G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: The filing covers the three months ended April 30, 2015, the first quarter of fiscal 2016, compared with the three months ended April 30, 2014. This differs from the request metadata identifying 2014 Q1. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted. Vilebrequin results are included through March 31, 2015 because it reports on a calendar-year basis.
Business context
G-III designs, manufactures, markets and retails apparel, footwear, luggage and accessories through wholesale and retail operations. Its portfolio includes proprietary, licensed and private-label brands. The company began reporting two segments in fiscal 2016: wholesale and retail. At quarter-end, it operated 183 Wilsons Leather stores, 157 G.H. Bass stores, 5 Calvin Klein Performance stores and 76 Vilebrequin stores.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $433.0 million | $366.2 million |
| Gross profit / margin | $154.4 million / 35.7% | $130.1 million / 35.5% |
| Operating profit / margin | $11.7 million / 2.7% | $3.5 million / 0.9% |
| Net income attributable to G-III | $6.8 million | $1.3 million |
| Diluted earnings per share | $0.15 | $0.03 |
| Net cash used in operating activities | $36.1 million | $3.3 million |
| Capital expenditures | $7.7 million | $10.1 million |
Sales increased 18.2%. Wholesale sales rose to $352.5 million from $285.1 million; retail sales rose to $102.5 million from $95.0 million before $22.0 million of intersegment eliminations. Wholesale operating profit was $18.6 million, compared with $12.2 million; retail operating losses narrowed to $6.8 million from $8.8 million. Wholesale gross margin improved to 30.4% from 30.1%, while retail gross margin eased to 46.2% from 46.7%.
SG&A increased to $137.0 million from $122.4 million, primarily reflecting higher personnel, warehouse/facility and advertising costs. Interest and financing charges declined to $1.0 million from $1.7 million. The effective tax rate was 37.0%, versus 38.0%, mainly due to foreign tax savings. Foreign currency translation produced an $11.1 million other comprehensive loss; comprehensive loss was $4.4 million despite net income.
Balance sheet, cash flow and liquidity
At April 30, 2015, cash was $85.7 million, versus $23.6 million a year earlier and $128.4 million at January 31, 2015. Total assets were $952.1 million and total liabilities were $190.9 million. Inventory was $371.2 million, down from $426.2 million at fiscal year-end but up from $322.7 million a year earlier. The company had no borrowings outstanding, compared with $83.5 million of total borrowings a year earlier. Its secured credit facility provides for up to $450 million, subject to borrowing-base limits; $373.5 million was available at quarter-end. The company reported covenant compliance. Open letters of credit represented contingent liabilities of approximately $22.9 million.
Operating cash use of $36.1 million reflected, among other items, a $92.5 million reduction in accounts payable, accrued expenses and other liabilities and a $10.9 million increase in receivables, partly offset by a $54.1 million inventory reduction and net income. Management attributed these working-capital movements largely to seasonal patterns, vendor payments and year-end bonus payments. Cash used in investing was $7.7 million, mainly for store-related capital expenditures; financing activities provided $0.6 million.
Outlook, commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management said cash on hand, operating cash generation, public-offering proceeds and credit-facility availability should be sufficient for expected operating and capital needs. It may seek acquisitions and could require additional financing to complete them; availability and terms are not assured. The business is seasonal, with peak facility borrowings generally in the third fiscal quarter, and interim results are not necessarily indicative of full-year results.
Management cited risks including consumer acceptance and changing fashion preferences, reliance on licensed brands and licensors, customer concentration and retailer financial distress, foreign manufacturing and sourcing, product costs and availability, international operations, competition, and the execution and financing of acquisitions. The filing reported no material changes to previously disclosed risk factors or market-risk disclosures. A two-for-one stock split was approved in April 2015 and effected May 1, 2015; share and per-share figures were retroactively adjusted.
Important facts for investors to verify
- Confirm the intended period: this filing is for the quarter ended April 30, 2015, not 2014 Q1.
- Assess whether sales growth and improved operating profit can continue, particularly given higher SG&A and continuing retail operating losses.
- Monitor seasonal working-capital needs, operating cash use and the decline in cash since January 31, 2015.
- Review borrowing-base availability, credit covenants and contingent obligations under letters of credit as seasonal financing needs rise.
- Evaluate exposure to licensed brands, retail customers, foreign sourcing and currency movements, including the quarter’s translation loss.