Perry Ellis International's (PERY) CEO Oscar Feldenkreis on Q1 2017 Results - Earnings Call Transcript

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Perry Ellis International Incorporated (NASDAQ:PERY) Q1 2017 Earnings Conference Call May 19, 2016 9:00 AM ET

Executives

George Feldenkreis - Executive Chairman

Oscar Feldenkreis - President, CEO

Anita Britt - CFO

Analysts

Eric Beder - Wunderlich Securities

Ronald Bookbinder - Coker Palmer

Ed Yruma - KeyBanc Capital Markets

Dave Weiner - Deutsche Bank

Operator

Good morning, ladies and gentlemen, and welcome to Perry Ellis International's Fiscal Year 2017 First Quarter Earnings Results Conference Call. As a reminder 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, Executive Chairman of the Board, Oscar Feldenkreis, Chief Executive Officer and President and Anita Britt, Chief Financial Officer.

I would now like to turn the call over to George Feldenkreis. Please go ahead, sir.

George Feldenkreis

Thank you, good morning and thank you for joining us today. Despite the extraordinary challenges in the apparel business, we are happy to report on a good quarter for Perry Ellis. We were able to increase our operating income by 31.6% compared to last year as well as increased our adjusted earnings per share to $1.01 for the quarter.

Revenues were $261 million versus $266 million last year, a slight decrease compared to last year because of the exiting of C&C California and other small brands as well as the impact of the devaluation of foreign currencies in our international overseas sales, but our organic growth in constant currency basis were slightly ahead of last year.

This quarter was one of the most profitable quarters we ever had. We were also able to increase our gross profit margin by over 180 basis points to 36.72% on an adjusted EBITDA margin of 10%. Our main core brand including Perry Ellis Original Penguin, Nike Swim, and golf brands performed very well. We have developed a better variety of diversified product line and especially a diversified customer base. We have been able to achieve good results despite the fact that some of our retail business partners have experienced a weak quarter.

Our licensing business had a great quarter with the royalty income increase to 28% from $8.2 million to $10.4 million. Some large retailers have mentioned the weakness in center core product, one good product involving -- including outerwear, watches and other categories.

I would like to call your attention, the fact that 85% of our business is men's product, which has been one of the best performing categories at department store level and in fact at all levels of this edition. Furthermore, most of our brands and products represent where it's called today value. They are the best performing brands and best performing retailers this year.

Certainly, the women’s business has been more of a challenge especially with the advent of the international competitors like Zara, H&M, et cetera, which unquestionably have taken market share away in the women's and junior business from chains and department stores. This had not been our case, we are a men's company, we have 15% diversified women's portfolio.

Our international sales in the U.K. and Canada grew 2% during the first quarter, notable improvements in profitability for the Canadian business. The foreign exchange situation is rapidly changing with 10% evaluation of the dollar versus European currencies, and the exchange becoming more stable as oil prices continue to increase. We expect that the second half of the year will again make our international business a contributor to the net profit of the company.

Our retail business experienced a decrease in comp sales of 1.3% for the quarter, but on the income side we comped close to 25% compared to last year. As the quarter was impacted by several factors pointed out by our retail partners; weather, change in tourist pattern not only in New York, Florida, California, but also Texas and State Border in Mexico and Canada. Demographic changes and migration from Central USA to the smaller states have rendered managed retail locations unable to achieve same sales comps that were expected in the past, especially with the advent of the Internet.

Time to recognize that the overstoring of America is coming to an end and that the sooner we reduce the store count the better, it will make retailer stronger, more focused, and more profitable. In our case, we are reducing our full price store count and being very selective in opening new stores, especially as retail developers continue to increase rents as all leases expire.

However, our Internet revenue has continued to grow and show strong results influenced by social marketing and programmatic display effort. This has resulted in substantial customer direct channel traffic to our site, at the same time our photography studio and other facilities on which we have invested to improve the service to our Internet customers like macys.com, Kohls, Amazon, et cetera have shown excellent results and our direct and indirect eCommerce business continues to increase.

We have consistently been growing our audience size across all brands in the major social platform like Facebook, Instagram, and Twitter. Even more importantly, we are consistently growing engagements likes, retweets, shares, comments et cetera, who very importantly have produced engagement ratios that are in the upper tier of apparel industry index. These brands are also driving a strong number of traffic to our direct-to-consumer Web site. wWe have just launched user generated platform across Perry Ellis and Original Penguin eCommerce site allowing people to share how they wear our style on related product pages and galleries.

Our brands represent a lifestyle and not just a product. For example, Cubavera is our brand with the highest ratio of engagement, consumers, and not just Hispanic engage with its tropical result as -- as you all know Cuba is now in fashion, and we are revamping our marketing efforts on this unique opportunity. Our eCommerce pages are growing faster overseas than in the USA. In Europe our U.K. Web site launched this week a program allowing sales in Europe, which will substantially increase the volume that we do today. We are also adding video, more detailed photography, and user-generated comments to improve our conversion rates as well.

We are redirecting our marketing efforts into making sure that our digital effort take priority over everything. Digital today represented fastest growing channel of sales, and we are allocating significant portion of our working capital and budget to service this channel. In Europe, we continue our expansion of Original Penguin, Farah, Callaway and Ben Hogan. And the first orders that we have shipped of Nike Swim have been more successful than anyone expected. The first report on Nike Swim retail sales in our new area of business, which are in the U.K., Spain, and Latin America are showing very promising results. We are sure that our Nike international sales will help tremendously the growth of our company.

Having our European organization able to approach retailers with five strong brands will give us a great opportunity to substantially increase our presence with many retailers in Europe. We look forward into building in a relatively short period of time the Nike business eventually in all of Europe as well as Latin America.

Financially, our company is stronger than we have ever been. As a consequence of our lean inventory policy, we are able to maintain our prices and did not have to do the heavy promotion of our brand. A fair price to consumer equates to value, quality, innovation, great design at a given for any successful apparel company without them we cannot stay in business. But, the important differentiator going forward are quality of management on each company and technology. Companies that have management that have now shown its ability to adjust to the new reality and taken the necessary step to prepare for the future will not be able to succeed in this new environment. We are proud that we have taken that route early on and we continue to be headed in the right direction.

Thank you very much, Oscar.

Oscar Feldenkreis

Thank you, good morning everyone.

First quarter results reflect revenues which exceeded our expectations and more importantly continued growth and operating margin expansion and profitability. I am pleased to report progress made across our company's key initiatives. First, our company's core brands continue to grow. Our core brands grew over 4% in the first quarter and Perry Ellis, Original Penguin were the fastest growing brands. This illustrates that our focus on optimizing global lifestyle brand while deemphasizing non-core brand has positioned our company for long-term success.

Second our investments in product innovation enabled us to drive newness and excitement into the market, as we saw growth in men's and women's seasonal products across all channels driven by especially strong growth and products with performance fabrications and attributes.

We believe these products are prime examples of how we identify and fulfill consumer needs and trends. Third, we were augmenting our digital marketing geo initiative especially across mobile devices by leveraging the rich royalty data that has been collected over the years. We are focused on driving traffic towards our eCommerce site and retail stores. Our strategy centers on building strong relationships with consumers who are seeking more differentiation and a sense of individuality more than ever before.

With that overview, I'd like to take you through the individual business performance. Starting with Perry Ellis, the brand had a solid first quarter and experienced mid-single digit global growth. At retail the Perry Ellis collection business exceeded its plans and we entered the first quarter would let seasonal carry over enabling us to expedite product newness to the sales floor.

Especially, we leverage our strength in prints and pattern work and expanded this into other product categories. Knit has been a strong product category for us this season. Furthermore, our dominance in linen is paying off with the growth over 35% realized across our retail partners who will continue to maximize this category and see the continuous growth as retails carry linen all year around.

Perry Ellis Travel Luxe now represents approximately 45% of our sales; we will continue developing this business by incorporating more technological properties and advanced performance fabrications into our product. We recently introduced the Perry Ellis portfolio performance pants in the first quarter and the performance has exceeded our expectations as consumer responded very well to this new pants featuring wicking, stretch and its silky hand feel.

Looking ahead into Q2, we are cautiously optimistic that the Q1 trend will continue. We remain committed to this 360 athleisure initiative as we gave more intelligence from our spring assortment. Overall, many of our strategies have worked well for Perry Ellis in the first quarter linen, novelty, knits and performance are positioned to be volume drivers for Father's Day and the summer months ahead.

Finally, the official launch of Perry Ellis America took place in key accounts across the U.K., Italy, France and Ireland selling thus far has been encouraging and we are focusing on increasing traffic and conversions by building the Perry Ellis brand name in Europe. We are engaged in a series of account specific marketing activations which will take place in Q2. I am also pleased with the Perry Ellis licensing business which benefited from the strength of the lifestyle brand.

Moving on to Original Penguin, the brand was one of our strongest performers for the first quarter driven by global double-digit growth. Sales with domestic retail partners grew over 20% and we're realizing strong returns on shopping shop doors investments. These doors are able to showcase the total lifestyle of the brand and we will continue to grow our retail footprint through shopping shops as consumers respond enthusiastically to the brand's enhanced presentation.

On our product side our swim lifestyle capsule continues to exceed performance. We also added stretch to our core bottoms and the season performance has been very strong. I would also like to note the robust performance of the Original Penguin's eCommerce business which grew approximately 40% in the first quarter. Mobile traffic to the brand's eCommerce side continues to increase as we shift from desktop traffic. Original Penguin mobile achieved double-digit growth across three key metrics, revenues, traffic and conversion, reflecting our efforts to optimize our digital marketing strategy.

Finally, licensing income was as strong as the pipeline of the new licensing agreement signed last year began contributing to the royalty stream.

Moving on to Golf, in contrast to the overall challenge market, our core national golf brand grew approximately 3% in the first quarter. These results were driven by product innovation and new product initiative. First, we're emphasizing stretch in our polos. This is a significant direction as we are moving in and believe that we are ahead of the marketplace and bringing these features to the consumer.

Second, we are innovating in bottoms with an active flex technology new fabrication, the golf short and pant assortment has achieved significant gains in the first quarter relative to both last year and the competition. Print, an area of deep expertise in our company is now translating on to the golf course and this has recently propelled sales above the golf department's average selling.

Finally, the evolution of golf apparel as a lifestyle for men wanting performance product that they could wear both on course and off course at the office.

Turning to women's Rafaella main line comparable grew double digits in the first quarter at the department store channel. Total sales were offset by a reduction from the special market customers as we had less clearance in inventory or carry over product from last year.

Nonetheless, Rafaella's key account increased plan in-part is due to the expanded Rafaella brand shops which are 187 in total and at the moment in the department stores, shop stores are now close to 35% for the season. Since Rafaella's position as a buy now wear now brand, we achieved sales that were better than the competition during the unusually coolest spring weather and though ready to wear environment across the department stores.

We're also seeing great response in our weekend casual offering. With our newest initiative denim with benefits, this category offers multiple fits and washes and key to the engineering to slim fit and flatter the figure. Finally, the Rafaella brand has been focused on supporting the digital initiatives of it retail partners, first quarter eCommerce sales with retail partners grew over 50%. Over the first quarter, we updated Rafaella's landing pages to easy navigation for consumers within the Rafaella's shop sites by both zone and classification while the business remains a small portion of the total sales at this moment we believe our long-term efforts will continue to drive additional sales.

Turning to Laundry, the first quarter saw sales increase as each month progress, color is resonating very well as we head into the warmer spring and summer months. Nonetheless, overall department store dress business continues to be challenging with traffic down in consumer's behavior is shifting towards new ways of shopping digitally. We have addressed the shift by partnering with new account such as Stitch Fix, Let Tote and Rent the Runway. We have seen a big shift from the e-com now representing 46% of Laundry direct sales compared to 36% in the prior year.

We are positioned well to continue maximizing the shift; furthermore, the department stores are differentiating themselves with large exclusive assortments. Therefore, we are focusing our offer in dresses geographically tailored to our key accounts in order to capitalize on this business strategy direction.

Now, some comments on Nike Swim. As I mentioned on our last call, the Nike Swim business has been very strong in the first quarter, our largest quarter of the year grew mid single digits following a 20% increase in the fourth quarter. The Nike Swim business is on track to be a meaningful contributor for the year. Our continued focus on women's bodes very well for the Nike Swim as Nike continues to emphasize this consumer.

Business has been exceptional. We are seeing success across a host of retailers including Macy's, The Bay, Kohl's to name a few performance has been strong in boys across the sporting goods channel and even men's sport are most developed category. Consumers responded favorably to our fashion prints offering and the expansions of Nike Swim UV Protection Hydro tees. Overall, the brand is resonating strongly with both performance and recreational athletes across both genders and multiple channels of distribution.

I recently came back from our annual go-to-market meeting at Nike's Portland Campus to kick-off the 2017 selling season and happy to share that based on the new product offering Nike Swim is poised to have another very successful year especially as we take the brand globally.

Initial line reviews have been highly favorable not only in our current geographies of North America, but also in Europe and South America. Tests in our new markets continue to show success which will fuel our optimistic outlook for meaningful growth.

In conclusion, our first quarter performance puts us right no track to meet our goals for fiscal 2017. We continue to leverage our business model, which consist of powerful brand, a healthy balance sheet and talented team and a diverse channel of distribution. This foundation enable us to continually and successfully benefit from our key growth drivers which including driving best in class product innovation providing exceptional consumer engagement and leveraging our operational expertise to manage the growth potential of our brand and for our shareholders. Long-term consistent achievement will enable us to remain successful for the years to come.

And with that said, I'd like to turn over the call to Anita.

Anita Britt

Thank you, Oscar, good morning everybody.

We were extremely pleased to kick-off our new fiscal year with an extremely strong quarter. We were ahead of plan with our revenue performance and as you recall we previously guided on our year end call last month that we would be impacted by reduced program selling in the special markets for the first half of this year coupled with our business exits.

So with that said, we did see revenues in our core businesses increase by 4% in the quarter, even more importantly gross margins were very strong expanding the 36.7%. We carefully controlled both expenses and inventory and delivered a solid $1 in adjusted earnings per share.

Let me comment on some of the items impacting our first quarter revenues. First of all, as George talked about foreign exchange rates impacted our total revenue negatively by about 70 basis points for the quarter, but this was down as compared to 1% impact in prior years that certainly alleviating. Second, exited businesses impacted the quarter by approximately $8.5 million or 3% for the quarter. And then, third, plan declines in programs in the special market channel impacted our quarter negatively by $5.1 million or 2% in total revenue.

Combined we had a negative headwind of 5.7% on Q1 revenue, including this our total business overall grew by 3.7% in the quarter.

Now by segment, revenues in our men's sportswear and swim segment was even at $198 million to prior year. We saw a 5% increase in our core Perry Ellis, Original Penguin and Golf apparel businesses, offsetting this increase was 3% decrease in exit brand coupled with a negative impact of 2% between special markets and foreign currency.

Revenue in our women's sportswear segment totaled $32 million as compared to $39 in the year ago period. The decline was driven by the sale of the C&C California as well as planned decrease in the special market programs. Direct to consumer revenue totaled $20 million as compared to $21 million in the prior year. Comparable sales declined by 1.3% in the quarter and while comp traffic was down for the quarter, we were able to mitigate that with a full 1% increase in our conversion rate.

We also saw a stronger month in April with direct to consumer rising by 1.8%. Licensing revenues totaled $10.4 million an increase of 27% for the year, we did benefit from royalty income associated with transitioning our license partners as part of our strategy to elevate our brands globally. As we execute this transition, we expect to see a negative impact of approximately 4% on revenues in each of the remainder of the quarter as the new licenses ramp up. Regardless of this, we saw healthy increases in our Perry Ellis and Original Penguin portfolio. So for the remaining quarter for the year, we anticipate licensing income to be approximately even with the prior year's quarter.

Moving to the total company results beginning with gross margins, as you know gross margins continue to be a huge focal point for us. We continue to benefit from our emphasis on higher margin channels as well as geography. This strategy drove the 180 basis point increase in gross margin for the quarter. The expansion was driven by stronger product margins and reduced markdown in our men's collection, golf apparel and Nike businesses. Favorable mix of licensing also benefited margin. And then, finally, consolidation in our foreign buying offices as well as our freight service negotiations have also driven expansion within COGS.

Turning to adjusted SG&A, which totaled $69.9 million for the quarter as compared to $68.3 million in prior year. The increase of 2% was inline with our guidance and incorporates slightly higher incentive compensation accruals for the quarter. We continued through the quarter executing on our infrastructure review and we were able to reduce an additional $1.9 million in cost across COGS and SG&A for the quarter.

Turning to the balance sheet, inventories totaled $154 million even with prior year and down compared to $183 million at year end. Composition of our inventory is in great shape and turns have continued to accelerate to just under 4x. Here again, I'd like to point out that we have among the fastest churn rate within our peer group.

Now looking at the guidance for fiscal 2017, looking to Q2, we see revenues approximating $195 million to $198 million. Within this guidance, we see plans, program reductions in the special market channel will began about 2% as previously guided. Brand access will impact this quarter by about 3%, and also given the stronger shipping in Q1, we do believe that retailers will be more cautious given the overall environment as they talked about last week.

We see gross margins expanding to 36% for the quarter and SG&A will increase approximately 1% over LY. We see adjusted earnings per share approximately breakeven for the quarter. Our guidance for the full year calls for revenues in a range of $910 million to $915 million this incorporates 2% in overall exited business impact as well as 1% negative impact from reduced program with our special market partners again in the first half of the year. We now see gross margin expanding further to a range 36.2% to 36.3%, our other guidance remains consistent with our year end call. The depreciation and amortization now close to the $15 million and share account closer to $15.6 million.

On the full year, we have revised our guidance up on adjusted earnings per share to a range of $1.95 to $3. And despite the challenges that everybody is feeling in the market from last week's announcements, we feel that we're continuing to take the right measures to manage inventories slightly within our own base as well as with our retail partners. We're keeping an extremely tight grip on our infrastructure spend and we continue to be focused on our profitability expansions.

With that overview, I'm going to turn the call back to the operator to open up for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we'll take our first question from Eric Beder with Wunderlich Securities.

Eric Beder

Good morning. Congratulations on a solid start to the year.

Oscar Feldenkreis

Thank you, Eric.

Eric Beder

When you look at it, your department store customers have been very negative and you came out with a very solid numbers, how are you taking share, how do you believe you can continue to differentiate yourself in that channel going forward?

Oscar Feldenkreis

It's all about product, Eric. And I think that in today's day and age, we're seeing that when retailers deliver newness and product that is comfort that is as well as has some performance attributes and features, it does extremely well. Also managing inventory and churn is very, very important as everybody is managing inventory cash flow has become topic -- is number one topic. So by doing that, it allows you to flow product more often in than ever and we -- as I mentioned in the Perry Ellis business, specifically our Knit business has been very strong where in the past we've had a stronger penetration on a woven business.

We're also partnering on eCommerce, having an in-house studio not only for photography and videography has allowed us to be able to turn faster and get images up faster working with our retail partners. And in golf, today a man goes into the golf department not because he wants -- he is a golfer, but he is also buying product that has so many different attributes in performance fabrication that are much more comfortable than buying something that doesn't have it.

Eric Beder

It's true. In terms of licensing, you've been kind shifting the mix around taking back some pieces being more aggressive in other areas. How should we think about the desire to take back some of the more licensing products and what should be kind of the organic growth where once that is done?

George Feldenkreis

The licensing have been growing revenue for us and we continue to be -- and it has a momentum of its own, the more -- the stronger the brand is the stronger Perry Ellis is and Penguin is, there are more licenses coming to the fore and interested in that, and we can better improve our services through licenses et cetera. Besides that, we are really expanding Latin America. Perry today is very strong, and so is Penguin. In the United Kingdom, we have a very good group that continues to work diligently to expand. We are going to be in Germany now with [indiscernible], and the activities of Hudson Bay in the Europe are eventually going to be helpful to all our brands. So, we are very confident that we are making also small progress in Asia, which is a very difficult market. But, we are confident that licensing is going to continue to be a major source of revenues and profits for the company.

Eric Beder

Okay. And final question in terms of -- you guys have continued to improve the balance sheet and continued to add more cash. What do you see as additional use of that cash buying back shares, paying off debt, making acquisitions, how should we think about potential uses for the corporate cash here?

Anita Britt

Yes. Eric on that part, I think we mentioned before we're expecting about $2 in operating cash flow this year, may be a little bit north of that, and our priorities have been for, first on expanding our own strategic plan within our platforms of expanding our businesses in international. Oscar and George both talked about expanding Nike, our golf platform, Original Penguin. We're continuing to build out our infrastructure in the licensing world both domestically and internationally that would be number one.

We have kept our shares flat and slightly down with some strategic share repurchase over the last fiscal 2015. And then, we're also keeping an eye in terms of pulling down some additional debt. We're very comfortable where we are, but we're keeping an eye in terms of the forward macro environment to ensure that we have a comfort level where we pull the trigger on doing anything on a longer-term basis.

On the acquisition front, we certainly look at a lot. We feel that within our own portfolio, we have so much growth opportunity in expansion in terms of profitability. We continue to focus on that. But, if there was something overwhelmingly attractive that has good management, was accretive and certainly makes sense we will consider it, but nothing eminent.

Eric Beder

Okay. Again, congratulations and good luck for the rest of the year.

George Feldenkreis

Thank you, Eric.

Operator

And the next question is from Ronald Bookbinder with Coker Palmer.

Ronald Bookbinder

Yes. Good morning. And congratulations on a great start to the year and excellent execution.

George Feldenkreis

Thank you, Ron.

Ronald Bookbinder

As you look at the department store channel, how are you planning that going forward and where do you see that going in the next five years?

Oscar Feldenkreis

Department stores today represent about 25% of our revenues and we believe department stores will continue doing well. I think that department stores are readjusting their business model and making a big focus on eCommerce digital, which is important as well as I think tourism has hurt department -- some department stores more than other. And I think you'll see a lot of changes in how they market themselves more for the local consumers versus talking so much to tourism.

Also please keep in mind that the men's business as a whole has been extremely stable. Remember that today there are many companies on the ladies side that don't exist anymore such as Liz Claiborne, the Kellwoods, Jones which today its predominant -- those are predominantly ladies companies. Most of the men's companies are still in tact, the men's business definitely has done extremely well. We're seeing an opportunity big and tall as the size range for our golf and Perry et cetera. So the men's business is very, very healthy and continues to do extremely well in the department store or whatever the channel of business that we're dealing with.

Ronald Bookbinder

And you talked about the growth of eCommerce, what percentage of sales is eCommerce now. And how did the operating margins compare to the traditional business and how do you expect that to shift over time?

Oscar Feldenkreis

The eCommerce today represents about 6% to 7% and we see it as a continuous growth. As a whole, we also see the profitability improvements as we change where our shipping points are going to go from because as you know in many cases you pay freight which is a big expense. And we're looking at ways to improve how we consolidate the distribution side. But, it is a challenge, eCommerce definitely is a lot more expensive versus brick and motor. But, we have to adapt to the new way of -- as mobility apparel online sales today account for about 18% and we'll continue to grow even further. So it's something that we're looking out. We're making a lot of improvements to ensure profitability.

We are today I would say almost at a breakeven point on eCommerce and we see improvements on the profitability side in-spite some of the initiatives that we're taking.

Ronald Bookbinder

Okay. And on the cost cutting front, you've really cut a lot of SG&A out of the business. Is there more areas to cut -- how should we look at that going forward?

Anita Britt

Yes. Ron on the cost cutting initiative, it's been a combination actually both within SG&A and COGS as we looked at becoming more efficient in areas like our foreign offices and in the world of freight as well. So it's been a combination.

But, in terms of the go forward, we feel that we captured a lot of a larger dollar items. But we're continuing forward with the infrastructure review as we look across our businesses and where we want to reinvest. We do want to continue to add marketing and infrastructure in those areas and to be able to leverage our overall SG&A and combat inflation. We have to determine how to become more efficient within our more established businesses.

So overall, for this yes, as we looked at, that we talked about $1.9 million being realized in the first quarter, it is safe to say that as we look at the overall year we think that there is somewhere in the neighborhood of $5 million to $6 million, again, that would be slightly down from the 8% that we saved last year. But, we do think that there is additional cost that we need to pull out.

Ronald Bookbinder

Okay. And lastly, where do you see year end inventory?

Anita Britt

Yes. In terms of the overall year-end, we were -- as we mentioned we ended last year in the mid 180s or 154 right now. I don't believe that we'll end year end quite even with Q2 but I think will be somewhere in the neighborhood of about 170, which is a comfortable level. Again, we're normally fueling up for a heavy spring shipping period to year end that tend to be our highest period. But we're continuing to manage it extremely tightly and really looking at inventory across every business and how we can take additional weeks of supply out of each of the businesses without hurting the top line, but it feels like a comfortable level right there.

Ronald Bookbinder

Okay. Great. Thank you very much and good luck for the rest of the year.

Oscar Feldenkreis

Thank you, Ron.

Operator

The next question is from Ed Yruma with KeyBanc Capital Markets.

Ed Yruma

Hi, good morning thanks for taking my questions. I guess first you mentioned Amazon as like key retailer for you, I guess if you could kind of contextualize where it falls within the pecking order in terms of relative size and kind of how the growth rates have trended for that business?

Oscar Feldenkreis

They are probably up 15 they're not top five at this present stage. Our business is good with them. We continue to meet with them to try to understand their new business model which is -- they've taken an approach to understand better. And our relationship with them is very strong and looking to continue growing with them. And we have strong brands that are performing extremely well for them. They started a new hybrid model with Rafaella with them which has proven to be very successful. And we'll continue to look for ways to grow with them as they become much more important in the sector.

Ed Yruma

Got it. And one follow-up if I may, you guys, you've continued to kind of be disciplined about cost structures I think you called out about $1.9 billion that kind of flow through both COGS and SG&A. I guess how do we think about the runway for kind of incremental cost reductions and how should we think about that flowing through in a quarterly basis for the balance of the year. Thank you.

Anita Britt

Yes. Ed in terms of the overall, I think I just addressed this with Ron, but I'll reiterate. We see somewhere in the ballpark of 5 to 6 for the entire year. I think its fair to say in terms of -- we've achieved close to 2 in Q1. I see another call it, $1.5 million plus in Q2 and Q3 with the round up in Q4. We'll certainly try to see, if we can surpass that. But, that's a level that we're comfortable with. And really the goal from an overall SG&A perspective is to realize SG&A leverage of about 20 basis points this year and that is with the additional reimbursement in our international businesses as well as the inflationary increases that we see every year.

Ed Yruma

Great. Thanks so much.

Oscar Feldenkreis

Thank you.

Operator

And our final question will be from Dave Weiner with Deutsche Bank.

Dave Weiner

Yes. Hi, good morning, Dave Weiner. How are you? So two quick questions, if I could, so first I was wondering if you could comment on tourism, you touched on a little bit but if you saw anything may be different this quarter then you did last quarter and may be what you're expecting for the next quarter or so? And then, Anita, I had a question, I just want to make sure on second quarter earnings I think you said breakeven, I just want to make -- for earnings I just want to make sure I understand what that means to you saying $0.31 which I think is what you did last year. And then, also for second quarter are there any interest expense or tax kind of guidance that you could help us with? Thanks.

Anita Britt

I'll address the second quarter first. On the breakeven whether its talking about adjusted EPS being breakeven versus prior year when I guided on the top line I mentioned previous guidance in terms of program exits as well as on some of our exit brands and foreign exchange headwinds selling Q2.

Also incorporated into our guidance, while we saw in Q1 a pretty robust type line for good slowing through Q1. We didn't want to be conservative with our guidance in terms of low with our retail partners, which normally like to see, but its not so much -- whether to see end of the quarter, but received in the new early part of the following quarter. So wanted to be a little bit more conservative there.

In terms of interest, I think interest will be fairly driven with last year it might be down a little bit as you recall we call the bonds last year in May. So we will realize that full benefits. And then, in terms of tax rate I will continue to model the tax rate in the 22% range where we've guided even though taxes were a little bit higher in Q1 with the mix of international. Does that answer your question?

Dave Weiner

Yes. Yes. Thank you.

Oscar Feldenkreis

As to tourism David, I see tourism and I would say for the first half still -- to be a little bit challenging even though when you get into the third and fourth quarter there will be probably more normalized in terms of foot traffic. But we have redirected our efforts, so for example in Original Penguin where we use to do much more of a slimmer fit product in some of our own retail stores. We're seeing a shift in more of a classical fit, which is some of the changes that we're doing in order to talk to more of a local consumer.

And as well as my father had mentioned a lot of our eCommerce growth is coming from the international side, which bodes well means that the consumer still voting for the brand, but they're buying it online rather than having to spend time here in the United States.

Dave Weiner

Okay. That's helpful. Thank you very much.

Oscar Feldenkreis

Thank you, Dave.

Operator

And this concludes…

Anita Britt

Operator, I think we'll conclude on the questions.

Operator

All right. Thank you. I'll turn the call back to George Feldenkreis.

George Feldenkreis

Well, thank you very much. It's been a very great quarter for us. And we look forward to continue growing revenues and profit in the year ahead of us. Thank you very much.

Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.

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