G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended July 31, 2021 (the second quarter of fiscal 2022), not 2020 Q2 as stated in the request metadata. Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Business context and performance
G-III designs, sources and markets apparel and accessories through wholesale and retail operations, using owned, licensed and private-label brands. Wholesale is the larger business. The company completed a retail restructuring in fiscal 2021, closing Wilsons Leather, G.H. Bass and Calvin Klein Performance stores; it operated 50 stores at July 31, 2021, versus 247 a year earlier.
Key financial metrics
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Net sales | $483.1 | $297.2 | $1,003.0 | $702.3 |
| Gross profit / margin | $192.9 / 39.9% | $134.7 / 45.3% | $388.3 / 38.7% | $259.1 / 36.9% |
| Operating profit (loss) | $38.9 | $(11.4) | $85.8 | $(54.7) |
| Net income (loss) attributable to G-III | $19.2 | $(15.0) | $45.5 | $(54.3) |
| Diluted earnings (loss) per share | $0.39 | $(0.31) | $0.92 | $(1.13) |
| Cash from operating activities | Not presented separately | Not presented separately | $193.8 | $59.8 |
- Quarterly wholesale sales were $467.0 million, up from $266.8 million; retail sales were $27.3 million, down from $34.5 million. Six-month wholesale sales were $978.5 million versus $645.7 million; retail sales were $46.7 million versus $68.4 million.
- At July 31, 2021, cash and cash equivalents were $510.0 million, current assets $1,461.8 million and current liabilities $485.5 million. The company reported approximately $400 million of availability under its revolving credit facility and no revolver borrowings.
- Notes payable were $517.6 million on the balance sheet, including current and long-term amounts. Principal debt included $400 million of 7.875% secured notes due 2025 and a $125 million LVMH note bearing 2% interest, with principal payments due in 2023. Vilebrequin also had unsecured loans and overdraft borrowings. The company stated it was compliant with debt covenants.
- Six-month investing cash outflow was $32.5 million, including a $25 million minority investment in an e-commerce retailer; financing cash outflow was $2.6 million. Cash increased by $158.1 million from January 31, 2021.
Material changes versus the prior comparable period
- Sales and earnings rebounded from the COVID-affected prior-year periods as retail partners reopened and consumer demand improved. The comparisons are against periods with substantial pandemic disruption.
- Quarterly gross margin fell to 39.9% from 45.3%. Management attributed the prior-year wholesale margin to reversals of markdown accruals and royalty expense; current-period margins also faced higher freight costs. For the six-month period, gross margin increased to 38.7% from 36.9%, supported by less promotional activity and strategic price increases, partly offset by freight costs.
- Quarterly SG&A increased to $146.8 million from $122.1 million, primarily due to higher compensation, advertising and warehouse expenses; the prior year included furloughs and reduced salaries. Six-month SG&A rose to $288.4 million from $276.7 million, with lower facility, professional-fee and bad-debt expenses partly offsetting higher compensation and sales-related costs.
- Interest and financing charges increased to $12.6 million for the quarter and $24.6 million for six months, principally because the 7.875% notes replaced the lower-rate term loan. Prior-year periods included impairment and lease-related charges; no asset impairment charge was recorded in the current periods.
- Operating cash flow improved to $193.8 million from $59.8 million for the six months, reflecting earnings and working-capital movements, including lower receivables and higher payables/accruals, partly offset by inventory growth and lower customer refund liabilities.
Outlook, commentary, risks and contingencies
- Management expected significant improvement in fiscal 2022 results versus fiscal 2021, but said COVID-19 would continue to adversely affect sales, earnings and cash flows. The Delta variant and potential renewed restrictions were cited as uncertainties. No specific numerical guidance was provided in the supplied filing text.
- Supply-chain congestion and limited container availability drove freight costs higher and delayed some orders into the third quarter. Management reported no order cancellations to date, expected elevated freight costs and delivery delays to continue in the second half, and believed selective price increases could largely offset higher freight costs.
- Management cited continuing shifts toward online shopping, retail customer financial difficulties, fashion and demand uncertainty, reliance on licensors and foreign manufacturers, tariffs, currency exposure, cybersecurity and other risks. Seasonal inventory and receivables needs can increase borrowing requirements, typically peaking in the third fiscal quarter.
- A Canadian customs-duty dispute remains on appeal. The company provided a CAD$26.9 million bond (reported as approximately $20.9 million) and had paid or deferred cumulative amounts of CAD$14.4 million (approximately $11.6 million) related to the disputed valuation. The hearing was postponed and a new date had not been set; the company said it intended to contest the decision.
- The company received non-refundable European government-backed COVID-19 grants through Vilebrequin: $0.6 million in the quarter and $2.1 million for six months. It also changed its retail inventory valuation method prospectively effective February 1, 2021; the $0.3 million opening retained-earnings adjustment was not material.
Most important facts for investors to verify
- Whether the strong sales and earnings recovery persists beyond comparisons with the pandemic-disrupted 2020 periods, particularly in wholesale and after the retail-store closures.
- Whether freight inflation and delivery delays continue, and whether price increases offset the added costs without weakening demand or margins.
- Cash conversion and seasonal working-capital requirements, including inventory levels, receivable collections and actual use of the available ABL capacity.
- Debt service and refinancing considerations, especially the 7.875% secured notes and the LVMH note’s 2023 maturities and related springing-maturity provision under the ABL facility.
- Developments in the Canadian customs appeal and any resulting duties, interest, refunds or other financial exposure.