G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2019 (fiscal 2020 third quarter). The filing is dated December 6, 2019; this differs from the “2018 Q3” period in the request metadata.
Business context and reporting period
G-III designs, sources and markets apparel and accessories through wholesale and retail operations, including a portfolio of owned, licensed and private-label brands. The company also operates retail stores and e-commerce sites. Its business is seasonal, and the filing cautions that interim results are not necessarily indicative of full-year results.
Key financial results
| Metric | Three months ended Oct. 31, 2019 | Three months ended Oct. 31, 2018 | Nine months ended Oct. 31, 2019 | Nine months ended Oct. 31, 2018 |
|---|---|---|---|---|
| Net sales | $1,128.4 million | $1,073.0 million | $2,405.8 million | $2,309.4 million |
| Gross profit / margin | $399.0 million / 35.4% | $382.1 million / 35.6% | $866.9 million / 36.0% | $848.2 million / 36.7% |
| Operating profit | $142.9 million | $140.0 million | $195.3 million | $186.3 million |
| Net income | $95.4 million | $94.0 million | $118.5 million | $114.0 million |
| Diluted EPS | $1.97 | $1.86 | $2.42 | $2.26 |
| Net cash used in operating activities | Not reported separately for the quarter | Not reported separately for the quarter | $220.2 million | $236.1 million |
Quarterly sales increased about 5.2% and net income about 1.4% year over year. For the nine-month period, sales increased about 4.2% and net income about 4.0%. Nine-month gross margin declined 0.7 percentage point; management attributed the overall mix impact partly to retail sales forming a smaller share of total sales.
Segment performance: Third-quarter wholesale sales before intersegment eliminations were $1,067.9 million, up from $1,005.4 million; retail sales were $89.7 million, down from $110.9 million. Nine-month wholesale sales were $2,227.4 million versus $2,077.6 million, while retail sales fell to $255.3 million from $322.1 million. Nine-month retail operating loss widened to $49.4 million from $48.8 million; wholesale operating profit rose to $244.7 million from $235.1 million.
Financial position, liquidity and debt
- At October 31, 2019, cash was $55.8 million, accounts receivable $899.0 million, inventory $650.6 million and total current assets $1,685.7 million. Total current liabilities were $713.2 million.
- Notes payable had a carrying value of $674.7 million, plus $0.7 million current portion. The debt includes a $300.0 million term loan, $279.9 million drawn on a $650 million revolving facility, a $125.0 million LVMH note and an approximately $2.9 million unsecured loan. Cash was $55.8 million. The company reported compliance with applicable debt covenants.
- Term loan interest was 7.62% and revolving-facility interest 3.30% at period-end. The term loan matures in December 2022; the revolving facility ends December 2021. The LVMH note principal is due in 2023.
- Operating lease liabilities were $326.9 million, with corresponding lease assets of $293.8 million. The company adopted ASC 842 in fiscal 2020; lease liabilities of $384.5 million and lease assets of $341.2 million were recorded at adoption, along with a $9.6 million after-tax impairment charged to retained earnings.
- Cash used in operations for the nine months was $220.2 million, principally reflecting increases in receivables and inventory and cash outflows related to operating leases. Investing activities used $33.9 million; financing activities provided $239.5 million, including net revolving borrowings and share repurchases.
Material changes, outlook and risks
- Wholesale growth came primarily from Tommy Hilfiger, DKNY/Donna Karan and Calvin Klein products. The expired Ivanka Trump license partially offset growth. A new Calvin Klein Jeans women’s jeanswear line began shipping in the quarter.
- Retail sales and comparable-store performance weakened: nine-month same-store sales fell 17.5% at Wilsons and 13.9% at G.H. Bass, while DKNY same-store sales rose 0.8%. The company operated 288 stores at October 31, 2019, down from 343 a year earlier. Management said it intended broader store closures, cost reductions, merchandising changes and possible repurposing of certain stores; the filing provides no specific forecast for resulting savings or timing.
- Tariffs are a significant cost risk. The company estimated that the additional 15% tariff effective September 1, 2019 could increase second-half fiscal 2020 costs by approximately $12 million, assuming no offsets. It also estimated approximately $6 million of additional costs if the higher tariffs on certain handbags and leather outerwear continued for the remainder of fiscal 2020. Management described the impact of further tariff actions as difficult to estimate and cited sourcing shifts, vendor negotiations and potential price increases as mitigation efforts.
- A Canadian customs-duty dispute remains under appeal. The company secured a CAD$26.9 million bond (reported as $20.9 million) for duties and interest claimed by Canadian authorities. It continued paying duties under the pre-audit valuation method beginning June 1, 2019; the ultimate outcome and any recovery remain uncertain.
- Management stated that cash on hand, cash expected from operations over the full fiscal year and revolving-facility availability should be sufficient for expected operating and capital needs. The filing provides no specific earnings or revenue guidance.
- Other stated risks include retail losses and potential store-related impairments or closure costs, dependence on licensed brands and retail customers, changing consumer preferences, competition and e-commerce disruption, foreign sourcing and currency exposure, and the possibility of additional tariffs. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether wholesale growth and brand performance can offset continued declines and losses in company-operated retail.
- Actual tariff costs, the pace of sourcing diversification and the extent to which pricing or vendor support can offset margin pressure.
- Receivables, inventory and seasonal working-capital needs, given $220.2 million of operating cash outflow over nine months.
- Revolver availability under borrowing-base terms, debt covenant headroom and the effect of debt and lease obligations on liquidity.
- Progress and costs associated with store closures, possible impairments and the Canadian customs-duty appeal.
- Whether management’s full-year liquidity expectation is supported by fourth-quarter operating cash generation and seasonal results.