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Executives

William L. McComb - Chief Executive Officer and Executive Director

George M. Carrara - Chief Financial Officer, Chief Operating Officer and Executive Vice President

Analysts

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

Scott D. Krasik - BB&T Capital Markets, Research Division

Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Eric M. Beder - Brean Capital LLC, Research Division

Brian McGough - Hedgeye Risk Management LLC

Jennifer Black

Jessica Schoen - Barclays Capital, Research Division

Carla Casella - JP Morgan Chase & Co, Research Division

Fifth & Pacific Companies (FNP) Q1 2013 Earnings Call May 2, 2013 10:00 AM ET

Operator

Good morning, everyone, and welcome to the Fifth & Pacific Companies, Inc. First Quarter 2013 Conference Call hosted by Chief Executive Officer, Bill McComb. [Operator Instructions] This call is being recorded and is copyrighted material. Therefore, please note that it cannot be recorded, transcribed or rebroadcasted without Fifth & Pacific's permission. Your participation implies compliance with these requirements. If you do not agree, simply drop off the line.

Please note that there will be a slide presentation accompanying the prepared remarks. The slides and earnings release can be accessed at www.fifthandpacific.com in the Investor Relations section. There are separate links to the slides for webcast and phone participants.

Please note that statements made during this call that relate to the company's future performance and future events are forward-looking statements within the Private Securities Litigation Reform Act. These forward-looking statements are based on current expectations and are subject to the qualifications and cautionary statements set out in this morning's press release, including those under the caption Fifth & Pacific Companies, Inc. Forward-Looking Statements, as well as in the company's annual report on Form 10-K for the fiscal year ending December 29, 2012, filed with the SEC and in the company's quarterly report on Form 10-Q for the quarterly period ending March 30, 2013, to be filed with the SEC, each under the captions Item 1A - Risk Factors and Statement Regarding Forward-looking Statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Also, please note that during this call and in the accompanying slides and press release, sales, gross profit, gross margin, SG&A, SG&A margin, operating income, loss, interest expense, net provision, benefit or income taxes, income or loss from continuing operations and EPS are presented on both a GAAP and a non-GAAP adjusted basis.

In addition, adjusted EBITDA net of foreign currency transaction adjustments is a non-GAAP measure and is also presented in the accompanying slides and press release. The company presents this EBITDA measure because the company believes that this measure represents a more meaningful presentation of the company's historical operations and the projected financial performance as this measure provides period-to-period comparisons that are consistent and more easily understood. And the company considers this measure as an important supplemental measure of its performance and believes it's frequently used by securities analysts, investors and other interested parties in the evaluation of companies in this industry.

Reconciliations of adjusted results to the GAAP results are available in the tables attached to the earnings release and slides captioned Reconciliation of Non-GAAP Financial Information, which will be posted to the company's website at www.fifthandpacific.com in the Investor Relations section after this call. The company believes that the adjusted results for the first quarter of 2013 and 2012 represent a more meaningful presentation of the company's historical operations and financial performance since they provide period-to-period comparisons and are consistent and more easily understood.

Now I would like to turn the call over to your host, Mr. McComb. Please go ahead, sir.

William L. McComb

Good morning. Thank you for joining us today as we report first quarter earnings for fiscal year 2013. Following our standard protocol, I'm joined today by George Carrara, our CFO and Chief Operating Officer, and we'll be presenting with speakers' support slides, which are also available on the Investor Relations section of our Fifth & Pacific Companies website.

In today's call, we'll review both the qualitative and quantitative narratives summarizing the first quarter as captured in this morning's press release. I'll provide an overview of results and initiatives for each brand, and George will review the company-wide financial metrics, including the total P&L and balance sheet summaries. He'll then provide a summary of the corporate operating initiatives. And finally, we'll open up the call for Q&A.

So starting here on Slide Page 2. Overall, we had good results during what was a lumpy quarter for the marketplace as a whole. kate spade continued to post strong growth rates at an above-forecasted pace. The Kate Spade Saturday brand was launched in Japan and in the U.S., and we like what we see already. Lucky Brand delivered a positive comp, a very strong gross margin profile. And the first time since skewing the business so much to the direct-to-consumer retail, adjusted EBITDA for the first quarter swung to a positive, an important milestone in measuring this brand's turnaround. Recall our first quarter includes January, unlike traditional retail calendars.

Juicy Couture saw mixed results, a good story about moving towards stabilization in apparel, but not quite there yet with accessories. Performance overall was consistent with our expectations. The Adelington Design Group continues to contribute a nice profit stream as a primarily licensed business. As recent management changes have been announced to J.C. Penney, one of our key partners, we're optimistic now about the impact of a return to merchandise and promotional strategies that have worked there.

And during the quarter, we made excellent progress on our important corporate operating initiatives, including the launch of e-commerce stores with improved customer service and functionality for both the kate spade New York and Kate Spade Saturday businesses, with Juicy Couture, Lucky Brand and Jack Spade coming online later this quarter. George is going to report on these and other corporate initiatives later in the call.

So now let me dive into the narrative with each brand, starting here on Slide Page 3 with kate spade. Total sales at kate spade brands were up 63% for the quarter, totaling $141 million. Excluding the impact of $25 million in net sales associated with kate spade Japan, total net sales for kate spade increased 34%. Sales on a comp basis were up 22%, an above-forecasted performance. 162 doors are now included in our reported door base, given the acquisition of the kate spade Japan business. Comp sales per square foot came in for the quarter at $1,144.

While the kate spade Japan business is excluded from our comp store basis, as a recent acquisition, we should point out that the business in Japan grew 14% on a comp store basis this quarter versus last year. During the quarter, we opened up 2 new kate spade New York stores, 1 at Easton Town Center outside Columbus, Ohio and 1 in NorthCreek near Denver, and a Jack Spade store in Atlanta.

In Japan, we opened 3 new kate spade New York shop-in-shops, 1 Jack Spade shop-in-shop and 3 Kate Spade Saturday stores, including a flagship in Harajuku. In total, 10 new stores. The brand is on target to open 30 to 35 new total domestic full-price stores and 10 to 12 new outlet doors in 2013, including our first outlet in Canada. We also continue to plan 20 to 25 company-operated international points of distribution. These targets are inclusive of Jack Spade and Kate Spade Saturday stores. The new kate spade New York flagship on Madison Avenue in Manhattan opens at the end of next week.

Adjusted brand EBITDA was up for the quarter, $2 million versus year ago. That's plus 15%. George will take you through the drivers of this change in a few minutes. As anticipated and discussed back at ICR and on our last earnings call and during the Investor Day that we hosted in mid-March, the reported adjusted EBITDA margin for the kate business is diluted in this quarter and will be for the full year by 4 anticipated and strategically sound factors: first, the reporting impact of the kate spade Japan acquisition; two, the launch of Kate Spade Saturday; three, the expansion of Jack Spade; and the fourth is the start-up of operations for the brand in Asia. George will go into more detail on those items in a few minutes.

On the kate spade New York business, 20th anniversary floral sets are off to a strong start with modern first quarter collections, which hit key color trends like mint green and capitalized on key brand themes like a "well-placed bow" which all meaningfully resonated with the customer. The result was strong full-price selling during the quarter.

We also saw very successful collaboration with Keds that drew traffic online and in-store and is a good indicator of how much permission the brand has with our customer to grow in casual assortments and gain higher share of overall wallet.

Wholesale shipments for the consolidated brand were up significantly versus last year as well. Retail sales for our department store customers were up commensurately with our own comp store growth. Kate Spade Saturday launched on March 20 in the United States, and in Japan, we opened 3 stores and launched the e-com site. We're pleased with the shopping patterns, the users we're attracting and the response rates to marketing. It's too early to talk too much about the business, so we'll do that in the summer after a few months of sales. For now, suffice to say that we're excited, we're optimistic, and we're reading, reacting to every bit of information and learning that we get every day, just what you do with a new business.

Coming up, we'll be opening up pop-up shops in Manhattan through a partnership with eBay now later this quarter, and, of course, the marketing will be scaling all year. We plan to open 2 to 4 Kate Spade Saturday stores for the U.S. during the rest of the year and 3 to 6 more for Japan, a very exciting plan.

In international markets, we're seeing strong trends in Japan and Southeast Asia. We're on track for the buyout as well with Globalluxe, our partner in Southeast Asia, for early in the first quarter of 2014.

In China, the partnership with E-Land continues to progress. We now have 14 stores. We plan to open an additional 4 locations during second quarter, and we're working to open very 2 visible flagships during the second half of 2013. The Shanghai market is particularly strong for the brand. We're also seeing tremendous traction in DFS travel retail, where we've opened a total of 7 shops. Waikiki and Hong Kong airport are our strongest DFS locations, reflecting this brand's strong heritage with Asian shoppers. This is a business that we believe can get very large as we roll it out and roll out the brand globally.

In the Middle East, the kate spade business continues to grow with our partner, and we're now seeing strong acceptance of lifestyle categories including jewelry and ready-to-wear.

And back in this hemisphere, our London stores in the Westfield at Shepherds Bush and in Sloane Square have helped kate spade establish a strong presence in this important market. And we're now looking to add gifting pop-up shops at Selfridges for holiday 2013 and new points of distribution planned with several partners for 2014.

Lucky Brand also saw a strong performance in the quarter. Total sales increased 16%, with direct-to-consumer comps up 2% and growth in the wholesale business. Margin performance across the board was strong with direct-to-consumer gross margins up 210 basis points to last year, driven by lower levels of markdowns. Although direct-to-consumer comp store sales were softer than projected, overall results were right on plan. So we ended the quarter strong, and we see the business as being in line with this forecast. And as I already said, this quarter saw an important milestone for Lucky Brand, positive brand adjusted EBITDA in the first quarter of $5 million versus a loss last year of negative $1 million. This has been an important goal, given our fiscal calendar reports January in the first quarter. This growth reflects the strong profit flow-through that we anticipate driving solid first half and fiscal 2013 results.

Men's and women's denim posted positive comps in the quarter. And in fashion, men's and women's sweaters and outerwear categories exceeded expectations. The team went into the quarter very lean on inventory and assortments in both graphics and knit categories. And in so doing, they likely walked away from some comp opportunities.

Accessory categories comprised of jewelry, belts, scarves and footwear were up significantly. The Ginger Plus line for women is ramping up nicely, and we expect to expand in wholesale from 190 doors to over 250 by the end of the year. We're rolling out a multichannel marketing plan supporting the Ginger line that combines a Weight Watchers tie-in, a partnership with oprah.com and also encompasses the local market grassroots consumer component.

We're very excited about the fall handbag launch as well in wholesale as well as our own stores by our new licensee, especially given the momentum that we're seeing in other accessories categories.

Lucky Kids is also building nicely. The new line is currently in just 16 of our specialty doors and 7 of our outlet stores. We'll roll this out and expand carefully all year to a total of 50 forecasted doors by year end. That would break down between 23 specialty and 27 outlet, while our partner continues to build the wholesale business. We love the product and we see great potential here.

We expect that the accessories, plus and kids lines will add important incremental volume and productivity to our comp base this year and next, helping the brand grow closer to achieving its $600 per square foot goal along with ongoing product improvements, marketing and maybe above all, omni-channel integration initiatives.

We are now on track to open a total of 21 new doors for Lucky Brand in 2013, which includes 18 outlet locations, another important sales and profitability driver. We believe we've turned the corner in the evolution of our outlet formula with the right assortments, the right value equation and the right branding message and outstanding sales and service professionals for the channel. 18 outlets reflect an acceleration of the rollout plan based on our ability to get great locations. And this is an important step on our way from 49 outlets at Lucky Brand at the end of 2012 to our goal of at least 100 by the end of 2015.

Here on Slide Page 5, you'll see a photo of one of the stores just opened in the first quarter in the Dolphin Outlet Center in Florida. The store concept has strong branding, visible fixtures, and here on Slide Page 6, you can see an easy-to-manage layout with fashion upfront, a strong and easy-to-shop denim wall and here on Slide Page 7, a kids' corner.

We're also moving forward with the international expansion that I've referenced twice before. We now have signed contracts for the brand to launch this fall in Indonesia, Chile, Panama, Colombia and Venezuela, and we're finalizing agreements in the Middle East and South Africa.

All of these partnerships are distribution agreements that will present the brand in either 4-wall stores that look exactly like those here in the U.S. or in department stores with the shop-in-shop format. We're excited about these launches, and we've been working on the next phase of international launches for 2014.

And finally, the last point I'll make about Lucky Brand is that it made outstanding progress on the elevation of digital marketing, social media and e-commerce, a goal that I've stated represents the biggest opportunity for the brand now and in the long run, new talent, new structures and an enterprise-wide focus drove growth in demand, traffic and conversion metrics during the quarter.

Just as we've done at kate spade and at Juicy Couture, the digital effort at Lucky Brand this year is all about integration, integrating merchandising, marketing and creative teams along with operations and inventory management to achieve a truly comprehensive omni-channel enterprise.

As a new website and commerce platform come online during the second quarter and as the new POS systems roll out corporately, Lucky Brand stands to benefit from the comprehensive changes that they've made this quarter.

First quarter for Juicy Couture was mixed. Overall performance was down to last year like we expected. But we're progressing towards achieving the stabilization in apparel that we were hoping for by the end of the first half. And we believe that with the new initiatives under CEO Paul Blum, we can achieve the second half 2013 plan.

During the quarter, direct-to-consumer total comp sales were down minus 2%. Total reported net sales were down 11%, driven almost entirely by planned declines in the domestic wholesale business. Recall, we intentionally took a big hit in the initial markup as we repriced the line after the goods were designed, reducing certain fashion item MSRPs by up to 25% versus last year, with an overall apparel MSRP reduction of 10% versus last year.

While this quarter did not offer the assortment strategies that I have said will be in place beginning in third quarter, we were able to see sell-throughs go up measurably as the pricing came in line. Spring apparel weekly sell-through rate achieved our target for the first quarter and exceeded year-ago levels. This is a significant improvement over our second half 2012 results and was achieved with drastically reduced promotional activity.

Inventory at Juicy Couture remains lean and in check. Handbags represent a fashion miss, but there again, we have in place a fairly significant effort to relaunch for holiday 2013, and none of these efforts have been seen yet by a customer.

After 120 days on the job, Paul Blum is leading the team brilliantly, in my view, and decisively implementing the initiatives that we anticipate will drive a rebound in the performance. Here are the steps he's already taken. First, the team completed the fall and holiday 2013 buys for our U.S. direct-to-consumer business, bringing much-needed changes to the assortment, adding in a hefty presence of what they're calling fashion pillars to the apparel assortment. Knowing we've succeeded with fashion in terms of aesthetic, trend and styling, we've added denim and dresses to the pyramid as core where what we call pillar categories.

They've also brought better branding and visibility to track and graphic tees. In recent weeks, we've also seen better alignment of marketing with promotional activity. So step 1 was making sure that all of the learning from 2012 was fully incorporated in the assortments, designs, inventory buys and calendar flows for the back half of 2013, all of the changes needed to deliver the projections.

The second area of focus: outlet. We've dedicated a merchandising team to lead product development in Juicy's outlet business. Our recent remodel and remerchandising of our Jersey Gardens location has produced an immediate and stunning result. This new retail concept is a takedown of the full-price recoutured store look with tons of tables and hanging fixtures. It's functional, it's sales-oriented, it's brand-right all at once. We'll be rolling out this merchandising concept to an additional 16 stores and outlet by the end of September. And we'll then complete the fleet throughout 2014, when the product development effort is ready for delivery. This bodes well for the Juicy Couture outlet concept and is an important part of restoring historical brand adjusted EBITDA levels.

Third, Paul has announced a line called Juicy Sport to be launched in the first half of 2014. This brand extension brings a Juicy interpretation to activewear, sportier and more functional like Lulu but with an unmistakable Juicy twist. This is, of course, a lifestyle collection that will be done in connection with our licensed partners in the swim, watch, sunglass and eventually footwear categories.

Fourth, Paul's team is working on a proper launch of a global intimates line currently planned for the first half of 2014. This is a natural category for the brand, one we've flirted on and off with. And our potential partner there is one of the strongest players in the world in this category. This will allow us to go after the category aggressively in Asia with ImagineX, where the market is still wide open, and a little more selectively here in the U.S. where we know the customers looking for other options in the intimates category besides just Victoria's Secret. Paul will have more to share on the details of this partnership imminently.

And fifth, building on the incredibly strong brand power that Juicy enjoys globally, Paul has begun to reorganize the whole company to better serve the needs of the international marketplace. He's sharpened the processes and clarified immediate execution improvement goals to better serve our partners abroad, including ImagineX in Asia as well as MAF in the Middle East, Handsome in Korea, DEMSA in Turkey and JamilCo in Russia. The team is now working on a long-term partnership in India as well with a leading retailer of premium imported brands in that market, and we hope to have that completed before the end of next quarter.

And in Europe, Paul announced internally that he's leading a relaunch of our U.K. wholesale business with a new concept shop-in-shop on the contemporary floor of Harrods in November and beginning this June, opening another great location on Selfridges' new contemporary floor. Our own stores perform well in the U.K., and there's a lot of potential there as well in France and Germany. In fact, we're rolling into 3 additional Galeries Lafayette stores in France by the end of 2013.

Recognizing that today, approximately 9% of the sales of our juicycouture.com site come from international customers, a number we expect to grow significantly, Paul is working on plans to launch a website for key European markets in 2014 and will do the same in Asia. Juicy Couture resonates with this emerging global consumer and has a long runway for future development in these territories.

Finally, Paul has gotten to know and appreciate the talent in the company. Back in February, you'll recall that we were contemplating announcement of a creative director for Juicy in the coming weeks. He concluded that instead of rushing to make sweeping changes and even to appoint a creative head now, Paul would work closely with each team and instead focus on better integrating the existing resources, aligning the goals and applying the learnings, all of which are rich and instructive. I think these 5 steps present the right plan in the right sequence and are backed by the right management approach.

So turning now to Slide Page 10, you can see here a summary of first quarter direct-to-consumer comp sales, a good reference guide that summarizes comps as reported in this morning's press release. As I indicated, kate spade's comp was above plan, Lucky Brand sales comp was slightly below, but they overperformed on margin comp, and Juicy's was generally in line with what we expected. So we came into second quarter right in line with our operating forecast.

The results for the Adelington Design Group are summarized here on Slide Page 11. Recall that first quarter 2012 sales included the impact of final clearance activity for DKNY Jeans. So a significant portion of the sales decline that's shown here is actually related to fully exiting that noncontinuing business a year ago.

While we continue to see softness in jewelry across the department store space, adjusted brand EBITDA is actually up $2 million for the quarter. We are encouraged by signs of strategic changes already beginning at J.C. Penney, and we continue to pursue new private label initiatives for this business as well.

And with that summary, let me now turn the call over to George Carrara to review the company-wide P&L, brand financials, the balance sheet and our corporate operating initiatives. George?

George M. Carrara

Thanks, Bill, and good morning, all.

Slide 12, our fourth quarter adjusted P&L summary. As Bill mentioned, we are pleased with our overall performance for the quarter, especially in light of other retailers' reports. We outperformed plan in the aggregate. This was driven by continued outperformance at kate coupled with lower logistics costs as we began to transition to our new 3PL. We also outperformed LY with an adjusted EBITDA of $2 million as compared to a negative $1 million during the first quarter of last year and an adjusted loss per share of $0.15 versus our prior year loss of $0.21 net of FX transaction adjustments.

In the next slide, I will provide you with some insights on the results of each of our segments. Before we do so, let me give you a quick overview of our consolidated results. Adjusted net sales for the quarter were $372 million, up $54 million or 17% versus 2012. This increase was driven by a $55 million or 63% increase in kate spade, which includes $25 million of sales attributable to the October 2012 acquisition of kate spade Japan. A $17 million sales increase also at Lucky Brand. These increases were offset by expected decreases in Juicy and Adelington of $12 million and $6 million, respectively.

Our adjusted gross margin rate decreased 170 basis points to 54.9% versus the 56.6% achieved last year. This decrease is principally driven by an expected gross margin decline of approximately 1,000 basis points at Juicy as we completed the final clearance of fall holiday merchandise and lowered MSRPs of spring merchandise by an average of 10%, as Bill discussed. We will discuss this further on Slide 13.

Adjusted SG&A was up $18 million for the quarter versus the comparable spend in the first quarter of 2012, a year-over-year increase of 9%. As a percentage of sales, adjusted SG&A decreased to 59.2% versus 63.5% in LY, an improvement of 430 basis points. This resulted from the corporate realignment actions initiated in June; the 20%-plus reduction of the Juicy head office, which occurred in September 2012; and an operating leverage at Lucky Brand as you will see on Slide 13. As discussed, all of this yielded an adjusted EBITDA of $2 million versus a negative $1 million last year.

And finally, adjusted loss per share net of foreign exchange transaction adjustments was a negative $0.15, $0.06 better than our result last year. The improvement of $0.06 principally results from the $3 million adjusted EBITDA improvement in addition to the increase in our share base from 101 million shares to 119 million shares, which was, as you know, primarily the result of $60 million of convertible debt exchanged into equity.

Now to Slide 13, our year-over-year operating results by segment. kate spade sales increased $55 million, including $25 million attributable to the acquisition of kate spade Japan. Excluding this acquisition, sales increased $30 million or approximately 34%. This resulted from the 22% DTC comp, 21 store openings and across-the-board increases within the DTC and wholesale channels. With respect to kate spade Japan, I should point out that on an organic basis, comp sales increased 14% and total sales increased 31%. This growth dynamic was a compelling factor supporting our rationale to initiate the buyout of our JV partner.

Now in terms of total kate spade adjusted EBITDA, you can see that our adjusted EBITDA margin decreased by 565 basis points. This is in line with how we planned the first quarter. You'll recall in our last several conversations, we mentioned that in 2013, kate would experience a full year adjusted EBITDA margin decrease of a couple of hundred basis points due to the dilutive effects of kate spade Japan accounting treatment, the launch of Kate Spade Saturday, the expansion of Jack Spade and finally, the start-up of operations in Asia.

The incremental dilution in Q1 as compared to our full year expectation is primarily a result of timing and is directly attributable to approximately $3 million of launch marketing related to Kate Spade Saturday against a nominal amount of Kate Spade Saturday sales, which launched during the back half of March; $1 million of incremental Jack Spade marketing; and finally, a shift in the timing of lower-margin wholesale off-price shipments for kate spade New York.

We also experienced some headwinds due to the weakening of the yen, but this was completely offset by continued outperformance of the kate spade brand across the globe. Looking forward, I'd like to reaffirm that we expect to see full year adjusted EBITDA margin dilution of a couple of hundred basis points.

Now let's discuss Lucky Brand. Lucky Brand sales increased by $17 million or 16%. This was principally driven by a shift in the timing of shipments to certain wholesale accounts to better match merchandise flow with consumer shopping patterns. The wholesale business at Lucky is very healthy and is checking well. Additionally, with the exception of off-price sales of excess merchandise, all channels of Lucky Brand experienced growth during the first quarter. Adjusted EBITDA margin expanded to 5% from a negative 1%. Looking at the full year, we expect to see a noteworthy improvement in adjusted EBITDA margin, driven by both operating leverage and gross margin rate improvements across all segments, resulting from continued increases in sell-throughs.

Juicy. Juicy Couture sales declined $12 million or 11%. This was primarily attributable to the planned decreases in our U.S. wholesale business, both department store and value channel. As mentioned when we last gathered, our domestic U.S. wholesale department store business is planned at less than $10 million in net sales for 2013. A recapture of this business presents us with an opportunity beyond 2013 once our merchandising and pricing structures rebalance during the latter half of 2013. We should note that our international business continues to experience growth with total international net sales growth of 18% during the quarter.

Juicy's adjusted EBITDA declined by $11 million, nearly equal to the absolute decline in sales. This resulted from the final clearance of fall holiday merchandise during January and February, combined with the in-line pricing strategy of our spring deliveries, as Bill explained.

Although we experienced DTC gross margin rate deterioration of nearly 1,000 basis points for the quarter, we were pleased to see in March and now during April what we believe is the beginning of a return to a healthy business model as gross margin rates have been trending within 500 basis points of LY.

We should reiterate that we plan to see sequential improvement in Juicy adjusted EBITDA as the year progresses. Q1 adjusted EBITDA was down $11 million to LY. Q2 and Q3 adjusted EBITDA are also planned down to LY but to a lesser extent, with Q3 improving sequentially relative to Q2. And finally, in Q4, we expect to see a modest improvement in adjusted EBITDA relative to LY.

Adelington. The Adelington Design Group adjusted net sales dropped $6 million. This was mostly the result of the 2012 first quarter liquidation of final DKNY New York jeans inventory levels pursuant to our decision to exit this license business. Adelington Design Group's adjusted EBITDA increased by $2 million as a result of decreases in SG&A related to the product lines that were exited from our portfolio, coupled with the impact in Q1 of 2012 of DKNY Jeans clearance activity.

Finally, corporate. Corporate costs decreased by $3 million versus LY. This was the direct result of the $15 million infrastructure rationalization that we initiated in June 2012 and completed during the fourth quarter of 2012.

Now to Slide 14, some selected balance sheet and cash flow data. Accounts receivable are up 11% or $10 million to $102 million. This increase is principally driven by the concession business associated with the acquisition of kate spade Japan where approximately 50% of net sales are derived through this channel. Additionally, increases in kate spade and Lucky Brand were offset by earlier explained decreases in Juicy and Adelington.

We are happy with our DSOs and receivable collections. Inventory is up 24% or $43 million to $220 million. Of this increase, approximately $18 million is related to the acquisition of kate spade Japan. The remaining balance of the increase principally results from strategic investments in kate spade, which we will discuss on the next slide.

Next, total net debt was $431 million as compared to $317 million at the end of Q1 2012, an increase of $114 million. This results from the $41 million acquisition of kate spade Japan; the build-out of new doors, principally at kate spade and Lucky Brand; funding of inventory to support the accelerated growth of kate spade; our streamlining initiatives, which are now nearly complete; and consumer-facing IT investments, which we will discuss in a later slide.

The change in the total debt balance over the last 12 months also includes the impact of exchanging $60 million of our convertible notes into equity, repurchasing the remaining balance of our euro notes and issuing high-yield add-on notes as discussed in our prior calls.

Finally, CapEx for the quarter increased to $21 million related to the reasons just discussed. I should note that the strategically important 2013 kate spade new door target of approximately 70 stores is progressing according to our plans.

Slide 15. Slide 15 provides some additional insight into our inventory levels. Total inventory was up 24% to $220 million as compared to the aggregate adjusted sales increase of 17%. This delta of 7% reflects an investment in kate spade to support the launches of Kate Spade Saturday, kate spade New York fragrance and Jack Spade watches. Additionally, as the kate spade Japan business is predominantly a retail business, the consolidation of such into our results impacts total inventory to a greater degree than the resulting impact on sales. Lucky Brand, Juicy Couture and the Adelington Design Group ended the quarter on inventory plan and at levels appropriate relative to sales trends.

Slide 16. Slide 16 covers the key elements of our renewed $350 million ABL facility. On April 18, we entered into an amended and extended ABL agreement with our banking syndicate comprised of JPMorgan, Bank of America, Wells Fargo and SunTrust. As you know, our prior ABL agreement had an expiry date of August 2014.

Given our improved credit profile coupled with the attractiveness of the capital markets, we decided to opportunistically negotiate a renewal, the detailed terms of which are nicely summarized in an 8-K that we filed on April 19. But the key highlights are as follows: a 5-year term, enhanced borrowing capacity that we expect to increase our peak availability by approximately $25 million, interest at LIBOR plus 175 points as compared to our previous arrangement at LIBOR plus 350 basis points and finally, an undrawn facility fee of 37.5 basis points as compared to our previous arrangement of 75 basis points.

We are very pleased to have successfully executed this. It further enhances our credit profile and results in an annualized savings of approximately $2 million. Additionally, we incorporated provisions into the related agreement that support our near-term investment plan regarding the kate spade buyout of Globalluxe in Southeast Asia scheduled for early in the first quarter of 2014 and the ability to fund a contemplated Juicy joint venture in greater Asia.

Now let's turn to Slide 17 for an update on our corporate operating strategies. First, distribution and logistics in our new agreement with Ridge Global Services. Ridge commenced operations in our Ohio facility as planned on April 2, and we are at the final stages of our phased exit from the LFL facility in California. As previously discussed, once we are beyond the Ridge start-up phase, we expect this model to result in a 10% to 15% reduction in unit costs.

In connection with this, we are beginning to plan some technology enhancements to the Ohio platform in 2014. This is expected to yield further savings in 2014 and thereafter. As discussed earlier, we are already experiencing some favorable trends in our actual distribution costs as compared to plan.

Next, our e-commerce replatforming. On March 20, we successfully went live with our new e-commerce platform with the launch of Kate Spade Saturday and the relaunch of kate spade New York. We were delighted that this project was completed both on time and without interruption. As you know, our strategy for Kate Spade Saturday in the U.S. is to principally focus on the e-commerce channel. Accordingly, the new platform was an imperative requirement to enable the launch of this exciting new sub-brand.

In terms of migrating the balance of our brands, Juicy is on target to launch later this month, followed by Lucky Brand and Jack Spade in June. As a result of this, all of our brands will have a redesigned web store and a best-in-class order management and fulfillment system. Additional enhancements include optimization for mobile shopping, expanded omni-channel capability, international shipping and full integration of social media.

On to our new POS system. We continue to pilot a new POS system, while our implementation partner proceeds with development of the related Phase 2 mobile functionality . We expect to begin the all-store rollout later this month and complete such during Q3. And then once all stores contain the new POS system, we will deploy the mobile POS functionality in time for fourth quarter.

With this implementation, omni-channel capability will be further enhanced, our e-commerce and brick-and-mortar CRM will be fully integrated, mobile in-store checkout will be enabled, e-receipts will be possible and our associates will have mobile inventory management functionality, which will reduce time spent on administrative tasks. These are just a summary of the key features as there are many more enhancements attached to this initiative.

Bill and I, along with brand leadership, are very pleased with the inroads made during the last 6 months in the areas of IT and operations, and we'd like to acknowledge the incredible efforts of Linda Yanussi, our SVP of IT and Operations and her teams. Linda also worked with Mia Tami [ph], and she has made an enormous positive impact on our success during her short tenure with us.

Finally, on the real estate front. I am pleased to report that last week, we signed an agreement to sell and partially lease back our back-office headquarters facility in North Bergen, New Jersey. The selling price is $9.3 million, and we expect this transaction to be closed later this month. With such, we will enter into a partial leaseback of approximately 1/3 of the space available in this building. We have already begun the space consolidation process and expect to be settled in our reconfigured offices by month end. The annualized cash savings associated with this initiative amounts to approximately $2 million.

As previously discussed, we are also actively pursuing sale-leaseback opportunities related to our Ohio distribution center facility. We expect to update you on this initiative during our next call.

Once we substantially complete the above key initiatives during the back half of 2013, we will next embark on establishing an e-commerce platform in Europe, enhancing our Ohio distribution center software-hardware platform and integrating certain kate spade international business lines.

With that, let's move on to our 2013 outlook on Slide 18. Let's update and reconfirm a few key metrics that are embedded in our financial outlook for 2013. We gave a preview of our 2013 outlook in January. As Bill indicated, we are reiterating our adjusted EBITDA guidance for the year in the range of $120 million to $150 million, net of foreign currency transaction adjustments. Incorporated within this range are annualized direct-to-consumer comps for kate spade in the teens, Lucky Brand in the mid- to high-single digits and slightly negative to flat comps at Juicy.

With respect to the guidance by brand that we shared with you in January 2013, there are no changes to our expectations for kate spade, Juicy or Lucky Brand other than the allocation of expected benefits from our new distribution strategy. This improvement, however, will be offset by a reduction in the projected adjusted EBITDA for the Adelington Design Group as a result of some slippage within the Lizwear business, which is principally distributed to club stores. I should also explain that although the kate spade segment continues to outperform our base plan, we were experiencing some offsetting headwinds at kate spade Japan due to the precipitous depreciation of the yen. Additionally, I'd like to emphasize that the quarterly flow of the adjusted EBITDA performance will be substantially similar to 2012 with a heavy back-end weighting. But with respect to quarter 2, please note that the Lucky Brand wholesale shipping shift into Q1 will impact Q2 shipping and profitability, resulting in a consolidated Q2 adjusted EBITDA that is expected to be flat to slightly down versus LY.

For corporate overhead, as discussed, we are still targeting $66 million to $68 million; depreciation and amortization, $75 million to $80 million. Annual CapEx is targeted at approximately $115 million. We expect interest to be approximately $45 million to $50 million for the year. Our normalized tax rate for 2013 applied to adjusted earnings will be between 38% and 40%. I should note that we ended 2012 with more than $550 million of NOLs. And lastly, our forecasted full year 2013 basic share count is approximately 120 million shares.

Now back to Bill for some closing comments before we open it up to Q&A. Bill?

William L. McComb

Okay. Thanks, George. So there you have it, our full summary of first quarter earnings results. Our teams are focused on growing their businesses. We're feeling good about the year. The kate spade business continues its stunning growth profile. Lucky Brand is on a roll of its own. And Juicy Couture is in the capable

[Audio Gap]

reporting the brand plans with extensive new e-commerce websites that enable even more digital, CRM and customer service capability and tying that into a new POS rollout that will take each of our brands' omni-channel capabilities to the next level. And on a different front, we continue to diligently assess approaches to unlocking shareholder value. But please note, we won't comment more broadly during the earnings call now, and that includes answering any questions during Q&A on that topic.

Let me thank all of you who were able to attend our kate spade Investor Day back on March 15. We're aiming for the end of September for our Lucky Brand Investor Day. So now let's go ahead and open up the call for some questions and answers.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Edward Yruma of KeyBanc.

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

On the Lucky business, Bill, I think you previously said that the real financial upside from Lucky will come from getting back to previous levels of sales productivity. And the gross margins were, at this stage, relatively full. You guys put up some nice margin performance in the quarter. So I guess, are you kind of revisiting the thesis of full Lucky margins?

William L. McComb

No. I'm not. I mean, I'm really impressed with what the team's done. But note in my remarks that -- and I've said it once before. I think that Dave would tell you that -- they likely walked away from some comp in exchange for that rich margin. And what I'm getting at is, maybe overly managing inventories too carefully in some categories that will, in fact, drive incremental productivity. There is absolutely no question that the fundamental thesis is, this is a well-run retail-based organization. And that as we -- as the muscle of e-commerce and all the digital components come up, we know that, that's going to recruit more customers, and that will drive more traffic. And -- but inside the 4 walls of the doors that we have, increased transaction value by additional product categories and increased overall average transaction size is taking productivity to the north of the $600 mark. It's absolutely the thesis. And so we built out the SG&A that we need there to be able to produce that. We have an outstanding team. The brand is now hot, and we're seeing it across categories, and adding in accessories, especially the fall handbag initiative, and doing more with footwear like we're doing. And really delivering on some of the non-denim fashion categories, while still fueling innovation in denim, there's the thesis right there.

George M. Carrara

But we do still expect to see gross margin improvement for the full year probably in the neighborhood of 100 to 200 basis points.

William L. McComb

Yes, that's right. I just don't like to call that thesis driving. I mean, if that didn't happen and we continued to march ahead on the dollars per square foot, I would be very happy.

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

Got it. And in the Juicy business I know that you said that Paul has been very active in trying to change assortment for the back half of the year. I guess, kind of what amount of the product was already baked before his arrival? And I guess kind of what percentage of the lineup was he actually able to impact?

William L. McComb

He's impacting the entire line. He was -- he arrived -- the -- remember, he came from a Friday to a Monday from his old job to his new job on December 4, and did so, so that he could do that. So Paul will tell you that he is very comfortable that he was able -- his main focus in the company has been in the area of merchandising. There have been a lot of things that have worked and have been right. Concept and design and marketing and store ops are all things that I would grade very high operationally in the company. It was merchandising strategy that needed work. And he brought all elements of the company together, boom, right upon arrival. And they were able to fully assort the lines, the way that they want, against the strategy that I've been talking about since -- recall, I started talking about the learnings from first half last year on our call at the beginning of August. And so he walked into basically a playbook that he validated and he took and he ran. So his concentrations, why I said, out of a 5-point plan, #1 is all about that. So the answer is, it's crystal clear, he's been able to fully impact it.

George M. Carrara

And that's reflected in our forecast as well.

William L. McComb

Yes, it is.

Operator

Your next question comes from Scott Krasik of BB&T Capital markets.

Scott D. Krasik - BB&T Capital Markets, Research Division

A couple questions on kate spade. So I know you don't want to talk about sales, Bill, but maybe what have you learned? What's worked, what hasn't at Kate Spade Saturday so far? And also what drove the decision to open up stores in the U.S. this year at Kate Spade Saturday?

William L. McComb

Well, we always said we were going to do what we said. So let me remind you what we've said. We're opening what our pop-up shops which you'll see are inventory-less, staff-less almost electronically-driven windows, south of 14th Street and maybe one on the Upper West Side. And that's part of the promotional launch of the brand. We always said that we would have a strategic flagship or 2. So it's SOHO is the site that we think it will be great to have a showroom feel, but that's it. I mean, it really is fundamentally nothing's changed on that. As for sales, I really said what matters, which is that, we like a lot the customer that we're attracting. We like how we're attracting her to the line. We're learning about the mix of products. She sees it as very innovative. We like the incrementality of the customer. We're really not actively -- we didn't seek to mine our current database, but to bring all new sources in and we like that traffic profile that we're getting. And in Japan, we always said that we would have a physical presence with the brand in addition to online. And we said that we would show up in some of these transportation centers with these almost sale outposts and more importantly, that we would have a physical store presence although again, not in the relative numbers that we had. So it's really early days, but it's exciting. And I think that we feel that we've made the right decision to do this at this point in the brands' life cycle.

Scott D. Krasik - BB&T Capital Markets, Research Division

Yes, okay, good. And then in terms of the kate spade flagship brand, maybe talk about categories. You're still very early into watches. We've heard good checks on the shoes. So maybe talking about some of the categories outside of handbags.

William L. McComb

Well, it's almost boring because I'll just sit here and say everything is doing well, and it really is. I mean our jewelry business continues to grow and we've had quarter-on-quarter growth since we launched it. Really, all categories are showing tremendous growth. The apparel business continues to grow and be such an important part of the business. I will -- I'll challenge your question back and say, all that said, the handbag business is an incredibly important part of it. And I love the fact that we're seeing growth at the high end of the price points, and the innovation really taking. And from a forward order book perspective, we did some new things for fall, some of which we showed on March 15 at Investor Day and had a stunning reaction from wholesalers that we think will foretell how handbags will do in the stores. So really it's across the board, we're just seeing. This is a lifestyle brand and you see that in the character of the sales profile. There isn't one engine pulling this business. It's really coming across the board, including the important license categories. The brand has such broad and strong permission in important categories even outside of its home of handbags.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay, that's great. And just last, the wholesale growing in line with comps. Is that a reflection of how the sell-through rates are, as you get deeper in other categories could the wholesale growth rates accelerate?

William L. McComb

Well, the comment I made was that our retailers are seeing the kind of comps that we're seeing in DTC. So they're seeing healthy comps too. And yes, they are a microcosm of what our DTC business is like. They're adding new categories. They're getting more productivity from the brand across the store and they're seeing in the core categories, they are seeing increased sales in the core categories as well. So really wholesale is like a microcosm of our own retail fleet.

Operator

Your next question comes from Ike Boruchow of Sterne Agee.

Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division

I wanted to focus on the kate spade brand. The margins in the quarter were down a decent amount, but it sounds like that was all planned. Can you maybe parse out the gross margins at kate in the quarter versus the investments that you're making in the brand, and maybe help us think about how those investments will begin to roll off maybe over the next several quarters?

William L. McComb

Well, gosh, I mean, I'm almost speechless because I feel like I said it and then George beat it pretty hard. I mean, in the transcript you're going to hear it, as much as we're going to parse it out. I mean, we're going to leave it at the qualitatives. You'll see the numbers that are on a basis point basis, it was down 500 and some basis points. And George reiterated the guidance for the year that for the year, we expect it to be down a couple hundred basis points. So it -- there was a deeper investment in first quarter, which was timed to all of the components of a Kate Spade Saturday launch with sales only trickling in at the end of quarter in March when we launched. And the 4 factors are the same ones that we've talked about since ICR, which first and foremost, it's the reporting, the dilutive reporting effect of consolidating the Japan JV into the overall business. And then it's the launch of Saturday. And then the other 2 smaller components, much smaller components, but nonetheless, put some drag, are the investments that we're now making SG&A-wise for our Asian business. We're taking over in first quarter next year, our Southeast Asian partner, bringing that business in and the incremental investments as a JV partner in China. That combined with, although a much smaller effect, a continued investment in Jack Spade. So those are the things that in total do it. I characterized this as strategically sound and financially prudent, that how we're doing it. And it is the plan, so there's no surprise here. This is...

George M. Carrara

And 2 additional factors which I mentioned in my remarks were the depreciation of the yen ...

William L. McComb

that's right.

George M. Carrara

In addition to some -- the impact of some timing based upon off-price shipments that we won't see in the second quarter.

Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division

Got you. Yes, yes, I was only asking because I mean, the full year guidance is the same. And it looks like based on that, the margin compression should lessen throughout the year. But the color again, is very helpful.

William L. McComb

Yes, yes. It's always good call it out. I mean, it's why we spend time on it. We know this is not -- it's just not ringing an alarm bell, this is -- we planned our business this way.

George M. Carrara

That's right. That's exactly in line with our plan, so you should all note that.

Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division

Great, great. One more follow-up. Could you maybe give us some more color on the Southeast Asia and China operations today? Maybe how many stores, are they currently sales-based, maybe productivity, as well as plans on expansion once you potentially take it in-house in early 2014?

William L. McComb

Okay. Well, it -- remember the PRC is different and separate from what we call Southeast Asia. We split that back when we divided the PRC out for the business in -- with E.Land in China. x China, we basically said that we're at about 14 stores right now and that will get closer to 20 by the year-end in China. And in Southeast Asia, x China, outside the PRC, there's about roughly 20 stores. And the first quarter of next year is the timing when we take over management of that on our own.

George M. Carrara

It's about a $40 million business. Again, that's x China.

Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division

Okay. And would you look to expand -- when you took Japan on in those 50 stores -- you're expanding a little more this year, by 15 or 20 stores, would you maybe look to do something similar to that business once you take full ownership?

William L. McComb

Absolutely. It's -- I mean, make no mistake. It's strategic territory and it's high growth. And I mean, this brand is just so, so primed into all territories across Asia. And like I said, we see that with the Waikiki and the Hong Kong airport DFS stores. That Asian customer is coming from across the region. So no doubt, those southeastern Asia Pac markets are -- they're important strategic growth opportunities for us, which is why we're putting some resources into it.

George M. Carrara

And the profit occasion is more -- a bit more interesting than Japan, I would ...

William L. McComb

Yes, I would agree. I would agree.

Operator

Your next question comes Corinna Freedman from of Wedbush Securities.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Could you talk a little bit about the growth plans for kate spade? Are you going into new markets or existing markets? Are they going to be mall stores versus street stores? And just any color you can give us there.

William L. McComb

Well, again, I think we covered this a lot at Investor Day, and that was one of the reasons we did it. But just to refresh some of those themes, I'm assuming you're talking about the store expansion plan for the coming year. Yes, a lot of it is -- most of it is -- we have so much white space. I mean, the call out I would give you is despite all of this tremendous growth that we've seen, we have a tiny store base. So it really -- the answer to your question is, we really are going after filling in white space in markets that we know the brand is already now very well developed, where we have seen that we have very high levels of demand not served with the 4-wall market. And our experience is that even when we -- even when there's a market where we have a significant amount of e-commerce business, that all ships rise when you add a store into one of those well developed markets that doesn't have one. The way that, that brand is using stores with its online customer acquisition vehicles, is so synergistic. So yes, it's absolutely about filling out white space. I mean, there's some cases like Chicago where downtown Chicago, there are -- in the downtown area, there are multiple opportunities to add more. So there you could say, "Well, that's not really white space." But in terms of ZIP code geography, it is, just like in New York. And at the end of next week, we open the store on upper Madison. But generally speaking, it's more the cases like Eaton -- Eatontown Center and in Denver that we just opened where we don't have stores there.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Okay. And then if you can quantify the benefit of input costs coming down for the Lucky Brand, and how much that impacted EBITDA there.

William L. McComb

A little, not a lot.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

And then, finally on Juicy, the 10% reduction in prices for apparel, is that where you want it to be or can we expect further reduction in pricing...

William L. McComb

No. I mean, keep in mind it was so -- it was apples to apples. The idea there was because these assortments were -- had a denser concentration of what I'm going to call fashion versus what we'll have in the fall. We'll still have some wonderful fashion but part of the problem was that was taking up too much of the overall pyramid. The AUR will automatically come down as we diversify into Pillar categories, if you will. But even at -- so this was actually about you could call it a price sensitivity test on the high end of the line. And so what we basically discovered, I mean, you'll recall a year ago, the prices were up anywhere -- they were up in the double digits from the low teens to the high 20s. And we put an eye around -- we didn't just peanut butter spread 10%. We did it fixing -- zooming in on and fixing key price points and aligning price points to be right. And we will be able to engineer IMU so that we can achieve the kind of gross margin we want. But we wanted to understand with goods in the pipeline. If we got the price points right, what would happen to sell-throughs? And we were really -- we were very happy with those results. There was a lot less promotion activity on those goods, meaning promotion, meaning consumers seeing the markdown. And the sell-throughs were good. So we learned what we wanted to learn, which is we know where, in some ways, what we've learned in the last year is we've had some great successes on fashion items. This is my analogy that I've said a couple of times, but you can't make a whole meal out of Hollandaise sauce. But let's just say now, we've figured out now how to price the Hollandaise sauce. And we know how much Hollandaise sauce needs to be on the plate. And so now we're going to add in the other parts of the entrée, and we think we'll have a good full meal in the fall.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Okay, great. And just going with that analogy, maybe accessories or the dessert, are you changing the pricing there? Or are you happy with the way that the pricing is in those categories, which is handbags and the other accessories?

William L. McComb

I think that we think we know where the price points need to be. And it's been less a price issue there, but more a fashion and merchandising opportunity. And so I don't think that, that's really a price issue there.

Operator

Your next question comes from Mary Gilbert of Imperial Capital.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

On the Kate Spade Saturday, I wanted to find out how the selling, in terms of categories, et cetera, compares to the U.S. and what you're seeing in Japan in-stores versus online, so if we look at the mix of that business? And then also what the magnitude of revenues are baked into the plan for this year coming from the new brand?

William L. McComb

Yes, it's just what I don't want to do is start doling out sales data at week 6, which is really where we are. It's just every week the conclusions change as the test begins to come in. So it's just too early to give you guys any quantitative insight on that model. We'll do it next time though. Next time, we'll start giving you more color, and as the year goes on, we'll start modeling it out for you a little more. So there -- it remains to be seen, some of those things. Right now, we're more working off of sources of volume and who the customer is and what she comes for and what her click stream in navigation profile looks like, and what percent of the business is coming in on mobile. These are the kinds of things that we're focusing in on right now.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Can you provide us some of that information sort of qualitatively talking about the consumer that you're attracting, what categories are resonating? And again, how the customer in the U.S. is different from the customer in Japan? And then what's the mix of sales that you're currently experiencing in Japan in retail versus online?

William L. McComb

Yes. I don't want to get -- I don't have in front of me. I'm not prepared to give you the daily update, so to speak, on the splits. But what I can tell you is, it's a younger customer and she is as interested in the apparel as the non-apparel items. So apparel is -- seems to be a real mover and a real differentiator for the opportunity. And there's some -- what I know off the top of my head, Mary, are like what the bestsellers are and there are bestsellers in all the product categories. And it -- she likes color, and -- but bottom line, the key difference is that, she is younger and it's a new customer for us. Those will be the 2 callouts. And by the way, I know that there are some subtle differences between Japan and here, but nothing that I would call out as major right now.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Okay. And then with regard to Juicy Sport, can you give us a little more detail on what you're planning for that? Because that sounds very interesting. It sounds like it's LuLu-esque and...

William L. McComb

Yes. Well, it has -- as I said, it will be Juicy's interpretation and it will have a unique Juicy twist. But yes that's an important announcement. And I'm sure Paul will have the opportunity to talk about that more likely with women's wear as an example, and even his plans for intimate as well, soon. And so we'll shed some light on those opportunities. It's the Spring 2014 launch. It's a lifestyle collection. So it's anchored in the active wear component, but there's an important part that our licensees want to plug into. So it's sort of like there was Juicy and then there was LuLu. And now we think there's an opportunity to pong [ph] back because that -- we think that, that woman is looking for something new, a different twist on the look, something a little flirtier and something a little less functional, but with some functional properties. So I think it'll be -- I think you'll be very interested in seeing what he's doing there. I included this in the earnings call. But the next step is to actually show you logos and items when we get a little closer.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Okay. And then also with regard to the magnitude of the shipment, timing with Lucky, what was that amount in Q1 that will be impacting Q2 and the benefit that was incorporated in EBITDA in Q1?

George M. Carrara

So the way we think about it is, is maybe $7 million or so of sales and a couple of million of EBITDA.

William L. McComb

Yes, just a couple million in EBITDA.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Okay, that's helpful. And then also are on you track by the way, for launching e-com generally speaking in Europe?

William L. McComb

Yes, we are. That's early 2014 but we're right on track.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Early 2014. Okay. I thought that was going to be launched in second half of this year.

William L. McComb

We're -- what we're doing is we're balancing. We have only so many geniuses, technically, that have to touch all of these things. And so our hope still is that for kate spade that we get to the U.K. in the back half of this year. But to get more broadly into Europe, like France and Germany, it will be early 2014.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Okay, perfect. And then on -- one last, sorry. Average borrowings, still $75 million, George?

George M. Carrara

Yes. That's -- a tad higher perhaps.

Operator

Your next question comes from Eric Beder of Brean Capital.

Eric M. Beder - Brean Capital LLC, Research Division

Could you talk a little bit about -- firstly, you mentioned this collaboration with Keds, with kate spade and that's something new, how do you view those kind of pieces? And what do you kind of looking at for that going forward in terms of being able to collaborate with other brands?

William L. McComb

We've been doing this all along. By the way, we do it at Lucky too. And at Lucky, while it seems very stealth and quiet to you, our core customers really see it and some of these partnerships we have like Irving & Fine are -- they have sell-through rates that are like 100% in 2 weeks. It's really amazing. The Keds collaborations, the latest one at kate. And I call that -- what I like about it strategically which is that our customers showing us that we have tremendous potential and permission on the casual side even within the kate spade New York concept. Our customer loves Keds. The 2 brands have a great affinity together, and it could very well turn into something bigger that lasts longer. But Craig spoke, I think very eloquently -- and by the way, so did Mary Beech, eloquently at the March 15 Investor Day about this idea of kate being an emporium for partnerships across categories, across the board, some things that are in and out, some things that maybe hang around longer and maybe some things that are permanent. So the Keds is the latest one, and it was really successful in first quarter.

Eric M. Beder - Brean Capital LLC, Research Division

Yes, I know you done a great job of Lucky with the t-shirts there.

William L. McComb

In terms of Lucky, actually we are seeing more denim move beyond the $99 price point. That's kind of what is known for. How has been the response to that and how should we think about kind of the core price point for Lucky and the ability to expand it out beyond that?

William L. McComb

It's not -- back to Ed's initial question, it's not really our thesis to over time up price denim. What we know we can do and this is not different than kate spade, we want to keep our bread and butter on the table which is that $99 price point and we're going to keep innovation there and that's going to be the heart of the business and at the same time, there is a segment that once more and better and that's superfine. And so we see that we have permission that $129 price point. Strategically though, that's our zone. Strategically, Lucky does not have in its aspiration to end up drifting towards $200. In our top 50 doors, we've done a lot of specials with Lucky Legend and that's really what Lucky Legend is about. It is about premium. And we don't overbuy it and our sell-throughs earned [ph] are really good and if that -- there is that sort of this bespoke customer out there but really, the power alley is right around $99, let's just call it $99 to $129 and that is not changing.

Eric M. Beder - Brean Capital LLC, Research Division

Okay. And finally, in terms of the expansion of the accessories at Lucky, what shelf space is being -- what categories of shelf space is being given up for the expansion of the accessories and handbags at Lucky in the back half.

William L. McComb

I don't know that I can give you analytically shelf space that we've taken back. We've had room for additional fixtures, incremental fixtures that can carry and stock handbags without necessarily displacing inventory. That doesn't mean that, that maybe 2% of this category or 1% of that but bottom line, these guys have been consecutively adding fixture productivity as a part of the thesis to get to the $600 plus. And there's a room on the floor. There is room at the POS. There's room on walls and these guys are phenomenal retailers and they've been innovating with fixtures to do it.

Operator

Your next question comes from Brian McGough of Hedgeye Risk Management.

Brian McGough - Hedgeye Risk Management LLC

So Bill, you just reported your highest revenue growth quarter since the first quarter of 2003. I don't know a whole lot of other brands who are doing that right now. I was hoping that you can tie that to the level of capital spending that you think you're going to need in order to keep that going. I think you got a CapEx going from $83 million up to $115 million, but it's after 2 or 3 years of it being depressed. So I'm just wondering how you get -- just how do you feel about it being at a level of $115 million, how do we know that the real number is not $125 million or $150 million or $90 million? I don't know.

William L. McComb

It's a smart question, it's a really smart question. First of all, that from $83 million or $85 million to $115 million to $120-ish is a step function change. In fact, we stood up and said we now need to feed to beast. We have such a big opportunity for noncomp growth that's strategically right, that's part of the ride of $4 billion plus and we're going to make that spend. We don't -- right now for this year, my visibility of this year and next and that same capital budget, we believe not only delivers the growth that we need, but it delivers the growth and is a spending level that we can operationally implement. I mean, could we spend $200 million? I suppose, I mean, you can look at the multiyear plan we have and you could say "sure", we could spend that but we couldn't operationally do that with the quality that we want and that we're used to and that includes pace of hiring people, and all of those things. So I'm going to tell you that for the near time that $115 million, $120 million is about the right budget but the other thing, Brian, and you're a modern analyst so you'll get this, what's beautiful about kate spade is how digital the business is and how global the business is. So there are huge pockets of growth that are in our plan to over $4 billion that don't require capital spending. And that is the continued high comp and growth pace of the digital business and our partner businesses around the world that in some markets don't require even a share of capital spending from us. And that's a big part of the growth thesis so that's the other thing that you don't just look monolithically at the capital level to assess the size of the growth engine.

George M. Carrara

And our new ABL, of course, helps out on that. That's one of the driving reasons to look at a renewed ABL and we also have some, maybe $20 million to $30 million of availability yet on our high yields to do or look at additionally add on.

Operator

Your next question comes from Jennifer Black of Jennifer Black & Associates.

Jennifer Black

I wondered first if you could talk about the kate spade store visit on Married to Jonas?

William L. McComb

No. That's funny. You are funny. Yes, that happened organically as it often happens in reality TV world, so it's fun. It's all part of showing up in popular culture.

Jennifer Black

Okay. Nothing else that you want to say about it?

William L. McComb

No, nope. I mean, it's always fun to be a cultural icon and a cultural reference point and that's exactly what that was.

Jennifer Black

Okay. Great. And I just wanted to say I really like the way you have the cohesive color palette from one Saturday line to the next. I mean, it all flows and a lot of retailers don't think about that. And I thought, I think it's really well done.

William L. McComb

Thank you. It's absolutely what the brand is.

Jennifer Black

Yes, so I wondered a taste [ph] of the meeting you talked about possibly going into home decor or luggage, active wear and swim. Would you go into little girls?

William L. McComb

Yes, we would. We would and we will, we will. We did on March 15 layout the time and the sequence. We don't want to -- we're chipping away at the big things right now but that is we get requests for it all the time and you can just close your eyes and see it. I mean it's such an important part of the Juicy franchise and this is why Lucky is focusing on it so much as well. There's such a strong reverb back to the adult business. I'm not talking about mass brands. I'm talking about the brands that are in that accessible luxury and luxury corridor.That kids' business can be strategically as important as the nice financials that it can deliver. So it's definitely in the plan.

Jennifer Black

Great. And I just wanted to know about the response to the first campaign for Jack Spade.

William L. McComb

The first one, you mean this year?

Jennifer Black

The one you just did.

William L. McComb

Very good. Very good. Again, that brand remains as an almost under radar, almost too cool for school from a marketing perspective. So that campaign, it preserved that idea but it also shows that there is, the brand does have real marketing response rates. So it's quite good. I think one of the best things happening in terms of the expansion of Jack is, just like with all the brands, an increased online presence and what we find is that's a great way -- a targeted way to find this guy, bring him into the franchise and then turn him on to the world of Jack Spade and the micro markets where we have stores. So it's good. So that's working too and that's important.

Jennifer Black

Great and then lastly, how big of a deal -- I mean, it seems like it's a huge deal, the Weight Watchers that you talked about and Oprah with Lucky Plus.

William L. McComb

It is, it is, it is. First of all, it's the outstanding marketing. And the Ginger Plus line which is not just denim, it's fashion items too, is just a great opportunity. We're doing it with taste. It's part of this whole denim democracy notion that is what Lucky is about and targeted marketing is a great way to quickly scale awareness with that narrow customer base. And our wholesale partners are thrilled that we're doing it. So it's very good. So I'm glad you called that out.

Jennifer Black

Will it be jointly marketed with Weight Watchers?

William L. McComb

Yes, yes. Yes. Through direct mail.

Operator

Your next question comes from Jessica Schoen of Barclays.

Jessica Schoen - Barclays Capital, Research Division

I had a question on the marketing. You've talked about some marketing that you'd plan to launch to support some of the initiatives like Kate Spade Saturday and a few of the new lines at Lucky. I was wondering if there is anything you could quantify about what you expect that marketing investment to cost and how we should balance that with our expectations for some of the cost savings you're expecting over the remainder of the year.

William L. McComb

Well, in general, the brands, as sort of an overall planning value, work on a -- we had said that Kate Spade Saturday, that spend in the first quarter, that marketing related spend was $3 million. That's a very -- and $1 million for Jack. But more broadly as it relates to all the brands, we're working in a 4% to 5% of total net sales spend rate in marketing across the brands. So that, I don't have anything more specific than that. I mean, marketing is what's driving and building all of the businesses truthfully, so it's a very important component.

George M. Carrara

But certainly the full year reflects the launch of Kate Spade Saturday so it's a more sizable amount as it relates to Kate Spade Saturday, so for kate, in the aggregate, it's closer to higher $6, $7.

Jessica Schoen - Barclays Capital, Research Division

Okay, great. And then also, I was wondering that if on the Internet, I know that your e-commerce results are included in your comps and I was wondering if there's any color you could give us or any insights about how that customer differs between each brand and how our trends are going online.

William L. McComb

Yes, well, it's so -- I mean, we do that for a very important reason. In order to be a successful omni-channel retailer, all of your systems have to align so we can't think of the e-commerce shopper as a channel specific shopper. The phenomenon that we are seeing on our businesses is, that our best shoppers, our best customers are omni-channel. And so we don't -- it's really destructive as opposed to constructive to think about, this is a full price shopper -- outlet is different. That we said, there is a full price shopper and then there's the value channel shopper. So the value channel shopper shows up at our flash site -- sales site that we do or that partners do, as well as at outlet stores. Our full price customer moves between our e-com site and our full price stores. So that, we think about it more between those 2 alleys than the actual walls of 4-wall store versus e-commerce. And so that's the bigger insight that I would give you.

Operator

We have time for one more question. Your final question comes from Carla Casella of JPMorgan.

Carla Casella - JP Morgan Chase & Co, Research Division

Just one quick housekeeping. You mentioned that your capital spending, it's a little bit higher because of the event -- I guess, the initiative that you got going on with the distribution but where would you call maintenance CapEx?

William L. McComb

Well, the major driver of the incremental CapEx this year versus last is our investment in growth oriented retail so it goes back to the question that Brian McGough asked a few minutes ago about the tremendous top line growth that we have. We would say maintenance is anywhere between $15 million and $20 million. Right, George?

George M. Carrara

Yes.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And then you've addressed the ABL, lowered the cost there. Any thought on when you can address the really expensive high-yield bonds, the 10.5?

William L. McComb

Well, there are definitely thoughts about it but I don't think we want to talk about it right here and now, but let's stay tuned to later in the year and we may put more color on that. Suffice to say, we have our eyes on that.

Okay. Thanks, everybody. Thank you very much for dialing in. Appreciate it and look forward to getting back to you in August.

Operator

Thank you. This concludes your conference. You may now disconnect.

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