Perry Ellis International's (PERY) CEO Oscar Feldenkreis on Q4 2018 Results - Earnings Call Transcript

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

Perry Ellis International Inc. (NASDAQ:PERY) Q4 2018 Earnings Conference Call March 16, 2018 9:00 AM ET

Executives

Oscar Feldenkreis - Chief Executive Officer and President

Jorge Narino - Chief Financial Officer

Analysts

Andrew Burns - D.A. Davidson

Greg Pendy - Sidoti

Ronald Bookbinder - IFS Securities

Edward Yruma - KeyBanc Capital Markets

Operator

Good morning, ladies and gentlemen and welcome to Perry Ellis International Fiscal Year 2018 Fourth Quarter and Year End 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 Oscar Feldenkreis, Chief Executive Officer and President; and Jorge Narino, Chief Financial Officer.

I would now like to turn the conference over to Oscar Feldenkreis. Please go ahead.

Oscar Feldenkreis

Good morning. Thank you for joining us this morning to discuss our fourth quarter and year end results for fiscal 2018. I am extremely pleased to continue our positive momentum with our fourth consecutive quarters whereby we delivered revenue and earnings that surpassed guidance in fiscal 2018. Indeed, the fourth quarter marked a strong finish to an outstanding year. Our positive performance continues to demonstrate the success of our strategies focused on growing our powerful global lifestyle brands, Perry Ellis, Nike Swim, golf and original Penguin and expanding higher margin businesses and channels of distribution, including international direct-to-consumer and licensing. At the same time, we continue to maintain stringent controls of expenses and inventory. This strategy has served us well in fiscal 2018 and positions our business favorably as we start fiscal 2019.

Today, I will highlight our fourth quarter and full year results and share some of our accomplishments made during the year, then provide an update on the performance of our business across our core brands, licensing, international and direct-to-consumer. For the fourth quarter, total revenues increased 11% to $227 million, representing the successful conclusion of fall and a strong start to spring 2018 shipping highlighted by core brands rising revenues by 19%.

From a geographical perspective, Europe was up 21% in constant currency led by the continuous growth of Nike Swim and Callaway and a strong business with Farah. The direct-to-consumer division produced low single-digit comps for the quarter. The strength of our product offering and pricing strategies drove mid to double-digit increases in comp margins for the quarter. Adjusted pre-tax income was $15.8 million, up 37% from $11.5 from the fourth quarter of fiscal 2017 and adjusted EPS rose 33% to $0.88 from $0.66 in fiscal 2017. For the year, adjusted pre-tax income rose 37.8% from $35.2 million last year. Adjusted earnings increased $2.13 per share from $2.04 in fiscal 2017.

Additional highlights for the year included a strong balance sheet at year end with cash and investments totaling $49 million and debt to capitalization ending the year at $10.7 million versus $17.2 million at year end fiscal 2017. Inventories grew slightly to support our new businesses, including our growing golf and Nike Swim offering to end the year at $175 million. Operationally, ASOS continue to position our core brands for growth while forging new growth opportunities internationally through license and direct-to-consumers. Continued momentum in our core brands in the United States driven by the continuous innovation, brand strength and digitalization, positive comparable stores in our DTC channel.

Now moving on to review our brand starting with Perry Ellis, our strategy of aggressively updating core programs with new fabrication and innovative products led to strong growth in sales and increased turns for the Perry Ellis brand leading to market share gains. In total, our flagship Perry Ellis brand was up 9% for the quarter and we are very pleased with our holiday performance. We increased our e-commerce penetration to 13% for the holiday season and continue to set our sites on growing this channel to represent 20% of total sales. Our classification bottoms business under the Perry Ellis portfolio brand continued to perform very well ending the season up18% for last year. Looking ahead into spring, we remain optimistic about the Perry Ellis brand having good initial reads on our spring transitional product. Original Penguin saw high double-digit sales growth for the quarter with strong performance in most major department stores.

We continued to win in our core product categories and drive full price business through better department stores, e-commerce and specialty retail distribution. This year we will rollout store environments and collaborations in an effort to increase brand awareness and visibility. In Q4 golf revenues grew 20% over last year once again Callaway saw double digit sales growth, which was led by our continued focus on elevated distribution within the golf specialty, sporting goods, green grass and better department store channels in both the U.S. and Canada. With cooler temperatures, the Callaway weather series multi-layering programs became a key volume driver with all our accounts, our highly anticipated launch of the Callaway Tour Authentic premium collection for spring 2018 generated tremendous excitement at the Orlando PGA show. The tour authentic premium product and price points will allow the Callaway to partner with the best country clubs in the world. Orders have already been secured and will be available at St. Andrews, Whistling Straits, the club at Rugby Hill and Desert Mountain just to name a few.

For PGA TOUR, our ProSeries product of unique performance designs experienced double-digit growth year-over-year in Q4, while long-sleeved knit layerings drove trend-right wear now sales. Our golf bottoms and stretch was also a key driver especially in the active waistband styles and continued to drive the trend in both pants and shorts. In Q4 Ben Hogan global business at Walmart continued with strong performance in all categories. The pant programs performed very well in stores with sales exceeding sales forecast. In addition the performance knits despite cold weather earned double digit sell-throughs.

Nike swim delivered another strong quarter with total worldwide revenues up. Growth came from all geographies North America, Latin – LatAm and Europe. Newer markets are more specifically within the European region contributed significantly over last year in the same period. Sales were strong globally across key channels such as sporting goods, department stores and e-commerce. With our best in class distributor partners, we are focused on growing Nike swim for the long-term. In Q4 we began shipments to our retail partners ahead of the all-important spring swim season. Retail sales though very small at this time of the year are providing positive indicators that bode well for the spring. Our expansions into new market continues, just 3 years ago we were in three countries the USA, Canada and Mexico. By the end of calendar 2018 we will be in 62 countries including the launch into the Asian market. Our international expansion along with the continued growth in existing stores is expected to accelerate growth for Nike swim in fiscal 2019.

Women’s brands were up 9% for the quarter versus last year. Rafaella’s regular price sales were strong through Q4, our AURs increase monthly due to the strong controls over markdowns and inventory assortments that focus on increase penetrations on pants, knits and layering pieces. Selling was driven by key items, sweaters and knits represented over 32% of total sales. Customers responded to novelty detail patterns and new fabrics in lightweight sweaters, knits and pants. The more casual element of the collection increased 60% over last year and almost doubling its penetration to the total line. Denim remains the largest part of the casual line.

Turning to laundry in keeping with our strategy to focus resources on area of our business that gave us a strong growth and profitability as previously announced we engage in the licensing agreement with NMNY Group for dresses. As such, we did not recognize any sales associated with this part of the laundry business for the majority of Q4. We are looking forward to recognize the royalty income related to the license of the laundry dress and believe and under the directions of NMNY, this business will realize its full potential. We are also seeing exciting growth of our laundry website that we launched this past fall. The newly added e-commerce segment of our business allows us to showcase the image of the laundry brand, while featuring our broadened product assortment in multiple categories. We expect this effort to drive brand awareness in sales.

We continue to expand our global reach and leveraging the equity of our leading brands through licensing. We executed 8 new agreements in the final quarter of the year, all of which were in international markets. We ended the year with 24 new agreements for fiscal 2019. Licensing delivered a 12% revenue increase for the quarter in line with our plan. Original Penguin licensing revenues increased 20% and we opened up a new store in Panama bringing in the total number of OPG stores outside the U.S. to 84. Our Farah license business continued its solid growth track delivering a 62% increase in licensing revenues for the quarter in Europe.

The Perry Ellis brand in international markets delivered an 8% increase through improved economic conditions in LatAm and brand extensions in Asia. We successfully launched Perry Ellis luggage in Mexico. As stated earlier, international expansion continued for the fourth quarter with a 21% growth of constant currency basis. Farah had a consolidated brand revenues up 20% versus last year with positive trends across all channels, new accounts, including Topman responded well in the UK and international doors. Nike revenues grew with strong retail performance momentum with key retailers such as ASOS, Sports Direct and our distribution partners in Germany, Italy, Spain and Scandinavia.

The Callaway brand had a strong finish to the calendar year trading in all key retailers in UK and Europe. There was a very positive reaction to the launch of the new tour authentic collections opening up new distribution opportunities at the highest level in the European Gulf. Our direct-to-consumer division enjoyed a strong holiday season and produced positive comps for the quarter and the year. As a result of the SKU reductions and improved in-store presentation, comp sales were led by mid double-digits in the Perry stores and AURs increased for both Perry and Original Penguin stores compared to last year. More importantly, the comp margins increased close to 300 basis points for the quarter. We have closed 5 stores that represented a savings of $2 million in Q4 and our e-commerce sites as well were substantially reduced with many low margin and low AUR promotional events to drive margins higher. We also launched our loyalty program in Q4. In this channel, we are laser-focused on driving margin improvement with less clearance, less markdowns and higher AURs and we have seen success with our product categories where we have competitive advantage.

Overall, I am very pleased with the performance of our company and our teams and our associates. During the year, our brands and businesses are performing at a high level and we have initiatives in place to maintain our positive momentum into the new year of fiscal 2019. Some new and exciting initiatives include the following. We will be launching exclusive Perry Ellis America archive capsule in the fall season. The capsule will launch in partnership with height beast and will be targeted to select retailers with limited edition product pulled from the archives of Perry Ellis. We feel that this would be a great momentum for Perry Ellis. And as we pulled on the legacy of the brand and we introduced it to today’s consumer. Original Penguin launched the golf capsule in collaboration with Sugarloaf social club and sold out within 24 hours of the launch. Original Penguin signed Cameron Smith, currently ranked 52 in the world to be its brand ambassador. New for this year included a music partnership linked Original Penguin to the popular brand AJR with original content, limited edition products as well as tour sponsorships. Our Latin inspired brand Cubavera will be launching a partnership with a hat brand [indiscernible] with a line co-branded with straw hats that further expanded Cubavera lifestyle concept.

Nike Swim will be entering the Asian market with the first shipment delivering soon to South Korea with a major department store. We will be signing distribution agreements in other countries. We have a lot of exciting initiatives for 2019 – fiscal 2019 and we believe in our core brands and we will continue to invest in digitalization and innovative products. We will continue to expand our marketing initiatives and expenditures to further develop the consumer experience and interaction on digital. Our management team is laser focused on achieving our 2018 plan and as always dedicated to surpassing them.

I would like to turn the call now over to Jorge Narino to provide with more details regarding the financials and guidance.

Jorge Narino

Good morning everyone. Before I review our fourth quarter performance, I would like to highlight the impact of the U.S. tax reform on our fourth quarter and full year 2018 results. In the fourth quarter and for the year, we realized a tax benefit of $26.8 million and $22.9 million respectively. On an annual basis the tax benefit is comprised of the reversal of our tax valuation allowance which resulted in a net $30 million benefit. As a result of our positive earnings in the last few years warranted this reversal. The effects of the new tax cuts and job act which included the re-measurement of our deferred tax assets at the new tax rate, the tax associated with our foreign earnings and the effect on the provision of the new tax rate for the one month amounted to a net provision of $1 million. The results of these items were excluded from our adjusted earnings. In addition, our GAAP results included costs related to brand exits, streamlining of operations and other legal settlements and strategic initiative costs. The results I will highlight with you are on a non-GAAP basis adjusted for the tax benefit driven by U.S. tax reform and costs outlined above. We have provided reconciliation tables in the earnings release we issued this morning.

Now moving on to our results, we ended the year strongly reporting fourth quarter results that saw progress across all financial metrics including a double digit increase in total revenues, expansion in our gross margin and leveraging SG&A, thus concluding a year of solid financial performance. For the year both revenues and adjusted earnings per share were delivered at the midpoint of our guidance reflecting the successful execution of our growth initiatives and disciplined management of expenses and inventory. Consolidated revenues for the quarter totaled $227 million and increased 11.3% on a GAAP basis and 10.1% on a constant currency basis from prior year revenues of $204 million. This growth reflects across the board strength with double digit growth of our core brands and licensing segments along with positive comparable sales in the direct to consumer channel.

By segment, let’s discuss, revenues in our men’s sportswear and swim segment totaled $166 million as compared to $146 million in the prior year due to higher sales of our core brands, specifically Perry Ellis Original Penguin, golf apparel and Nike swim. Revenue in our women’s sportswear segment totaled $25 million as compared to $22 million in the prior year. The women’s business rose 10% even as we began to transition laundry dresses to a license business, also driven by increases in our Rafaella business and within the laundry sportswear classification. As mentioned last quarter, we expect the transition of laundry dresses to our licensing partners to bring us $2 million in savings in fiscal year 2019 as we remove costs associated with the business and begin to record licensing revenue.

Direct to consumer revenue totaled $27 million, essentially flat with the prior year as positive comparable store sales were offset by the closure of 10 stores since the fourth quarter of last year. With these closures, our remaining 55 store base is much more profitable. Comps were up 3.2%, margins rose nearly 15% for the quarter reflecting the strong consumer response to our product assortment. The two stores that were closed due to the hurricane in Puerto Rico at the end of Q3 still have not reopened. Licensing revenues rose 12% to $9.6 million as compared to $8.6 million in the prior year.

Moving on to total company results beginning with gross margin, we continue to be very pleased with our gross margin expansion as adjusted margins expanded by 30 basis points versus prior year. This improvement was driven by strong performance in our core brands and improved margins in our direct-to-consumer business. Adjusted SG&A totaled $69.9 million for the quarter improving 90 basis points to 30.7% of total sales as compared to $59.7 million or 29.25% of total sales in the prior fourth quarter. We continue to maintain cost discipline effectively managing increases in wages and other inflationary costs that have risen approximately 3% to 4% per year. Adjusted pre-tax income was $15.8 million, up 37% from $11.5 million in the 2017 fourth quarter. Adjusted net income was $13.6 million increasing 35% from $10.1 million in the 2017 fourth quarter and adjusted net income per diluted share was $0.88 rising 33% from $0.66 last year.

Turning to our full year results to fiscal 2018, consolidated revenues totaled $875 million and increased 2% on a GAAP basis and 2% on a constant currency basis from prior year revenues of $825 million. Licensing revenues decreased $1.4 million to $34.8 million from prior year revenues of $36 million. This decrease is attributed to the transition of a license that was brought in-house. For the year, including the advertising reimbursement, licensing generated $41 million. Adjusted gross margin expanded 60 basis points to 37.8%. Adjusted SG&A totaled $271 million for the year from $261 million in fiscal 2017. As a percentage of sales, SG&A remained flat at 30% year-over-year. Adjusted pre-tax income was $37.8 million increasing 7% from $35.2 million in fiscal 2017. Adjusted net income rose to $32.7 million or $2.13 per diluted share from $31.1 million or $2.04 per diluted share in fiscal 2017.

Turning to the balance sheet and cash flows, our balance sheet continues to be very strong. Inventory grew 16% versus the end of fiscal 2017 supporting the growth of Nike Swim and golf, including the expansion of our international business. We also saw a timing shift given the 53rd week with fiscal 2018 year ending a week later than last year. Also the year included strong cash flow generations with $30.2 million in operating cash flow and our debt capital to total capitalization of 10.7% and yet another sign of our strong liquidity with the reduction of $11.4 million in borrowings under our credit facility reducing the total to $11.2 million at the end of the year. This places us in a very comfortable position to support the expansion of our global business. We plan on calling the remaining $50 million of our senior subordinated notes during the second quarter. Repatriated funds along with our revolving credit line will be used to execute the repayment.

On to guidance, moving on to our outlook, we are pleased with performance of our business and remain positive about the prospects of our brands as we begin fiscal 2019. For the year, we expect growth in the core sales and earnings, which excludes from fiscal 2018 results, $31 million in sales due to the bankruptcy of Bon-Ton and transition of the laundry dresses to a licensing model and $6.6 million in net income, which excludes the income generated from sales through Bon-Ton and removes losses associated with the laundry dress business.

For comparison purposes as I share with you our fiscal 2019 guidance, I have also recast fiscal 2018 results to remove the sales and profits associated with Bon-Ton stores and the sales and losses associated with laundry dresses as well as the effective tax rate to our future expected rate. With this in mind for fiscal 2019, we expect revenues in the range of $855 million to $865 million compared to core revenues of $843.6 million in fiscal 2018. This expansion reflects increases in our core brands. Gross margins are expected to approximate 38.2% with strength across our core business. SG&A is expected to be relatively consistent with adjusted prior year levels reflecting a disciplined approach to expense management to offset inflationary cost pressures. Adjusted earnings per share are expected in the range of $1.80 to $1.90 as compared to adjusted core earnings per share of $1.70 in fiscal 2018. The adjusted earnings exclude any potential expenses, which could be significant to be incurred by the company in connection with the board’s exploration and evaluation of potential strategic alternatives and the related February 9, 2018 proposal to acquire the company. In addition for the full year, we expect our tax rate to approximate 25%. We expect operating cash flows to approximate $15 million with capital expenditures totaling approximately $9 million to $10 million for next year.

In summary, we are pleased with the performance of our brands and believe we are making the right strategic decisions to position our company for long-term success. Before I turn the call over to the operator, I would like to request those polling for questions to limit our questions to the company’s performance, strategy and outlook. We are not able to respond to questions related to the board’s evaluation of strategic alternatives for the proposed go private offer made on February 9.

With that, I turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Andrew Burns with D.A. Davidson.

Andrew Burns

Thanks. Good morning and congrats on 4Q performance. A couple of questions for you. Just I appreciate breaking out Bon-Ton and the impact there, as it relates to comparing the 2 years, just curious as you look over a multi-year basis, how you are thinking about the department store closures as a headwind, do you think we have – we are experiencing or moving pass the peak headwind related to store closures or is it more of a constant headwind as you look forward in your view? Thanks.

Oscar Feldenkreis

Well, I think that there is still going to be closures in our industry for sure as more and more retailers start – as other retailers excuse me, start to look for a reduction getting out of either leases or underperforming doors. I think that our focus right now and that’s why you are seeing a lot of the growth on the organic side is focusing in on growing the A and B doors and as well as concentrating on digitization, because that’s where you are picking up the opportunities of the store closures. So as I mentioned, we feel that that’s where our focus has to be and ensuring that we have that the best and greatest experience in our stores for the future as we are basically, we have shop setups in most of our department store relationships.

Andrew Burns

Great. Thanks. And that’s a good check way into your direct to consumer performance, which was quite strong. As you look at the FY ‘19 and making progress moving from that 13% e-commerce penetration to 20%, what are – what are some of the milestones or initiatives you are looking at for the upcoming year to help achieve that? Thanks.

Oscar Feldenkreis

Well, we have – our focus right now on even on the marketing side is really to focus almost 95% of not more on all digitalization marketing. We are increasing our team. We are continuing to look for people that have a better understanding of how to market brands with influencers on ensuring with the market trends and as well as collaborations are very, very important. We just as I mentioned we are launched collaboration with [indiscernible], which is a fantastic platform to launch Perry Ellis America’s archives collection. And we are doing the same thing even with our golf ambassadors as they are driving traffic to the Callaway sites and as well as hopefully we will be launching additional golf sites in the very near future. So we have a lot of excitement going on and that’s how we are growing on the direct to consumer and expanding on our experience. Not only helping what we are doing on a direct to consumer, but also helping our third-party partners to ensure that they are growing and they are seeing the same results as a the more farther reach that you have the better it is.

Andrew Burns

Great. Thanks. And then one last one just on the DTC comps from brick-and-mortar perspective trending up nicely, just curious as you look into the upcoming years some of the key drivers for comp performance, I know you made progress in terms of our presentation improved assortment there, do you see potential for this confidence to improve further, how are you thinking about the brick-and-mortar performance? Thanks.

Oscar Feldenkreis

We – well, we are going to be closing an additional four to six stores this year, which leads us we will run out, we are looking – we are working right now to replace some of those doors to a more effective and better location geographically that plays well with are – who are DNA of our brands are, but in terms of our stores DTC we are going to drive traffic by experience offering a great assortment, understanding geographically what the product needs are, which is very important. We do a tremendous amount of business in suit separates as well as dress up product as well as linen and many other categories that we are I would say the key partners in those malls for that type of product.

Andrew Burns

Okay. Thanks and good luck.

Oscar Feldenkreis

Thank you.

Jorge Narino

Thank you.

Operator

And we will take our next question from Greg Pendy with Sidoti.

Greg Pendy

Hi guys. Thanks for taking my call. Just two questions, one on the gross margin front, does that include a negative impact, I think you guys were expecting roughly a $600,000 impact in the fourth quarter headwind from the laundry business. And then second, just on the inventories, just this is the second quarter they have been elevated on a year-over-year basis, so how should we be thinking about that going forward, I know you are moving products into Europe, but is that going to normalize at some point in the outlook or is it just going to stay a little bit above on a year-over-year basis? Thanks.

Jorge Narino

Yes. Thank you. In terms of your first question related to the margin, yes, that does include the – what we had talked about the effects of the laundry business in our margin. Moving onto inventory, as I mentioned during the call earlier, we – our inventory for the fourth quarter increased about 16% over last year and that was primarily driven by our golf and Nike business that keeps expanding and we are expecting for the first quarter of next year to be up in the double digits in that – sorry in the mid double-digit side next year in the first quarter. For purposes of normalizing our inventory by the second quarter we expect our inventory levels to be more in line with what they were during the second quarter of fiscal ‘18.

Greg Pendy

That’s helpful. Thanks a lot.

Oscar Feldenkreis

Thank you, Greg.

Jorge Narino

Thank you.

Operator

And we will go next to Ronald Bookbinder with IFS Securities.

Ronald Bookbinder

Hi, good morning and yes congratulations on a nice finish to the year.

Oscar Feldenkreis

Thank you.

Jorge Narino

Thank you.

Ronald Bookbinder

Continuing on with the inventory, the – you said that it had a lot to do with that, does that mean it’s mainly the Jack Nicklaus launch going into a major mass merchant?

Oscar Feldenkreis

No, Ron the growth of – remember that what you are looking at the total dollar value, so is your Callaway business grows, the value of your inventory grows because the value of Callaway is much higher than a PGA TOUR grand slam or Jack Nicklaus brand, number one. Number two, as Jorge mentioned, we expect and believe that in the first quarter of this New Year, we will have mid double-digit increases in both Nike and golf. So we need that inventory to support it. Remember another thing that today as I mentioned in my remarks our bottoms business has been growing very, very aggressively because of new fabrics and new product initiatives that has caused us to grow that inventory. That inventory is all replenishment inventory, so I don’t – we do not foresee any major liabilities or inventories that are growing that are unmanageable at this present stage. And by the end of Q2 or going into Q2, we will be more at a normalized level in comparison to LY levels.

Ronald Bookbinder

Okay. How is the Jack Nicklaus launch going and what do you expect for fiscal year ‘19 for Jack Nicklaus?

Oscar Feldenkreis

Well, we are very excited with Jack Nicklaus. The brand continues to do extremely well here in the United States and as well as we have just set up shop in shops in Golf Town which is the largest retailer in Canada under the Golden Bear brand which is Jack golf Nicklaus as well, So Jack Nicklaus has – as a brand is doing extremely well and we are in the process now of renewing our license agreement which we should be mentioning that very shortly. So, we are very excited about the opportunity and Jack Nicklaus is a great brand and no better association in today’s day and age so that with the greatest golfer.

Ronald Bookbinder

And do you have international opportunities for that brand outside Canada, Europe, Asia and will that be meaningful?

Oscar Feldenkreis

It is available, that’s something that as I mentioned several times, we will be expanding our portfolio of brand in the golf as far as can we will be launching PGA TOUR with golf, American golf which is in the UK this spring season. So, we are excited about that and that just shows that we continue to expand our portfolio of golf brands not only domestically, but internationally where we can.

Ronald Bookbinder

Okay. And lastly on the SG&A you all stated that it is expected to be consistent with this past year. Is that on a percentage of revenue or is that on a absolute dollars basis?

Jorge Narino

No, it’s more on a percentage of revenue. On an absolute dollar basis, it will increase slightly.

Ronald Bookbinder

Okay. Thank you very much.

Jorge Narino

Thank you.

Oscar Feldenkreis

Thank you.

Operator

And we will take our next question from Edward Yruma with KeyBanc Capital Markets.

Edward Yruma

Good morning. Thanks for taking my question. I guess first in the sporting goods channel, lots of changes in disruption there, one of the major players there is really pivoting more towards private label. I guess, how do you feel about your competitive position there and in inventory levels in the channel for the year? And then second and thinking about the core Perry brand, I know you have done a number of tweaks to marketing. I guess how would you score your marketing efficiency there and any efforts maybe to continue to push the brand forward will be most helpful? Thank you.

Oscar Feldenkreis

First question regarding golf, we believe that with the Callaway brand with all the noises that you are hearing, I think that the reason why some retailers are trying to develop or developing private label is just because we are trying to not compete with over-distributed brands number one. Number two, on the Callaway side, which is our premier brand when it comes to the sporting goods side and we are in Golf Galaxy Academy etcetera, we have instituted about 6 months ago or not more than – yes, 6 months ago mapped pricing, which has allowed us to control our destiny and our price points and retailers are very, very excited with limited distribution. We are more focused on the authentic channel than ever before with the Callaway brand and that’s where we feel that the biggest opportunities for the brand is to grow on the authentic channels and that’s why we expanded on to the tour authentic collection, which positions us at a different level with the highest premium level retail as well as golf courses in America and in the international side. In reference to Perry Ellis we are very excited with our continuous evolution of Perry, the brand, our business is good. We are developing a Perry Ellis America capsule, that’s from the archives. We will have a lot more to share with you with that as we go into Q1, but that is a pure digital launch, no brick and mortar at this present stage and we are very excited about the future that could bring to the company and also not only domestically, but also internationally. And as we expand and we are improving our business in DTC as we continue to focus on the stores, on the sites that are more profitable for us, the brand is doing well as well as our licensees are up as well.

Edward Yruma

Great. Thank you so much.

Oscar Feldenkreis

Thank you, Ed.

Jorge Narino

Thank you.

Operator

And that concludes our question-and-answer session. I would like to turn things back to our speakers for any closing remarks.

Oscar Feldenkreis

Well, I want to thank you all for listening this morning. I want to thank all the Perry Ellis associates, thank you for all your hard work and as well as for our shareholders and we will continue to stay focused for maximizing the opportunities. Have a great day and a great weekend. Thank you.

Operator

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