G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2013 (fiscal 2014 second quarter). The request metadata says “2012 Q2,” but the filing itself clearly reports 2013 periods.
Business context
G-III designs, manufactures and markets apparel and accessories under licensed, proprietary and private-label brands, and operates retail stores. Its reportable segments are licensed products, non-licensed products and retail operations. Vilebrequin, acquired in August 2012, is included in 2013 results; its results reflect the calendar quarter ended June 30, 2013.
Financial results
Amounts below are in millions of dollars except per-share data. Quarterly comparisons are against the three months ended July 31, 2012; six-month comparisons are against the six months ended July 31, 2012.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $304.2 | $251.5 | $576.8 | $480.9 |
| Gross profit | $99.4 | $74.8 | $191.8 | $143.5 |
| Gross margin | 32.7% | 29.8% | 33.3% | 29.8% |
| Operating profit | $7.1 | $3.3 | $10.6 | $3.3 |
| Net income attributable to G-III | $3.6 | $1.4 | $4.7 | $0.5 |
| Diluted earnings per share | $0.17 | $0.07 | $0.23 | $0.03 |
- Sales rose about 21% in the quarter and 20% for the six months. Growth reflected higher Calvin Klein licensed sales, Vilebrequin sales following its acquisition, and retail growth.
- Quarterly gross margin improved to 32.7% from 29.8%; management cited higher-margin Calvin Klein product mix, Vilebrequin’s margins and improved retail mix with less promotional activity.
- SG&A rose to $89.0 million for the quarter and $174.9 million for the six months, driven principally by personnel and facilities, with higher advertising and warehousing costs also contributing for the six-month period.
- Quarterly interest and financing charges were $1.8 million, versus $1.0 million; six-month charges were $3.5 million, versus $2.1 million. The company attributed the increases to higher average borrowings, inventory funding and Vilebrequin-related financing.
- Six-month operating cash flow was negative $58.9 million, compared with negative $57.7 million. Investing cash outflow was $10.7 million, primarily capital expenditures; financing provided $60.2 million, mainly from net borrowings of $57.1 million.
Liquidity, debt and balance sheet
- At July 31, 2013, cash was $16.5 million, current assets $636.2 million and current liabilities $355.5 million. Current notes payable were $122.1 million, with an additional $19.5 million of long-term notes payable.
- Total notes payable of $141.6 million compared with $87.0 million at July 31, 2012; cash was $16.5 million versus $22.7 million. Inventory increased to $406.2 million from $336.4 million year over year, reflecting seasonal buildup and the expanded business.
- The five-year senior secured facility provides up to $450 million, subject to borrowing-base limits; $135.3 million was available at July 31, 2013. The company reported covenant compliance. The facility restricts cash dividends, stock redemptions and repurchases until February 2014, subject thereafter to covenants.
- Open letters of credit were approximately $22.3 million. Management said cash, operating cash generation and facility availability should meet expected operating and capital needs; additional acquisitions could require further financing.
Outlook, commentary and risks
- No specific earnings or revenue guidance is provided. Management cautioned that interim results may not indicate full-year results because of seasonality, and said continued macroeconomic uncertainty could weigh on discretionary consumer spending.
- Management expects to expand Vilebrequin’s retail and wholesale reach and develop additional product categories. It also described planned launches of Ivanka Trump apparel in fiscal Q4 2014 and Calvin Klein swimwear for Spring 2014; these are plans, not reported results.
- Key disclosed risks include dependence on licensors and licensed products, consumer demand and fashion trends, customer concentration and retailer financial health, foreign sourcing and operations, input costs, competition, retail execution, acquisition integration and financing needs.
- Vilebrequin acquisition accounting included $95.6 million of goodwill and identifiable intangible assets in aggregate. Estimated contingent consideration payable was $5.7 million at July 31, 2013, with up to approximately $27.9 million contingent on performance objectives.
- Management reported effective disclosure controls, no material changes to internal control over financial reporting, and no material changes to previously disclosed risk factors or market-risk disclosures.
Most important facts to verify
- Confirm the period: the filing is for the quarter ended July 31, 2013, not 2012.
- Assess how much sales and margin growth reflects Vilebrequin and other mix changes versus comparable, organic growth.
- Track seasonal inventory, operating cash use and borrowing levels through the peak borrowing period.
- Review facility availability, covenant compliance and restrictions on shareholder returns.
- Monitor Vilebrequin performance, acquisition-related contingent consideration and execution of announced product and store expansion plans.