Business context and reporting period
G-III Apparel Group designs, sources, markets and retails apparel and accessories through licensed brands, proprietary brands and private-label programs. Its segments are licensed products, non-licensed products and retail operations. This is a Form 10-K for the fiscal year ended January 31, 2013 (fiscal 2013), not a 2011 Q4 report as indicated in the request metadata. Vilebrequin results are included from its August 2012 acquisition through December 31, 2012.
Key financial metrics
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Net sales | $1,399.7 million | $1,231.2 million |
| Gross profit / margin | $451.6 million / 32.3% | $370.7 million / 30.1% |
| Operating profit / margin | $100.5 million / 7.2% | $86.2 million / 7.0% |
| Net income attributable to G-III | $56.9 million; diluted EPS $2.80 | $49.6 million; diluted EPS $2.46 |
| Cash from operating activities | $54.5 million | $6.8 million |
| Cash and cash equivalents at year-end | $27.4 million | $24.7 million |
| Working capital | $283.4 million | $288.3 million |
- Year-end revolving-credit borrowings were $65.0 million, with $19.8 million of Vilebrequin acquisition notes; total debt was approximately $84.8 million. Net debt was reported as $57.4 million. The company reported $153.4 million available under its $450 million asset-based facility, subject to borrowing-base limits.
- Inventory was $280.9 million, up from $253.5 million. Fiscal 2013 investing cash use was $90.0 million, including $80.3 million for Vilebrequin and $11.6 million of capital expenditures.
- Fiscal 2013 segment sales: licensed products $981.8 million; non-licensed products $281.9 million; retail operations $196.2 million, before intersegment eliminations.
Material changes versus the prior year
- Sales rose 13.7%; licensed sales grew to $981.8 million, led by Calvin Klein, new Kensie lines and team sports apparel. Retail sales increased to $196.2 million, including a 12.6% comparable-store sales increase.
- Gross margin recovered to 32.3% from 30.1%. Management attributed improvement to product mix and higher-margin Kensie and Vilebrequin sales, increased Calvin Klein penetration in higher-margin channels, and reduced retail promotions.
- SG&A rose to $341.2 million from $277.0 million, increasing to 24.4% of sales from 22.5%. Management cited higher personnel, advertising, warehousing and acquisition-related professional costs.
- Operating profit increased, but interest and financing charges also rose to $7.8 million from $5.7 million, mainly due to borrowing for the acquisition. Operating cash flow strengthened substantially as inventory and receivables grew less than in the prior year.
- Vilebrequin was acquired for approximately $111.7 million of total consideration, including cash, 5% promissory notes and estimated contingent consideration. The acquisition added 63 stores and significant goodwill and intangible assets.
Outlook, risks and unusual items
- No specific fiscal 2014 revenue or earnings guidance is provided. Management planned approximately 20 new Wilsons stores and forecast $20–$25 million of fiscal 2014 capital expenditures, primarily for Wilsons and Vilebrequin retail development and fixtures. It expected no significant raw-material cost increases in fiscal 2014.
- Management cautioned that uncertain economic conditions could weigh on discretionary apparel spending. The business is highly seasonal: July–November generated about 58% of fiscal 2013 sales, and the second half is expected to contribute a substantial majority of annual net income.
- Key risks include dependence on licensed brands (67.3% of sales), licensor renewal and minimum-royalty terms, and customer concentration: the ten largest customers represented 63.7% of sales; Macy’s represented 21.3%. Sales are generally order-based, without long-term customer contracts.
- Other material exposures include fashion and weather variability, retailer consolidation and credit risk, foreign sourcing and import costs, foreign-exchange exposure, and Vilebrequin integration and reliance on a single principal manufacturer. The company had no currency hedging program.
- Contractual obligations totaled $628.9 million, including $367.8 million of minimum royalties and advertising payments and $221.7 million of operating leases. Up to approximately $27.9 million of additional Vilebrequin consideration may be payable based on performance; $5.8 million was accrued at year-end.
- Pending litigation was described as ordinary-course matters not believed likely to have a material adverse effect. Auditors issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded Vilebrequin, representing 19.2% of year-end assets.
Important facts for investors to verify
- Confirm the intended period: the supplied filing covers fiscal 2013 ended January 31, 2013, rather than 2011 Q4.
- Track licensed-brand concentration, especially Calvin Klein, and upcoming license expirations, renewal conditions and minimum royalty commitments.
- Assess whether Vilebrequin meets growth objectives and whether integration, store expansion, contingent payments and single-manufacturer dependence affect returns.
- Monitor inventory, receivables, seasonal borrowing needs, borrowing-base availability and compliance with credit-facility covenants.
- Evaluate customer concentration, gross-margin durability and the impact of planned store openings and capital spending on cash generation.