Perry Ellis International's (PERY) CEO George Feldenkreis on Q4 2016 Results - Earnings Call Transcript

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Perry Ellis International Incorporated (NASDAQ:PERY) Q4 2016 Earnings Conference Call April 12, 2016 9:00 AM ET

Executives

George Feldenkreis - Chairman and CEO

Oscar Feldenkreis - Vice Chairman, President and COO

Anita Britt - CFO

Analysts

Eric Beder - Wunderlich Securities

Ronald Bookbinder - Bookbinder & Associates

Raghav Nayar - Sidoti & Company

Operator

Good morning, ladies and gentlemen, and welcome to Perry Ellis International’s Fiscal Year 2016 Fourth Quarter and Year-End Earnings Results Conference Call. Today’s conference is being recorded. Before we begin, I would like to remind you that some of the comments made on the call, either as part of the prepared remarks or in response to your questions may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information is subject to risks and uncertainties as described in the press release and in documents that we have filed with the SEC.

Joining us today for this 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 call over to Mr. George Feldenkreis. Please go ahead, sir.

George Feldenkreis

Good morning. We’re happy to report on a very good year for Perry Ellis, despite the extraordinary challenges in the consumer business, we were able to increase organic sales compared to last year by about 4%. We ended the year with 900 million in revenues, which is approximately 1% over the last year but after deducting sales of C&C California and other exited brands as well as the impact of the devaluation of foreign currencies in some of the areas we trade overseas, our organic growth in constant currency basis was in excess of 3% compared to prior year.

The initiative that we have implemented not only resolved the demand increase in revenues for the year, but we were also able to increase our gross profit margin 170 basis points to 35.8%. A growth came across our core brand including Perry Ellis a regional segment Nike Swim and Golf brands. Our licensees business as well as our international business continues to grow in constant currency basis. We have developed better, very diversified customer base and we have been able to achieve good result despite the factor some of our retail business partners how experienced a weak year. There is no question that a warm winter climate and the devaluation of foreign currencies, resulted in diminishing spending by tourists that are affected all retail sales areas like New York, Vegas, Orlando, Miami, Southern California and Southern Texas.

We continue to experience the positive results of the restructuring efforts we started a couple of years ago it has served us well and have position us to be a much stronger company in the future. Licensing continues to perform well royalties for the year increased by 9% to $34.7 million. As important, last year we signed 26 new agreements, which bode well for the next few years. Licensing agreement usually carries smaller royalty payments in the first and second year and it increases as the licensees become more mature where the sales, distribution and marketing organization become more knowledgeable and then their sales then increase.

Fiscal year ’16 direct-to-consumer results from our e-commerce sites were positive, traffic increased by 33%. Especially strong results came from increased e-commerce inflow and social marketing and programmatic display efforts resulting in new customer direct channel traffic to our site. By traffic growth of 33% and revenue growth of over 20% related e-commerce marketing and technology expenses increased by 12% and 13% respectively, direct traffic to Perry Ellis that come during the recent spring ’16 fashion week runway unveiling more than doubled compared to the same week the previous year. Image subscriber list grew 39% nurturing our most efficient e-commerce market in China.

We continue to make important investment across our digital infrastructure. We just finished building a new 5,000 square feet state of the art photography studio in our Miami headquarters. It will substantially improve our effectiveness in the digital frontier. As digital becomes the key component of brands’ connection with consumer we continue to develop new systems that will improve not only our own e-com sales but our sales to our e-com business partners in brick and mortar like Macy’s.com, uCoz.com etcetera but also to other direct e-com business customers like Amazon, Zappos, ASOS, Zalando etcetera. We’re extremely proud of the progress we continue to make towards achieving our near and long term objectives. Our optimism is evidenced by the strength and future of our brands.

Our international business grew 9% during the year and today it represents 30% of our company's total business. This is in spite of the devaluation of the British pound, the Euro and the Mexican peso. We have stabilized our pricing to reflect the necessary increases to compensate for the devaluation of the currencies and we are happy to report that our current sales are continued to show an upward trend despite the price increases to customers. In Europe, we're now distributing five brands Original Penguin, Prada, Scala White Gold, Ben Hogan and Nike Swim.

First of all I must mention that we're extremely proud and we congratulate our Danny Willett's achievement at the Masters last Sunday, an amazing feat of courage and perseverance. We are proud that not only did he use the best golf equipment in the world but he was also wearing our shirts and pants. First report on Nike Swim retail sales in our new area of business which are the UK, Spain and Latin America have shown very promising results. We are sure that this will help tremendously the growth of our company. Having our European organization able to approach retailers with five strong brands gives us a great opportunity to substantially increase our presence and our strength with many retailers in Europe.

Ben Hogan continues to penetrate a large segment of the market not only the USA but in the UK and Canada. We have focused on strengthening our software to make it state of the art in the area of analytics, inventory control and production, assortment and item planning and process execution. We had experienced an ongoing improvement in our in store production markdowns and overall margin percentage. As a consequence of our lean inventory policy we were able to maintain our pricing and did not have to do heavy promotions for the brands at the end of last year. This will also lead to increased conversion within our own stores, strengthening the profitability of our direct to consumer division is a major goal of the company and a major focus of our activities in the months and years ahead.

On our retail direct to consumer full price and outlook business, we did not have a good year especially the last two quarters. The strength of the dollar reduced the amount of storage coming through the United States and impacted our revenues. We feel that things will return back to normal around the summer. And the second half of the year will be much better for our retail business than the first half of this current year. In today's business consumer get whatever merchandize they wish, wherever they are we deliver it, whatever the preference is. More than ever the customer is king as important as all our efforts are geared to achieve that goal. Of course we have to make sure that it’s compared with the consumer is an experience that is satisfactory and appreciated by the consumer will make each one willing to come back.

Our core brand Perry Ellis Original Penguin, Nike Swim and Golf brands have continued to grow and we have great expectations for this year. At constant focus in making better products at reasonable prices is surely resolved by lower markdowns and improved sales and placement in the stores. Thus, we feel that we are in the right track and we continue building our company. Financially we have the strongest balance sheet we ever have and we are committed to make it stronger. Per price, quality, innovation, great design at a given for any successful apparel company. Without them we cannot stay in business, but important differentiator going forward are management and technology. Companies with management that have not shown its ability to adjust to the new realities and take the necessary steps to prepare for the future, we will not be able to succeed in this new environment. We’re proud that we’ve taken that drought early on and we continue to be headed in the right direction.

I want to thank everyone at Perry Ellis for their strong effort and also all Perry’s stockholders. Oscar?

Oscar Feldenkreis

Thank you George, good morning everyone. Fiscal 2016 results reflect revenue growth and most importantly significant gross and operating margin expansion and profitability. I’m pleased to report the progress made across our Company’s key initiatives. First our core branded business grew organically at a healthy rate of 4% excluding revenues from exited brands and foreign exchange impact. Second, we continue to expand gross margin as we focus on higher margin branded international license sales while continuing to reduce and exit lower margin private label and special market sales. We finished the year with healthy inventory positing, entering spring with less carryover across all of our divisions. This enables us to continue driving solid gross margin expansions.

Third, we depend on our international presence through the 2016 launch, a Perry Ellis America in Europe, Ben Hogan in the United Kingdom and Nike in Latin America and Europe. Our brands are resonating well outside the U.S. giving us a larger foot prints to drive revenues and profitability going forward. Finally, we continue to invest in product innovation to drive newness and excitement into the marketplace. We’re building even a stronger relationship with our core consumers. We’re strengthening our operational capabilities and delivering appropriate financial performance, while positioning Perry Ellis international for sustainable growth over the long term. With that overview I would like to take you through the individual business performance.

Starting with Perry Ellis, the brand concluded fiscal 2016 with both increases in sales and profitability. In the fourth quarter the Perry Ellis brand achieved growth at retail for the holiday season driven by key sportswear category and less relying on the seasonal product category such as sweaters and outerwear. This strategy served us well as we started the spring ’16 season with less clearance. Our Travel Locks product which incorporates iron free stretch fabrics and washable wool components continue to be quite successful. The performance properties backed by powerful marketing campaign as well as compelling point of sales visually across e-retail stores has made this key a retail driver for the brand.

Perry Ellis 360, our active component launched in December at Dillard’s. Their performance has been strong and we continue to see the male consumer’s interest in that leisure product as we see this trend continuing as the importance of comfort becomes the new norm in the men’s fashion world. Investments made across our shopping shop continues to drive performance, our new Herald Square shop ended the fall season with strong and it increased the sales plans and we’ve started off the spring season with double digit increases to last years. Twenty three shops included at Herald Square added in 2015 plus 40 planned for this year.

Spring has started up strongly and we entered the season with significantly less carryover. Weather has boded well for Perry Ellis spring collection led by linen as a key component to the collection. We recently concluded holiday season market and the reaction to the line was one of the strongest I’ve seen in years since retailers remain cautious with inventory buildups. We’re vigilant on our buys and looking to optimize e-commerce opportunities as well as merchandising assortment by climate zone as we continue to see a pattern a weather pattern of inconsistence. We’ll continue to follow our strategy of reducing seasonal categories, such as sweaters and outerwears and shifting into more proven categories, wear now items such as well done suitings and layering mix.

Finally we’re excited for the official launch of the Perry Ellis America in Europe. Product shift at the end of the fourth quarter and early weeks have been encouraging, as we launched with House of Fraser in London, Galeries Lafayette in France and COIN in Milan which will have full shops. We’ll continue to refine the assortment based on the performance as we move through the next season. I’m also pleased with the Perry Ellis licensing business which grew 10% for the quarter and 9% for the year. The strength of our license product categories across all aspects of our customers’ lifestyles speaks to the power of the Perry Ellis brand worldwide.

Moving on to Original Penguin, in the U.S. total retail sales for our key retail partners grew 10% relative to last year. Our strength at retail along with the close partnership with key retail accounts has led to our expanded presence. During the fourth quarter we rolled out additional shops, five at Hudson Bay in Canada. And we saw expansions in Stocks and Bloomingdale's who began to carry our full range of Original Penguin product from Stripley’s swimming Ts last year. Blue Label has also hit stock and we are rolling out another exclusive capsule with Bloomingdale as we strive to bring newness to the consumer. Finally, licensing income for Original Penguin grew over 23% for the fourth quarter, and 25% for the year. Additionally, the total year included 16 new deals for the Original Penguin brand, which will build further the momentum and licensing income in the future.

Moving on to Golf, congratulations to Danny Willett a Callaway Golf Ambassador for winning the masters, in contrast to the overall challenged market, Golf revenues grew 4% in the fourth quarter and concluded fiscal year up 5%. A notable success in the fourth quarter was the double-digit growth achieved across our key two retailers Grand Slam at Colts and Ben Hogan at Walmart due to the seasonal warm weather, the fall holiday season, Golf was a star performance at retail throughout the 2015 year and the momentum have continued into spring 2016. Golf apparel is active and at leisure on the course as well as off the course dressings. It's all about the comfort and the performance.

Callaway Europe grew over 30% and we have been seeing a solid growth across all distribution markets in Europe as we continue to focus on expanding the Callaway outside of the pure green grass distribution across the continent. Looking ahead as we move into the prime golf season, weather is very favorable for our golf business relative to last year. In a sense, the Golf season has started earlier with business tracking ahead of the department stores average across all brands.

Turning to the women's, Rafaella's Q4 retail sales grew double digits, plus 18%. We were specifically pleased with the brand’s performance given that the overall women's sportswear zone struggled in the fourth quarter. Furthermore, Rafaella’s sales grew over 30% in Q4, driven by both big key holiday items that were great key items at great value. Sales were robust across department stores, specialty, and E-commerce. As we have mentioned, we have been busy expanding the brand shopping shops presence, which currently stands at 187 shops as a result of the shopping shop’s increased sales productivity, we plan to install an additional 160 shops in the second half of this year across key department stores. Finally, we recently completed a very strong fall market accounts we’re excited about the Rafaella key initiatives including comfort denim, easy jackets, and dresses, categories, which carry a higher retail prices.

Turning to Laundry, the Laundry brand consistently turned faster than the average of many of our retail partners dress zones. E-commerce continues to be Laundry’s fastest turning channel in both day and evening dressed zones. We are working closely with retail partners to support the initiatives across this channel. We’re seeing a shift in the consumer behavior, less purchasing, moving more and more online versus brick-and-mortar. As we look at the landscape, we believe that there is space is wide open for us to gain market share. As we move into spring 2016, we will showcase day dresses with more competitive price points to better align with how our consumer is shopping.

Moving on to Nike Swim, net sales grew over 20% in the fourth quarter and the momentum has continued throughout the first quarter of this year, as we experienced a warmer fall holiday season. Performance has been strong across all key distribution channels. With the strong spring ’16 season across all genders and accessories, we are very encouraged. We are also made progress on the international front in Nike Swim with 15% of the fourth quarter sales generated from Canada and Mexico. Nike Swim’s geographic diversification will continue to expand our global contract expansions with Nike becomes effective this June across Europe, Central America and South America. We have made investments in people and processes to ensure that the platform supports future growth of the Nike Swim business.

During the fourth quarter, we delivered small test orders to key retailers across the expanded territories such as ASOS, and Next in UK, Estilonet in Spain, Sports-Line in Central America. The response from the retailers across our pending market entry has been extremely strong, and we have in place dedicated and extremist executives to manage the strong appetite for the brand. Overall, the domestic and global future of the Nike Swim business is very promising and we are excited to be part of this great brand.

In closing, we expect the global retail environment to remain challenging in fiscal 2017, especially in the first half. As retailers’ focus on inventory churns the strength of product will become even more important. Nonetheless, we believe and are optimistic that the strength of our brand and the disciplined execution of our strategy will enable us to further drive sales, margin and profit for this year. We have a strong business model and a passionate team that is focused on maximizing the power of our brands with innovative products, strong retail partners and a heightened focus on inventory management. As I have said repeatedly, product is king that is our focal point at Perry Ellis International. Our products’ strength and discipline sets us up well to win at retail and e-commerce and deliver our guidance which we expect to result in increased value for our shareholders.

As we all are acutely aware of the growing importance of the digital e-commence we have made the infrastructure investments to aggressively pursue this distribution channel. George spoke about our new photo studio. We have also brought on a CMO, Lisa Kauffman, who hails from the consumer with great experience in digital. As direct and third party e-commerce represents 7% of total sales this year we see this climbing of 15% over the next three years, also important our expansions in social media across our core brands continue to expand two and a third folds across all our follower base. We are positioned as leaders in the space and I am extremely proud of the work our team is doing and I am excited about what lies ahead.

I will turn the call over to Anita for the financials.

Anita Britt

Right thank you, Oscar, good morning all, as you know we reported adjusted net earnings per share of $0.35 on revenues of 214 million for the fourth quarter. Our results for the full year were $1.81 on revenues of 900 million. And as you know this performance was in line with our previous announcements. Before I move into the detail, I wanted to highlight some items that I thought were important and impacted our quarter and year and I think it's important to reiterate towards just Oscar spoke to them, but I think they're very critical.

First foreign exchange rates impacted our overall revenues negatively by 1% for both the quarter and the year. We estimate that foreign exchange had a negative impact on earnings per share of $0.04 for the fourth quarter and $0.09 for the year. Second, exit businesses impacted both the quarter and the year for the quarter there was an $8 million headwind and for the year it was 20.5 million. The exits included the sale of C&C California during the fourth quarter as well as the migration of non-core brands to national or licensed brands. Adjusting our revenues for these items we still were able to realize an increase in revenues for the year.

More importantly, we were pleased with the quality of the revenues which was evident in our very strong growth margins for the quarter and the year and those were record gross margins for the Perry Ellis. By segment, revenue in our men's sportswear and swim segment totaled 641 million as compared to 635 million in the prior year. We realized increases in Perry Ellis, Original Penguin and Golf apparel and these were slightly offset by reductions in our non-core brands and private brands which are being converted to national global brands or licensed brands. These exits totaled 10 million for the year in addition our negative foreign currency impact for the year created an additional headwind for this segment. Excluding these factors the segment grew by 4% for the year.

Moving onto the women's sportswear segment, this totaled 120 million as compared to 131 million in prior year, increases in Laundry and Rafaella sportswear were offset by exits of 10 million reflecting the sale of C&C California as well as private brand exits. Excluding these exits this segment grew by 5% for the year. Direct to consumer totaled 97 million as compared to 92 million prior year comparable store sales rose 3.4% for the quarter and 3.7% for the year driven by solid growth in e-commerce as well as increases in our outlets location. While traffic was down for the quarter we did increase conversion rates in our Perry outlet stores which helped to drive the positive comp.

Licensing revenues totaled 34.7 million, an increase of 9% for the year, growth was driven by both new licenses signed over the last 18 months as well as healthy increases across our existing core brand licenses, most notably Perry Ellis and Original Penguin, which Oscar spoke to those increases further validating that our brands are resonating strongly across these lifestyles.

Moving on to our total company results, we continue to make solid progress on our initiatives to grow gross margins, reduce SG&A and manage our inventory. Beginning with gross margins, we continue to benefit from our focus and emphasis on higher margin channels and geographies. This strategy drove 290 basis point increase gross margins, the 37.2% for the quarter. For the year we saw 470 basis point expansions of 35.8%, expansions for the quarter was driven by stronger product margins and reduced markdowns in our men’s collection and Golf apparel businesses. In addition, favorable mix of international and direct-to-consumer also benefited this margin expansion.

For the full year major expansion across our domestic product margins coupled with reduced markdowns along with favorable mix driven by licensing and direct-to-consumer aided the annual margins. Our domestic margins were also aided by favorable freight costs driven by our logistics group. Finally, we saw positive increases in product margins driven by merchandising as well as material consolidations across many of our core fabrications.

Turning to adjusted SG&A, this totaled 66.9 million for the quarter and 266.9 million for the year. This compared to 66.3% and 263.9% in prior year’s four and full year. Non-recurring costs totaled 6.2 million for the quarter comprised of 1.8 million associated with a warehouse exit and legal costs as well as 4.4 million related to pension termination costs associated with lump sum payouts as we finalize the termination of our defined benefit plan targeted to be completed before the end of fiscal 2017.

We also realized 26.6 million in costs that included 2.4 million in leasehold write-downs for stores, which we plan to exit over the next 18 months. A $6 million write-down and put well largely attributable to private label business we exited in our Women’s Sportswear segment and finally an $18 million write-down associated with specific brands that are considered non-core and our gained transitions. Our overall expense structure for the year grew by 1% over prior year very good expense control reflecting bonus accruals based on performance for the company, as well as investment in expanding our international platforms. We were able to offset increases across the businesses with tighter controls over discretionary spends, as well as our exit businesses. For the year and for the quarter, we were able to realize 7.8 million and 1.6 million respectively in cost savings and cost of goods as well as SG&A as a result to the initiatives implemented during fiscal ’15 and expanded during fiscal ’16.

Now turning to the balance sheet, as George mentioned, our balance sheet is in terrific condition. Our net debt position totaled 92 million at year-end reflecting a net debt total capitalization of 24%, a very comfortable level as compared to 27% in prior year. Our interest coverage expanded to six times and our debt-to-adjusted EBITDA was 1.7 times very nice improvements over prior year as well. Inventories totaled 183 at the end of the year as compared to 184 in the prior year, our composition is very clean and current and our churns accelerated to just under four times and I’d like to point out that we have one of the fastest churn rates within our peer group in the industry.

Turning to our outlook and guidance for fiscal ’17, as we look at fiscal ’17, we’re anticipating that foreign currency will again impact our top-line. We don’t think, it will be quite as impactful as the full 1% in fiscal ’16 or just under that. We also estimate the final exits from C&C, which remains from the first quarter of last year as well as other exited brands we spoke to will impact our top-line growth for the year by 2% of revenues. Exited brands we believe will impact us most heavily in Q1 about 50% of that and to a lesser degree in Q2 and the remainder of the year. With these considerations we see revenues expanding 1% to 2% for the full year, our guidance also includes an expectation that retailers will continue to be cautious and manage inventory very tightly.

As Oscar mentioned, we also see a lot of goods available in the special or off price markets. Our stance is to plan conservatively and purchase inventory to sell up time orders. While this may reduce our ability to sell in season orders, we believe this strategy will position us to drive more profitable revenue growth. This cautious stance is expected to impact revenues by approximately 1% for the year, mostly in Q1 as well as Q2 as we anniversary our prior year positions of reducing those in second half of last year. Again, we embrace this view and are focused on driving our profitability.

We see initial gross margins expanding to a range of 36.1% to 36.2%. We do believe that there is incremental product margin opportunity beginning towards the end of the second quarter driven by softer pricing and raw materials within currency. We think this can assist our overall gross margins on a go-forward basis. Looking at expense spend, we expect revenues to increase in the 1% to 2% range, increase spend and investment in new businesses including Nike expansion in Europe and Latin America coupled by inflationary increases are being trolled through our continued vigilance and focus on reducing spend in other areas. So we expect expenses overall to be about 29.5% of revenues for the full year. This reflects the cost reductions that we’ve outlined and we continue to focus on our cost rationalization program on a go forward basis.

From an interest perspective we expect to approximate about 8 million for the full year and I'd like to point out that this does not reflect further redemptions of any of our senior notes outstanding. Tax rate for the year should be an effective rate of approximately 22% and we see adjusted earnings per share in the range of $1.90 to $1.95. We feel really confident on our business model and we'll be continuing to focusing on margin expansion in our profitable businesses as we move forward. As we completed fiscal '16 we continued to evaluate the return on each of our businesses. We will continue to focus expanding our profit margins as well as driving our return on invested capital. We realized expansions in our returns of close to 400 basis points and we're acutely focused on achieving our long term goal of 10% EBITDA margin. We're confident that our strategic growth and profitability plan will continue to deliver the results necessary to create stakeholder value. We're confident in our ability to achieve the targets that we set forth and drive greater profitability this year and into the future.

With those comments I'll turn the call over to Aaron to open it up for Q&A.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] And we'll go first to Eric Beder with Wunderlich Securities.

Eric Beder

Yes, could you talk a little bit about Perry Ellis as a brand? You've been expanding with Perry Ellis America, the 360 and the travel business. How do you see those kinds of incremental collections adding to the business in terms of both growth opportunities and in terms of potential maybe for higher margins too?

George Feldenkreis

Well we will, we feel that the 360 product which is definitely a big departure from the current sportswear collection that we have that the Perry Ellis brand has been known for, definitely gives us an entree into a different, possibly a different consumer or maybe the same consumer that is able to expand his wardrobe into a at leisure or more active inspired product and all the properties that the 360 product offers. On top of that the expansion overseas not only creates an opportunity for the brand to expand beyond the Americas and Western hemisphere but also expand into Europe and expanding the brand not only from a retail standpoint but also from a licensing opportunity standpoint. Many years ago Perry Ellis America used to have a very strong shoe license in Europe and we had a very successful licensee that delivered a lot of great products and we feel that the brand has a lot of opportunities in Europe as well from a wholesale perspective and as well as from a licensing.

Eric Beder

When you look at the international business -- let's talk about the license business. You've been very aggressive in expanding the license business. Is there some set percentage you would like to see licensing revenue be as total? Or kind of how should we think about the overall growth that you're going to see in the licensing business? It definitely has been a big focus for you guys?

George Feldenkreis

4% to 5% on the licensing side is what we would like to see, but in licensing also you look at franchising, which also plays into that same bucket and there might be territories on the retail side that or distribution channels that we might not want to go into in certain markets and certain continents, so licensing partnership and distribution franchising is definitely a big part of our initiative and we will continue to see that, for example we're not in the -- there could be additional opportunities as we expand the brand in Europe and other parts of the continent and to expand specific licensees that we currently do not or our current licensees in the United States don't go that far. So that creates an additional opportunity. And our Latin America licensees are doing excellent as well on the Perry Ellis side. They continue to open up retail stores, our business in Mexico is sensational, our spring receipts have been extremely important and we continue to see growth in Mexico and even though you had a devaluation issue to go with the Mexican peso our Mexican business continues to be very strong.

Eric Beder

And finally, so the balance sheet is in great shape. What do you think that -- where do acquisitions fit into the world here and where do you see the acquisition model if there is one for you going?

George Feldenkreis

We want to, we will look at -- we still look at today at licensing opportunities and feel that we have developed our business model today we’re 90% of our core business is generated with our core brands and we feel that is there is an opportunity to continue expanding and leveraging our infrastructure by adding additional brands or product category that we’re not specialist in. We’ll definitely look at it and we’ve been active looking at it and we’ll -- we enjoy doing acquisitions.

Eric Beder

Great good luck.

George Feldenkreis

[Multiple Speakers] So and Eric I wanted to add that overall the initially work seems to be in a slowdown on the, I think IMS announced this morning that there is going to be less growth than they forecasted. In reality there is an asset price for American brands in foreign countries because in a way when you look at it that shows a lot of innovation and newness for them. The retailers when they bring in new brands and that’s what they want, that’s what every retailer wants to do. So we’ve the number of brands that are not represented in Europe and in Asia, so in that sense we’ve a tremendous opportunity, besides of the one that we’ve in countries like Canada and Mexico where we’ve established a very strong foothold that will allow us to really going forward, increase substantially our presence.

Operator

We’ll go next to Ronald Bookbinder with Bookbinder & Associates.

Ronald Bookbinder

You talked about the non-core brands that got marked down on the balance sheet and that are being transitioned. Exactly what brands are you talking about? Is it the women's division?

Anita Britt

Yes Ron I’ll take that, the brands that we are moving through and exiting this past year moving into fiscal ’17 our brands that are considered non-course so they are not the brands that we’re focusing on from a global growth prospective, because they are currently after marketplace, I wouldn’t mention them but they are again not considered for global brands that we’ve spoken to.

Ronald Bookbinder

Okay, well would you consider selling the women’s division?

Anita Britt

Well Ron, as we’ve said in the past everything is for sale for a price and with that statement I don’t want to get a hundred calls from investment bankers, if trying to sell the Company or sell pieces. We’re pretty pleased right now with the so called business what we have seen in our men’s, our core brands in our women’s business as well as you know the strength of our licensing businesses when you look at the growth in Perry Original Penguin and some of our license only business, it’s been a really nice diversified strategy. But with that said as a public Company, we’ve to entertain any good offer and look at it and see if it strategically makes sense for the Company and for the shareholders to deliver greater value.

Ronald Bookbinder

Okay, but with the possibility of something being transitioned with the capital that might be raised from that and the strength of your balance sheet currently, would further purchasing of debt be the highest priority over acquisitions? And if you bought back debt when do you think that would happen? Is there any timing on that?

Anita Britt

Yes I mean our number one use of capital as we move forward is exiting it -- executing on our strategic plans, so we’re investing in our core global brands with that said we generated about $2 in free -- in our operating cash flow this year will generate about the same next year with about half of that going to capital expenditures so that certainly gives out available cash to either bring down some of the senior notes, their repurchase or do a combination so have as you know outstanding money by the facility as well. So we certainly consider on all of that and we’re working not only to deleverage but also bringing down our overall interest expense as well.

Operator

We’re going next to Ed Yruma with KeyBanc Capital Markets. Mr. Yruma please check your mute function. Hearing no response we will go next to Jessica Schmidt with KeyBanc Capital Markets. [Technical Difficulty] Ms. Schmidt you’re live.

George Feldenkreis

Why don’t we take another question?

Operator

[Operator Instructions] We’ll go next to Raghav Nayar from Sidoti.

Raghav Nayar

My question is on the Men's Sportswear businesses in the U.S. It sounds like you are making good progress at retail like I guess both sell-through and maintain margin. I was wondering if some of this performance is translating to order growth for those programs that are doing well at retail. Or is the -- are retail partners just overall being cautious with their apparel buys in ’16?

George Feldenkreis

It's both. I think that it's basically driven by product performance and we are seeing increases in the product categories that are performing. As I mentioned, last year, we deemphasized outerwear and sweaters and focus more on wearing, buying our product and it paid off for us as we go into the fall season. Actually, have less clearings available today, and as well as, we’re seeing in the future better returns on the margin by delivering better product and more product that is more fashionable. Because today the consumer is looking for newness, anything that's new out there, anything that’s performance oriented, anything that has a different detail on the garment, is literally exciting to consumer. We’re seeing in prints as a category in both knits and woven, even in bottoms, is doing extremely well and that market continues or that trend continues to surge even more importantly in the spring season than last year.

Operator

And we’ll go next to Jessica Schmidt with KeyBanc Capital Markets.

Unidentified Analyst

This is Matt [Douglas] on for Ed and Jessica. First, how does the inventory in the channel look, have you seen any department stores partners the way receipts? And second, can you talk a bit about Amazon as a channel for distribution? How large is it? And what's the growth you are moving forward? Thank you.

George Feldenkreis

The retailers are planning their receipts more effectively towards when they actually sell the product, and that’s why churn has become a strong and so much of a strong initiative for all retailers. So you’ll probably see a shift in how receipts will flow in the future, more appropriately to ensuring that they are turning that inventory much more quicker and specifically, and Amazon, we see Amazon as a growth customer. Today, it represents, plus or minus, 2% within our core businesses. We continue to look for ways to grow our total e-commerce business and we see them as a strong partner going forward than the lot of time in Seattle.

Unidentified Analyst

And given you’ve eliminated almost all in private label, how big is the remaining business, and how should we think of this business in 2017?

George Feldenkreis

The private label for us, I don’t want to give the perspective that we’re walking away from all private label. We have four or five key private label programs that we’ll continue to focus on across our men’s businesses. So today, it represents roughly around 7% of our overall business. I would say that -- and it will be about that for fiscal '17, that as we’re growing our branded businesses going forward, it will become a smaller case probably wind down closer to 5% overtime, but we certainly still consider some of those larger programs that we do with some of our key retailers very important.

Unidentified Analyst

Thank you.

George Feldenkreis

Aaron I think we’ll -- if there is no more questions, we’ll wrap up.

Operator

At this time, there are no further questions.

George Feldenkreis

Thank you very much to everybody. We had a good year and we look forward to having a stronger year this year. Thank you.

Operator

This does conclude today’s conference. We thank you for your participation. You may now disconnect.

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