Anita D. Britt

One -- as we look at fiscal '14, we believe that, conservatively, we should be up in the mid to high teens.

Operator

We'll take our next question from Eric Beder of Brean Capital.

Eric M. Beder - Brean Capital LLC, Research Division

Could you talk about -- we've obviously seen, with the weather being very cold, you were being very conservative in terms of guidance and other pieces. What are you seeing on your department store side? I know when you originally gave the guidance for this year, you talked about how you had some shipments pushed out in Q4 to Q1, or I know you're consuming [ph], that's continuing. Are you seeing that continue and how are you looking at the first half then?

Anita D. Britt

Yes, Eric, honestly on the -- and I'll let Oscar talk about the environment. But as far as just timing of shipments, it really -- the material piece of that is just management of inventory on everybody's balance sheet. So we would plan on that to continue. As far as the retail environment and how we're seeing it right now, I'll turn that over to Oscar.

Oscar Feldenkreis

Retail has been spotty. If you look at the Northeast and the Mid-Atlantic, I would say that those are the areas that had been hit the hardest due to the weather and the coldness, et cetera. But if you look at the Southeast, business has not been that bad and that's where we're seeing -- we deliver spring and trans product very early on to the South in hot warm climate. And that's where we're are seeing the encouragement that we're seeing currently today at retail which is what's building the momentum going into Eastern into the -- hopefully, the warmer months as we evolve. Keep in mind that last year, February and March were very warm, and then we went into April and May, which the weather turned. I would rather have, all honesty, in April, May warm going into the summer months than a February, March warm.

Eric M. Beder - Brean Capital LLC, Research Division

Okay. And in terms of -- you talked -- in terms of Hudson Bay, how do you look upon that going forward? I mean, obviously, you've done very well with Perry Ellis. Are there other brands that make sense for them?

Oscar Feldenkreis

That relationship is very strong. We just recently had a top-to-top meeting in Canada last week, introducing management to the Perry Ellis licensees. The meeting was very productive. We will be -- we're looking at -- we have already launched Rafaella, C&C and other brands. We're in the process now of discussing Laundry as well because we have a strong Laundry business on the USA side. So we're in the process now of discussing that. So overall, the relationship is very solid. See that it's not only solid from a wholesale business but also through a licensing opportunity.

Eric M. Beder - Brean Capital LLC, Research Division

And finally, on JCPenney, I know you even talked about how this year there's going to be potential to do something a little bit bigger in terms of Golf. Has that been -- what's the time on that? Has that been pushed back or is that still on track?

Oscar Feldenkreis

We're still on track. The only thing is we are not opening up stores. We are not -- that has all been put on hold for the time being. But we are -- PGA TOUR into 900 doors, and we're very excited about the momentum. We are seeing business good at JCPenney with the PGA TOUR brand. And now that it's a full collection, we are in the path -- we were selling bottoms, the shorts to the classification buyers, and the tops to the classification buyers. Now that it's all combined together as one entity, it's much more impactful. And they have developed a golf shop where we will be there with other golf brands as well. We also relaunched Havanera, which is our Hispanic lifestyle brand into JCPenney, again, and the reception has been very powerful. JCPenney represents about 2.5% of our total business, and we are looking at that business very -- every single day and we believe that what we have currently in place today is strong. We have exited all of the private label businesses that we used to do in the past.

Eric M. Beder - Brean Capital LLC, Research Division

Okay. And finally, I think this is a question for Anita. In terms of thinking about the year, should we be thinking about the year-over-year increases in EPS a much more back end weighted? I know in the front half, you have to kind of anniversary the Callaway transaction and other pieces and obviously you are ramping up Perry Ellis. How should we think about kind of the flow beyond Q1 for EPS?

Anita D. Britt

Yes. Well, again, I think the guidance in terms of how I forecasted to kind of grow the expense percentages and the investment in advertising and marketing, because we are looking at an investment that was fairly consistent, weighs on your first and second quarter a bit more, with first quarter forecasting sort of flat revenues while you're still expanding gross margin to nice 100 basis points plus. So in terms of flow, you will see Q2 should be a little bit stronger, but I think it is more skewed towards Q3 and Q4 when you start to see more top line, consistent gross margin expansion, which offsets the expense deleverage.

Operator

And that will conclude the question-and-answer session. I'd like to turn the conference back over to George Feldenkreis for any additional or closing remarks.

George Feldenkreis

Just thank you very much to all for your patience. We've been working very hard to achieve the goals that we have put ourselves through, and we do think that -- I do think that this is going to be a good year for Perry Ellis within the right macroeconomic situation. Thank you very much.

Operator

And this does conclude today's conference, ladies and gentlemen. We appreciate everyone's participation today.

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