G-III Apparel Group, Ltd. — Form 10-Q summary
Reporting period: Quarter and nine months ended October 31, 2015 (fiscal 2016). The request metadata says “2014 Q3,” but the filing itself reports 2015 results and compares them with 2014. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Quarter 2015 | Quarter 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $909.9 | $812.3 | $1,816.7 | $1,602.5 |
| Gross profit / margin | $337.1 / 37.0% | $295.3 / 36.3% | $659.8 / 36.3% | $573.8 / 35.8% |
| Operating profit / margin | $139.4 / 15.3% | $113.3 / 13.9% | $172.1 / 9.5% | $128.6 / 8.0% |
| Net income attributable to G-III | $87.2 | $80.6 | $106.4 | $88.1 |
| Diluted earnings per share | $1.87 | $1.76 | $2.29 | $2.02 |
- Quarter sales rose 12.0%; gross profit rose 14.2% and operating profit 23.0%. Nine-month sales rose 13.4%; gross profit rose 15.0% and operating profit 33.8%.
- SG&A was $191.0 million for the quarter and $469.6 million for nine months, up from $176.4 million and $430.4 million, respectively. Management attributed increases primarily to staffing and personnel, warehouse/facility costs, and advertising.
- Quarter other income was approximately $0.9 million, compared with $12.0 million a year earlier. Nine-month interest and financing expense declined to $4.1 million from $6.0 million. The effective tax rate was approximately 37.0%, versus 35.3% for the quarter and 35.5% for nine months in 2014.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was negative $195.3 million, versus negative $162.5 million. Working-capital use included a $339.4 million increase in receivables and an $84.7 million increase in inventory.
- Investing cash outflow was $59.8 million, including $34.3 million in capital expenditures and $25.5 million for the Karl Lagerfeld North America investment. Financing provided $182.7 million, including $171.8 million of net revolving-credit borrowings.
- Cash was $54.3 million at October 31, 2015, versus $49.2 million a year earlier. Credit-facility borrowings were $171.8 million, versus $153.9 million; the company cited seasonal inventory needs. The $450 million secured facility matures in August 2017, and reported availability was $264.9 million. The company said it was compliant with covenants.
- Management believed cash, operating cash generation, and credit availability would cover expected operating and capital needs and potential repurchases. It noted additional financing might be needed for acquisitions.
Business developments, changes, and outlook
- Wholesale sales growth was led by Calvin Klein licensed products, private label, licensed team sports, and other licensed brands. Retail sales fell in the quarter: Wilsons same-store sales declined 11.8%, attributed mainly to unusually warm weather and lower sales at tourist-frequented locations; G.H. Bass same-store sales rose 4.2%. For nine months, retail sales grew, supported by 14.0% G.H. Bass same-store growth.
- Wholesale gross margin improved, particularly in Calvin Klein products. Management warned that continued warm weather could increase markdowns and allowances, harming fourth-quarter and full-year results. Retail gross margin also improved.
- Beginning in fiscal 2016, reporting changed to wholesale and retail segments. The company announced new Tommy Hilfiger women’s dress licensing and launched Hands High licensed sports apparel. It also began shipping Karl Lagerfeld products in the quarter; the filing describes a 49% joint-venture interest and a five-year license with renewal options.
- On December 2, 2015, the board increased the authorized share-repurchase capacity from 3.75 million to 5.0 million shares, subject to market conditions and loan covenants. The filing gives no earnings guidance.
- Reported risks include seasonality, fashion and consumer-preference shifts, customer concentration and retailer credit risk, reliance on licenses and foreign manufacturers, competition, sourcing and import challenges, and acquisition and retail-business risks. Management reported no material changes to previously disclosed risk factors, no material changes in market-risk disclosure, and effective disclosure controls.
Important facts to verify
- Confirm the intended period: the filing is for the quarter ended October 31, 2015, despite the request metadata’s “2014 Q3.”
- Reconcile other income: the income statements show $896,000, while the note and MD&A state $899,000.
- Check the joint-venture date inconsistency: a note says the agreement was entered into in June 2016, while the MD&A says June 2015 and reports the investment during 2015.
- Assess seasonal working-capital requirements, especially receivables, inventory, and borrowings, and monitor warm-weather markdown exposure and the retail same-store sales trend.
- Review credit-facility availability and covenants before assuming the expanded repurchase authorization will be used; authorization does not mean shares will necessarily be repurchased.