Perry Ellis International Management Discusses Q1 2014 Results - Earnings Call Transcript

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 |  About: Perry Ellis International Inc. (PERY)
by: SA Transcripts

Perry Ellis International (NASDAQ:PERY)

Q1 2014 Earnings Call

May 23, 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

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Michael Richardson - Sidoti & Company, LLC

Eric M. Beder - Brean Capital LLC, Research Division

Jared Schramm - Roth Capital Partners, LLC, Research Division

David Weiner - Deutsche Bank AG, Research Division

Operator

Good morning, ladies and gentlemen and welcome to the Perry Ellis' First Quarter and Fiscal 2014 Conference Call.

Before we begin, we'd 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 that are made and 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 documents that we have filed with the SEC.

Joining us today for the call from Perry Ellis are George Feldenkreis, Chairman and Chief Executive Officer; Oscar Feldenkreis, Vice Chairman, President and Chief Operating Officer; and Anita Britt, Chief Financial Officer. I would now like to turn the conference over to George Feldenkreis. Please go ahead, sir.

George Feldenkreis

Good morning, everyone, and thank you for joining us. 2013 result was solid start for us. We delivered results above analyst expectations despite weather condition impacting spring sale in the northeast, as well as from continued economic weakness in United States and in Europe. Last quarter, we managed to grow our Nike performance swim business, Men's accessories, Golf Lifestyle brand and international expansion. While the economic environment, overall, is questionable, we are very encouraged and proud of the results we delivered, proving that for our valued associate, nothing will slow down the positive momentum we have been building.

Although we have completed a successful quarter, we continue to look at the rest of the year with a cautious approach focusing in our core businesses, as well as investing in new opportunities for long-term growth. Some of our previously underperforming businesses are starting to deliver much more substantial results, and improving in our growth profit going from 33% to just under 34%, the consequence of exiting some of our private-label businesses, and instead replacing them into more profitable product lines.

On the sourcing side, we continue to work with our worldwide vendors to increase their efficiency so they can withstand the impact of higher global labor cost. For the immediate future, we don't see any major changes in the cost structure of our products.

As we reflect on the Bangladesh tragedy last month, we would like to mention that only 1.3% of our total purchase orders for the current year have been booked in that country. We don't have any exposure in Bangladesh because of our limited scope of operation in that country, and thanks to our strong internal compliance policies and regulations. Our ability to quickly shift production, if and when necessary, speaks volume about our infrastructure and the flexibility in overcoming industry-wide sourcing challenges.

During the quarter, our international businesses revenue increased by 4% and now represent 7% of our total business. While we had a down quarter in the United Kingdom because of the economic slowdown in that country, our business in Canada and Mexico managed to expand by 43%.

Our royalty income also increased by 5% for the quarter, and as we continue to increase the number of licensees, and each one of them increase respectively in sales. We believe our brands are significantly under-penetrated throughout Europe. And as their economies recover, we're building a strong growth opportunity.

Last week, we opened our first Laundry by Shelli Segal store in one of the best shopping centers in Beijing. And we're in the process of expanding and reviewing strategies to expand and capitalize on our portfolio, both Apparel and Swim businesses, throughout Europe and Latin America.

Our Direct to Consumer business were disappointing last quarter. We had a sales decline of about 7%. This was our first comparable store sale decrease in the last few years since the recovery. We're working aggressively to make up the loss sales and gross profit in product categories and in strengthening our management team. Our Direct to Consumer business represented 6% of our total business in the quarter.

On the other hand, our e-commerce business with brick-and-mortar stores grew by 30%, while business with dot.com sites like Amazon grew by 45%. This segment of our business now represent 4% of total sales. We are extremely focused on creating ways to help retailers, to grow our brand in their sites, including dedicated branding landing pages, micro sites, fewer core advertising and other innovative initiative.

As always, we'll continue to identify opportunities within the wholesale pure e-commerce space, our financial condition to be very strong, as you will hear from Anita Britt. I'd like to mention that our liabilities at the end of this quarter decreased by $38 million or 10% compared to the year-end, which represent a 10% decline of total liability and the best financial ratios we have had in our history. This year, we continue to strengthen our brands. We continue innovating in the quality and design of our products and our marketing and social initiatives to connect with and reach even more consumer. We see opportunities in the second half of this year and next year as we continue to execute in our collection of businesses. We are also encouraged by the fact that some of our underperforming businesses have showed considerably progress in the first quarter, and current booking continue to show positive momentum in the current quarter. But it still remains unclear how discretionary spending for apparel is going to develop in 2013. We continue to invest consistently high key drivers on top and bottom line growth, and these initiatives are certainly starting to pay off. With a strong start, the right strategies and execution, we're looking forward to delivering improved profitability to our stakeholder. At this point, we're very comfortable with the numbers that we have projected in our guidance for this year. With that, I'll turn the call over to Oscar.

Oscar Feldenkreis

Good morning, everyone. We believe that the unwavering focus of our core business enables us to deliver solid results for the first quarter. During the quarter, our priorities focused on the relaunch of our elevated Perry Ellis collection driven by color and a slim fit initiative, continuing our strength in the golf portfolio across our platforms, turning around our women's business most significantly in Rafaella and expanding our international reach. Let me share with you some of the highlights of each beginning with Perry Ellis.

This quarter marked the rollout of the new Perry Ellis product. And we anticipated the elevation of the branded product offering is right on target with retailers and consumers' expectations. We believe that we are well-positioned in the business as we move forward. We're achieving plan results. Inventory levels are in line with our retail sales planned average unit retail sales. Prices have expanded, and our in-store presentations are being enhanced with key customers. Sales with the spring collection products were driven by dressy components including seasonal suitings, pattern wovens and our slim fit initiatives. Business in Canada is very strong as well across our collection, as well as our licensees are experiencing similar success. Perry Ellis bottoms continues to perform above plan, led by innovative performance fabrics and dress pants in classics and slim fits. Our Perry Ellis accessory business in wallets, belts and gift items were very strong. We have also launched a new fragrance, Spirited, and are well-positioned for strong Father's Day sales.

Looking forward, as we move into the second quarter, we will continue to increase our footprints in the Perry Ellis collections business, and expect to see an acceleration in sell-throughs in warm weather product based on the pent up demand from the unseasonal first quarter.

Finally, we have just wrapped up holiday booking seasons, and their reception to the new holiday assortment was positively received. Retailers are happy, and we will continue our emphasis on the dressy direction.

Turning to golf apparel, our momentum is truly exceptional as the business grew over 38% this quarter. Each brand delivered double-digit growth. Sell-throughs have been very strong, and this spring season marked our rollout of ladies golf for many brands. Overall, business for Callaway and PGA TOUR is strong. Our PGA TOUR and Callaway branded Golf business catered to the authentic golf tour and off-course enthusiast. We believe our portfolio of Golf brand reaches a diversified spectrum of golfers. Our Q1 shipments for Callaway and PGA TOUR ladies golf have exceeded plan by over 20%, and our Men's business continues to gain market share as we introduce new innovative products. We have a strong demand for our performance golf collections, and we are well-positioned as we enter the Father's Day season. The story for Callaway and PGA TOUR is just a bright spot on the international front. Sears Canada is off to a solid start with the first-year launch of a full Golf Lifestyle offering of PGA TOUR in all retail locations. In Mexico, both Callaway and PGA TOUR are in the top department stores in Liverpool, over 30 and 50 doors, respectively, for both Men's and ladies product. And we will be adding retail doors, [indiscernible] Martin, which is one of the largest sporting goods chains in Mexico in the second quarter.

In terms of the international growth, we have also just signed a distributor agreement for Colombia, Venezuela, Dominican Republic, Costa Rica for both Callaway and PGA TOUR. With respect to Ben Hogan, the brand continues to over-deliver the plan at Wal-Mart, where we are currently in over 2,100 stores, we expect to deliver additional lightweight outerwear to a thousand stores in the second quarter, and are growing our presence on walmart.com, where they will offer the full Ben Hogan lifestyle collection online. Finally, we continue to build on the Ben Hogan brand, and we will enhance our product offering into the accessories, such as hats and other product categories. Overall, our spring deliveries for golf has proven to be very successful, and we're excited about our future.

Turning to women's, Rafaella has shown a strong margin improvement, and we are very pleased with the direction and execution for Martin. Sell-throughs at retail were very strong in Q1, and overall, exceeded plan. And we are continuing to trend positively as retail sales have accelerated, as weather has become more seasonal. We have enhanced our offerings by expanding our assortment in alternative length bottoms, as well as jackets and knits were key drivers. We are confident with the plans that we have established last year, and we have lots of exciting new initiatives in the very near future.

Turning to Laundry dresses, contemporary business side of women's, we experienced a softness in the channel with most of our retail partners due to the unseasonal cool weather. Despite this, we saw an increase in our overall retail selling of Laundry because the product resonated very well with target consumers. Our licensees for Laundry also continue to perform well and are expanding.

Turning to Original Penguin, wholesale sales at bricks-and-mortar accounts increased over 20%. Our better department store and specialty stores registered a healthy full price selling across sportswear. And in the United Kingdom, we saw increases in key accounts with the product, and are launching Original Penguin for autumn and spring 2013, and additional key accounts including at El Corte Ingles in Spain and John Lewis in the U.K. Our OPG wholesale e-commerce sales in U.K. grew over 25% compared to last year, and our direct to U.K. OPG e-commerce site was over 40%, and is becoming our best-selling store for the region. And we see a big opportunity for e-commerce for our millennium brand.

Wrapping up with Nike, our partnership with Nike Corporation continues to strengthen, and we saw increases across all our distribution channels including sporting goods, team dealers, department stores and better specialty stores. Each channel show increases across all product categories, from performance to missy to boys to accessories. For the team dealers, sales grew over 25% for the quarter, and we doubled our account numbers over the past 2 years. This is driven by our performance product, which is resonating extremely well with a competitive swimmer. Demand for Nike swim accessories is outpacing the department store average. Our demand of the Nike swim products has continued to exceed plan, and we're excited as we go into the swimwear months.

Our conclusion, we continue to feel optimistic about our business. We are confident that we will deliver our plans, and we feel that there will be an acceleration by holiday into spring 2014 as consumers' confidence grows, and their consumer response to strong product offering. I have a strong confidence in our teams that they will continue to deliver superior product and constantly challenge themselves to raise the bar for our future seasons. With that, I'm going to turn over the call to Anita to quantify some of these results.

Anita D. Britt

Thank you, Oscar, and good morning, all. For the first quarter, we realized $262 million in net revenues, which was essentially even with our prior-year result. Looking to the performance by segment of our businesses, Our Men's sportswear and Swim segment recorded revenues of $198 million, which was even with the prior year. Within this segment, as Oscar mentioned, we realized the 38% increase in golf apparel revenues, which benefited from spring shipments of Ben Hogan, as well as expansion of our PGA TOUR and Callaway brands into Mexico and Canada. We still realized a 20% growth across our Golf Lifestyle apparel in our core U.S. distribution.

Within Europe, our U.K. businesses, as George mentioned, performed fairly well with the core brand despite the weather and negative macroeconomic issues. Nike swim experienced solid increases driven by the strength of the brand across all distribution channels. Within our Perry Ellis collection sportswear revenue, they were slightly down for the quarter as planned. And within accessories, our Perry business performed strongly, including a low double-digit increase in both Men's belts, as well as small leather goods. These increases were offset by the planned exit of private-labeled programs within various retailers as planned.

Our women's sportswear segment recorded revenues of $40 million, as compared to $42.4 million in the prior year. Rafaella was even with the prior quarter, while we saw slight decreases in Laundry by Shelli Segal. The decreases were attributable to the colder weather venues of the Northeast and West Coast as we saw more cautious purchases in the dress market. However, we continue to be pleased with the performance of the Laundry brand at retail, as evidenced also by the growing licensing strength that continues to expand.

Moving on to Direct to Consumer, revenue in this segment totaled $17 million for the quarter as compared to $18.3 million for the prior year. This reflected a comparable store sales decline of 7.7% driven by lower traffic patterns. However, this compares to a composite 3-year comp increase of 34% in the first quarter of fiscal 2011 through 2013. So a very strong prior-year comparable.

By region, comps in the Northeast were most impacted by weather, and represent about 17% of our mix. The Western region, which represents roughly 50% of our overall stores, were in line with our overall trends. While the South, at 33% of our mix, were just down slightly. And we have seen an improvement through this month as we're seeing comps slightly down, yet it is important to note that we are comp-ing off a strong 20% in the prior month for 2013.

Our direct e-commerce sales were down 27% for the quarter as we continue to roll out a less promotional strategy across our site. And we will anniversary this strategy by the third quarter of this year.

In terms of store count, we ended the quarter with 64 domestic location and 5 European location. By channel, 22 of these stores were full priced, and 47 were upscale outlet. Across concept, 42 were Perry Ellis, 23 Original Penguin and 4 were other concepts. The overall impact in our Direct to Consumer to our plan reduced net sales for the quarter by approximately $2.5 million or $0.06 in earnings per share for the quarter.

Finally, licensing income registered a 5% increase to $6.8 million for the quarter driven by the strength of our businesses in Original Penguin and Laundry, both of which have added categories over the last year.

Moving on to gross margin for the quarter, we saw a lift of about 80 basis points in gross margin for the quarter. This was slightly below our guidance, driven by the lower contribution from Direct to Consumer than planned that I just spoke to. With that said, we were extremely pleased with the margin expansion. We saw expanded margins in our Rafaella collection sportswear business and a positive trend in our Perry Ellis business as well. Higher contribution from the strong growth in golf apparel also lifted margins, and we continue to see a nice contribution from our international sales, where margins are in excess of 40%.

SG&A for the quarter totaled $70.7 million, and included approximately $2 million for cost associated with the consolidation of our New York offices and expenses related to the sale of our John Henry businesses in Asia. Net of these costs, SG&A totaled $68.7 million as compared to an adjusted expense of $65.5 million in prior year. The increase for the quarter reflects additional investment in brand marketing, e-commerce photography and other infrastructure spend.

Now turning to the balance sheet. Our net debt position totaled $137 million at the end of the quarter, reflecting a net debt to total capitalization of approximately 26.3% as compared to 31% at the end of the first quarter of last year. Receivables totaled $174 million. Even with the prior year, the aging continues to be very strong, and the health of our retailers is solid. Inventories at the end of the quarter were $168 million, essentially even with the prior year, and an 8% decline from year-end of $183 million total inventory.

Turnover improved to 3.9x versus 3.3x in prior year, and this continues to be a key focus for us by business as we look to maximize the use of capital in our businesses and get as tight as possible. We also see very current goods in our overall inventory composition, and our aging is in very solid shape. For the quarter, we utilized $14 million in operating cash flow, as compared to a source of $7 million the prior year. Capital spend for the quarter approximated $7 million, principally driven by the investment in our New York office consolidation.

Turning to our strategic initiatives, just to supplement the business discussion that Oscar and George provided, I'd like to reiterate what we've accomplished during the first quarter and our focus for this year. In terms of the businesses and brands that we've exited, we completed our original target, and we're continuing to assess the portfolio throughout the year. We completed the sale of the John Henry tradename rights for Asia during the quarter, resulting in a pretax gain of $6.3 million or $0.22 in earnings per share. And during the quarter, we made tremendous headway on our New York consolidation, and we will be 75% converted by mid-July with the remainder to be completed by year end.

In terms of our outlook for fiscal '14, we continue to expect total revenues to increase in the range of 3% to 5% versus last year, with the caveat that our retail outlook has been tempered this year based on all the weather and macroeconomic issues that have created headwinds today.

By business, for the year, we see Men's wholesale sportswear and our Swim business revenues are expected in a range of $725 million to $735 million. This reflects Men's wholesale in the range of $565 million to $570 million. We expect Perry Ellis to be relatively even, as we've discussed, and we would expect high single to low double-digit growth in all other businesses driven principally by Golf. Swim revenues are expected to increase in the high single-digit range to $85 million to $90 million, driven by the strength of the Nike brand. International revenues are expected in the range of $72 million to $77 million, reflecting growth in the U.K., as well as Mexico and Canada. And we expect to achieve these revenue targets despite our exit of about $20 million in private-labeled programs, which impacted the first half of this year.

Women's revenues are expected to increase in the low-single digits to a range of $150 million to $160 million, and we have slightly reduced the expectation for dresses for the year given the more challenging opening to the season. Direct to Consumer is expected to increase in low to mid single-digits to a range of $85 million to $90 million, driven by a low-single digit comp and increased revenues from new stores now opened over the past 12 months. And finally, we expect licensing revenue to be up modestly for the full year.

We expect adjusted gross margin to expand by approximately 100 basis points for the year, driven by higher full price selling, lower promotional support in our collection sportswear businesses, higher margin in golf sportswear, as well as the higher contribution from Direct to Consumer. We continue to expect SG&A to increase by 6% to 7% versus prior year, which reflects a 2% reduction from the cost savings implementation that we realized during last fiscal year. We also expect a 4% to 5% increase in salaries and core expenses, additional spend in advertising, as well as the additional rents with our consolidation efforts off in New York.

Overall, we continue to expect earnings per share in the range of $1.50 to $1.60 on an adjusted basis, and this guidance also incorporates the reduced expectation from Direct to Consumer that we've realized to date, as well as the outlook for the remainder of the year.

Looking to Q2, we expect low single-digit revenue increase. This reflects the addition of Ben Hogan and Callaway channels that are new to the company, as well as relatively even collections sportswear business plans for Rafaella and Perry Ellis. We are planning lower levels of replenishment with some of our accounts until we see a resurgence that is in both traffic and from a consumer spending perspective. While we are beginning to see more positive trends also in our retail stores, we are planning our comps flat to slightly down, again coming off a very strong Q2 and prior year where we realized a positive store increase of 12%. We expect gross margins to be up slightly for the quarter. This again is going to be driven by the same components that we discussed in the first quarter, with some impact by the lower level of higher margin replenishment business. We would expect expenses to be consistent with Q1 as well. For the full year, we see depreciation and amortization in a range of $13.5 million to $14 million, interest in a range $14.5 million to $15 million and a tax rate on an adjusted basis of 33.5 to 34.5, driven by the higher domestic business versus the international mix, and with, on an overall GAAP business, 36%, which has a higher impact driven by the sale of our John Henry tradename in Asia. Shares outstanding should range from 15.3 to 15.5, and our guidance also incorporates just a slight impact that we realized in the first quarter from negative foreign exchange in our U.K. business, which is about $0.01 in earnings per share, but again not material to the overall range. We expect our cash flow from operations to generate about $50 million for the year, and we're forecasting capital utilization of about $20 million driven principally by our New York office build-out, new and remodeled store, as well as maintenance-related capital. And we are expecting inventories to remain relatively even with the prior year on a quarterly basis and through the end of the year. And we do think that there's additional opportunity to bring those inventory levels down as we continue to focus on the supply chain. And we're also focused on accelerating our churn throughout fiscal '14. And with that overview of the business, I'm now going to turn the call back to the operator to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to KeyBanc Capital Market's Edward Yruma.

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

I guess, to try to dig in a little bit on DTC, I know you cited weather, I know you cited that, obviously, the Northeast underperformed. But George, I think in your prepared remarks, you also commented on adding more management to that business. I guess, how should we think about the DTC business longer term? And I guess are more resources there needed?

George Feldenkreis

Edward, we had a bad quarter. It was mostly affecting the stores that we have in the Northeast. We have improved the management, we have improved on systems and we feel that the Q3 -- as a matter fact, our sales have recovered to year-ago level at this point. I think we will show better improvement within the -- by the end of this quarter and through Q3 and Q4. We have had also some additional experience retailers to help us on the DTC, which is one of our biggest opportunities.

Anita D. Britt

And just to add on to that, Ed, as well, we do think that it was really weather-driven and economy-driven. When we look at the last 3 years of our history, we have had every quarter has been a positive quarter. So our 3-year comparable history is a positive 30% comp. That's really, really strong. So given all the issues that we've done in the first quarter, as George mentioned, it wasn't where we wanted to be, but it's totally explainable. And we are starting to see a more positive trend now moving into Q2.

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

Got it. And I'm sorry if I missed the number, but I was wondering how we should think about the golf growth for the remainder of the year? I know you guys have had success in kind of winning new doors. And so I guess, kind of what is the organic growth rate of golf versus kind of what's new doors? And how is the sell-through been in some of these new doors that you've put in for spring?

George Feldenkreis

The growth on PGA TOUR continues to grow on the Men's side organically because product positions and continuing to add different performance product categories, plus getting additional floor space from the retail partners and as well as the, as I mentioned on my speech that we also added PGA -- excuse me, not PGA, but the Ladies Golf business, which is a big component of this quarter and going forward. But we're adding a lot of new accounts, and as well as more and more retailers are beginning to see that a lot of the non-synthetic knit business and short business have moved to true golf or authentic branded golf, and that's where we're seeing the increase. And a lot of retailers are investing more and more dollars on making sure that they have this lifestyle in their stores.

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

Great, and the growth rate?

Anita D. Britt

On the growth rate, Ed...

Oscar Feldenkreis

Actually, that will be able to continue sustaining double-digit growth rates on the Men's Golf side this year and next year as well. Some of the previews that we've already had for spring '14 have been very, very positive.

Operator

And next, we'll hear from Ronald Bookbinder with Benchmark.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Some of your retailers have talked about pent-up demand. Are you seeing that pent up demand? And how should we look at that as we go into the summer?

Oscar Feldenkreis

I don't see retailers -- depends on the product category, Ron. And also, I think on our Men's business, we have been, on the golf side, we have been increasing our demand by pulling up some of the outstanding orders to ensure that we are prepared for Father's Day. Since the first quarter was a little bit cool, and golf courses basically did not open up until later than last year, many of the retail stores are beginning to see a lot of momentum with the colors in our Golf business, and they're starting now to push up orders to ensure they have enough product going into Q2, which is probably the beginning of the golf season and probably the strongest piece of the momentum as you go into Q2 and Q3, which are the highlights of the Golf sell-throughs.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

On the Perry line, do you think that if the weather hadn't been a factor that it would've outperformed?

Oscar Feldenkreis

The Perry line continues to perform well. As I mentioned, the dressy piece of our business is still very good, which are -- our suits separates, our dress bottoms, our woven shirts are doing much better than they have been. Our AURs on the actual sport shirt are almost $4 more a unit than they were last year out the door. So you're getting -- the consumer is very happy with us. I think that when we saw a -- we didn't see the same reaction to the casual side of the collection where we injected casual bottoms and shorts. And the shorts really were led to not performing because of the weather, and we did too much color in those casual bottoms, which we have corrected that going into Q2. We're much more dressier. And going into the fall season, we're much more dressier than we were in the first quarter. So I feel very optimistic that we have course-corrected. As you know, when you launch from scratch a new design, a new product, you're always going to have some issues as you continue to perfect, but we turn very quickly, and we're very quick to enable to adjust to what the consumer's voting on the new product. Our slim fit has done extremely, extremely well. Prints on our woven shirts have done excellent for us. And we continue to make that a bigger piece of our momentum as we see a big trend in the printed woven side of the business.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

And property, plant and equipment jumped about 10% in the quarter. Was that strictly related to the New York consolidation? Or what was that extra $5 million of PP&A?

Anita D. Britt

Yes. That would be -- I had called out, Ron, that we've spent about $7 million in the first quarter. That would be the addition principally with New York along with some store fixtures x the depreciation from the existing PP&A.

Operator

Next, we'll hear from Mike Richardson with Sidoti.

Michael Richardson - Sidoti & Company, LLC

I just wanted a follow-up on an earlier question. How many doors is golf currently in, can you remind us that? And of the double-digit growth in Golf that you are expecting over the next couple of years, what percentage of that is organic?

George Feldenkreis

I would say that today, total golf is in, between all brands, is probably an excess of 15,000 doors. And most of the Golf business, I would say, of the double-digit, I would say high single-digits, 8% to 10% will probably be continuing organic. We have very strong planning systems that allow us to ensure that we deliver the right product to the right stores and the replenishment side of the business, which we currently do a lot of VMI programs, where we actually control our own destiny with retailers, is probably the fastest-growing segment of our business. So I see a lot of organic growth, and as well as we continue to open up additional retail doors. Remember that this is the first season, the first quarter that we've actually taken over Callaway green grass, as well as the sporting goods channel. So that's a positive momentum for us, and we see that even a bigger opportunity for us as we go forward.

Michael Richardson - Sidoti & Company, LLC

Okay. And I have just 2 more quick ones, then I'll jump out and give someone else a chance. Just regarding DTC, I guess, what gives you confidence that you can get to a low to mid single-digit comp given the weaker first quarter and tough comps for the balance of the year? And then just for Anita, she mentioned that expenses, I believe, she said they were going to be flat in the second quarter compared to the first quarter. Is that in dollars or in percentage of sales?

Anita D. Britt

Yes. On the expense side, we would expect the dollar spend to be relatively even just based on a pure dollar from an adjusted perspective, Michael.

Oscar Feldenkreis

On the Direct to Consumer, we took several positions on the -- this year. We actually tried to reduce the amount of promotions that we did last year. So that was a cause for the decline, number 1. Number 2, the Northeast area, where we have about 20-plus-percentage of our doors are there, the warm climate product did not perform as expected so early. We weren't selling swimwear, we weren't selling shorts, and a lot of the color that we brought in didn't start selling until basically now. So we see we have a lot more confidence as we go into the second quarter and into the balance of the year based upon as my father just mentioned, we're starting to see a lot of the stores recuperating in the month of May based on the better performance of weather that we're seeing out there today.

Operator

And next, we'll hear from Eric Beder with Brean Capital.

Eric M. Beder - Brean Capital LLC, Research Division

Could you talk a little bit about Perry Ellis America, the rollout for fall, where you are seeing that in terms of demand and how that's going?

Oscar Feldenkreis

Well, we haven't really shipped anything yet, Eric. So right now, it's work in progress. We'll start shipping that in the latter half, I think, beginning of the third quarter. So we really won't have any feedback on that until that time. We continue to show the product to retail partners, but at this present stage, until we start delivering some form of product, we're not going to see any form of feedback in terms of opportunities beyond where we are today.

Eric M. Beder - Brean Capital LLC, Research Division

Okay. And in terms, I'm surprised no one's asked this but I'm going to throw it, all the turmoil up and down at JCPenney, is the new management a positive or negative for you? And how do you see that business? And how is that business been doing?

Oscar Feldenkreis

I think bringing Mike Coleman back was great, and we're seeing -- I hear the business is performing. They're doing much, much better. I hear the business is on fire. Our business with them continues to be strong, both on the Hispanic lifestyle brands, now that we've gone back to a full collection, and our Golf business continues to perform extremely well. They will be rolling out a golf shop coming now as we speak, and I think that their commitment to golf going forward is going to be a positive move for us because we're actually going to be in a golf pad with other retail golf brands that are authentic. And our Nike swim business is on fire. I mean, we're chasing our business currently today. So I feel very positive, and I'll be there next week. So I'll give you more information next week.

Eric M. Beder - Brean Capital LLC, Research Division

Sure. And in terms of Callaway and some of the different venues they've given you in terms of international and department stores and the sporting good stores, what are you seeing there? And does that give you encouragement for some of the organic growth you've been talking about in growth, you've been talking about in golf?

Oscar Feldenkreis

Our -- the green grass business, now that we've taken it over, for us, has performed extremely well, even though a lot of the shipments from first quarter to some of the Northern stores, they haven't been able to reorder because really the golf course has really haven't opened. But we are very excited about the future of now that we'll be able to control all inventories, control the distribution. We feel it's a much better approach for us going forward, and as well as retailers, both from a green grass to all the channels of distribution are much more happier that there is one vision. And we're working very, very closely strategically with the Callaway Corporation, and we feel that the opportunities for us, as a classic brand, which Callaway represents, is very -- it's a great opportunity for us. And now with what we're starting to really get involved more with the sporting goods channel, we currently have a product in Dick's on .com, and as well as in some of their stores, and we're excited about the opportunities in the future there as well, and with other golf off course and sporting goods stores. And I see a lot of organic growth because Callaway now, we made -- we've come up with different product categories. We're much more focused on the bottom side, which represents almost 30% in our business and is a big opportunity for us, and as well as a lot of the key items that now we're able to replenish much better for some of the other channels that we were not servicing before.

Operator

And next, we'll hear from Jared Schramm with Roth Capital Partners.

Jared Schramm - Roth Capital Partners, LLC, Research Division

Looking at Ben Hogan, now that you've had a little more time with the product in Wal-Mart, how would you say it's performing compared to original expectations? And additionally there, as for expanding your presence in Golf Lifestyle, what is the acquisition partnership strategy for the remainder of the year?

Oscar Feldenkreis

I didn't hear the second part.

Jared Schramm - Roth Capital Partners, LLC, Research Division

It's more of expanding your presence in Golf Lifestyle. What's the acquisition partnership strategy for the remainder of fiscal '14?

Oscar Feldenkreis

Well, with Ben Hogan, we're very excited with the partnership with Walmart. Our business is very, very strong. We continue to make plan, and in some cases, exceed plan on a weekly basis. They have committed to the brand, as I mentioned, to 2,100 doors. And we're rolling out outerwear, our fall product into about 1,100 doors. We've also embarked onto .com. We have a golfer, Marc Leishman, which has been playing fantastic this year, who wears the Ben Hogan product on course. So we've authenticated the brand. And we have the commitment from Walmart. As long as the brand continues to perform, which we're excited about, as they're just as excited, it has not impacted any of their business. And there's a lot of excitement in the stores, the way that it's presently being set up. And we feel that there's opportunities, not only on a domestic basis, but we've had meetings with their Canadian Walmart Corporation and they're very excited. And hopefully, in the near future, we'll be able to do else some business with Walmart Canada and in other international areas that Walmart has distribution. In terms of the future, I don't see performance fabrics going away. I still see that more and more as a bigger emphasis in the Golf area and in more traditional sportswear. More and more of the consumers today want easier product that they can wear. And as long as we're able to come up with better innovative product, I can -- I feel that we can continue sustaining organic growth, and as well as just alone with the ladies business, which is probably the fastest-growing segment on the Golf side. There's a tremendous amount of opportunities, and to say, it's an area that and a gender that hasn't been serviced for a long time.

George Feldenkreis

I would like to add to Oscar's comment that in the case of Ben Hogan, this at Walmart, it is the highest quality, best updated design product from the floor on the Men's sportswear side. So it's not only about growth, it's about being able to sell a better product at a higher price at Walmart. They are very committed to the concept from that standpoint. We're also developing with some golf channels, the line of Ben Hogan, other accessories like gloves and balls, et cetera, et cetera. And it's opening also -- saw tremendous possibilities in overseas, where Ben Hogan can become again a very important factor.

Operator

[Operator Instructions] And we'll go -- we have a follow-up question from Ronald Bookbinder.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Is there opportunity out there to acquire more golf brands since you're doing so well in golf, and it's expanding?

George Feldenkreis

Well, it's -- there might opportunity. The reality that we do have commitments with Callaway and PGA, which we are licensees, and we have a relationship with Nike, which also has a golf line of their own. So there are a lot of legal issues if we want to acquire new brands. So at this point, we are really more focused on building what we have, where we have tremendous opportunities. And we feel that PGA still has some way to go. Just we announced that we signed international. So we're developing the PGA international business. And we have a fairly big business with Kohl's on Grand Slam. And so in Callaway, we still have a lot of opportunities to grow, and as well as Ben Hogan.

Jared Schramm - Roth Capital Partners, LLC, Research Division

And on golf moving to the sporting goods stores, what brand does Dick's currently carry as golf apparel? And how long would it take you to make some inroads into that?

Oscar Feldenkreis

In where?

George Feldenkreis

In golf apparel, Dick's.

Oscar Feldenkreis

Well, we are making inroads right now. We're selling them in a limited basis. We've had favorable meetings with them, and we feel that, that could be a good opportunity as -- the great thing about Callaway right now is that their new hardgoods, their equipment is very, very strong. They're getting a lot of attention. So of course, it doesn't have 100% relationship one with the other, but it's great that there is a lot of excitement going on in the actual true on course and off course retailers, and with the consumers. So there's a lot more momentum on with the brand and they're spending a lot of money on marketing, as you know, when you see the tournaments on the weekends. So we're very excited about being partners with them, and we feel that short-term and long-term, there could -- that just that momentum will spill into the apparel side.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

And switching back over to Perry, it sounds like Perry is moving to more dressy from casual. And so when looking at Perry Ellis America, does that change sort of your approach to that? Or how are you looking at reconciling?

Oscar Feldenkreis

Perry was always dressy. Well, we decided this year was to add a casual component to the actual collection as a piece of the assortment, which is about 30% to 25%. That piece of the business did just okay. So what we're doing is just course-correcting, which is much easier, because when you go into the fall season, you don't do that much casual wear. So we'll be much more dressier. We're going to stay focused more with the DNA of the brand, which is much more on the dressier side, suitings and dressier wovens to go with suits and dress pants and sweaters, et cetera. When we talk about Perry America, what we're looking at is really a denim Lifestyle. So it's really, it's casual, but it doesn't have the same effect sitting with when you talk about specifically casual because men are wearing today jeans with their sport coats as a dressy component so that's what we're looking at the opportunity. Perry always had a denim business as part of a collection. We're just making it a larger piece of the collection.

Operator

And next, we'll take your question from David Weiner with Deutsche Bank.

David Weiner - Deutsche Bank AG, Research Division

So I had 2 questions. Just the first one, just a quick follow-up to a prior one, regarding your wholesale business, I guess, what are you seeing in terms of inventory levels with some of your key accounts? It kind of feels to me that we're still in a very rational place, but maybe inventories are creeping up a little bit because of the seasonal component. But if you could just speak to that? And then also, you talked a little bit about Europe. Could you just maybe give a little color on what you're seeing from the consumer there? I appreciate it.

Oscar Feldenkreis

Our inventories at retail are very controlled. We do not have any inventories. As a matter of fact, we are at plan, or in some case, we're down the plan. Remember that a big percentage of our business is done on replenishment, which you don't sell, you don't replenish. And as well as with the inventory across all of our brands are very well managed because if not, we would have higher markdowns, and our AURs would actually be coming down, which is the reverse of what we are today. In terms of the consumer in Europe, I was in Europe visiting our customers, which is predominantly the U.K. So let me clarify that. Most of them did have a -- the weather in the first quarter was very, very cold. It was unseasonable for them, and they are doing well in certain areas. And other areas of the U.K., business is a little bit more challenging, but we're redirecting our efforts to ensure that it's -- we're in the right doors. But definitely, there is a consumer, is a little bit more cautious than they have been in the past. But I will include House of Fraser and Debenhams and Selfridges, all of them.

David Weiner - Deutsche Bank AG, Research Division

That's helpful. And then just on my first question, on the wholesale inventories, I guess, besides your own account, beside your own products, do you have a sense of how the key retailers are feeling with inventory right now? Do you think they're still in a rational place?

Oscar Feldenkreis

I think in general, most retailers have been controlling their inventories well and they were actually -- Men's business, in general, continues to outperform the total store. When you look at, when you speak to retailers, their Men's business continues to do extremely well, and in many of the cases, it's really the highlight of the store. What's changed with the whole evolution of fit and color and so many new initiatives that it's still an area that they're seeing a lot more growth than the entire store, as well as the home stores continue to do well within some other stores. So I would say overall, most retailers are in pretty decent shape. And I don't see anyone overly concerned on the Men's side from what I'm seeing. On the women's side, we're only 15% of our total businesses is the ladies business. But on the direct side, we were cautious going in, and we adjusted some of our on order. Their dress business has been okay, but the dress business online is actually doing better than brick-and-mortar. But you have to be very careful when we talk about inventory in total sales, you have to bring in total sales including looking at it as an Omni versus looking at brick-and-mortar.

Operator

And we have a follow-up question from Eric Beder.

Eric M. Beder - Brean Capital LLC, Research Division

Just a quick question for Anita. The tax rate you mentioned, 33.5% to 34%, does that include -- is that the GAAP tax rate or is that -- what would you use as a tax rate going forward right after Q1?

Anita D. Britt

Yes. The projected full effective tax rate under GAAP would be a 36%. The adjusted tax rate x John Henry would be the 33.5% to 34%, and I can follow up with you on that offline as well. Okay, great. Sara, I think we're good to wrap up.

Operator

Certainly. No further questions at this time. Mr. Feldenkreis, I'll turn things back over to you.

George Feldenkreis

Well, thank very much, everybody, and we had a good quarter, and we expect a good year, and thank you for your support. Bye.

Operator

Ladies and gentlemen, that does conclude today's conference. Thank you for joining.

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