G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2014, compared with the three months ended April 30, 2013. The filing’s period differs from the request metadata (“2013 Q1”). Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and results
G-III designs, manufactures, markets and retails apparel, footwear, accessories and related products through licensed, proprietary and private-label brands. Its segments are licensed products, non-licensed products and retail operations. The quarter includes G.H. Bass, acquired in November 2013; results of Vilebrequin and the Calvin Klein Performance China/Hong Kong joint venture reflect the three months ended March 31, 2014.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net sales | $366.2 | $272.6 |
| Gross profit / gross margin | $130.2 / 35.5% | $92.4 / 33.9% |
| Operating profit / operating margin | $3.5 / 1.0% | $3.4 / 1.3% |
| Interest and financing charges, net | $1.8 | $1.8 |
| Income before taxes | $1.8 | $1.7 |
| Net income attributable to G-III | $1.3 | $1.1 |
| Diluted EPS | $0.06 | $0.05 |
| Cash used in operating activities | $3.3 | $14.2 |
| Capital expenditures | $10.1 | $4.6 |
Material changes and financial position
- Sales increased 34% year over year. Licensed-product sales rose to $216.7 million, principally on Calvin Klein growth; non-licensed sales reached $67.7 million. Retail sales more than doubled to $95.6 million, primarily reflecting $44.2 million of G.H. Bass sales.
- Gross margin improved, including gains in non-licensed products. Retail gross margin fell to 47.0% from 50.9%, reflecting lower-margin G.H. Bass sales and higher Wilsons markdowns.
- SG&A increased to $122.4 million from $85.8 million, and to 33.4% of sales from 31.6%. Management cited added personnel and facility costs, largely associated with Bass and store expansion, as well as higher advertising. Operating profit consequently grew only modestly despite higher sales.
- At April 30, 2014, cash was $23.6 million; current assets were $550.9 million and current liabilities $208.3 million. Inventory was $322.7 million, up from $242.1 million a year earlier.
- Credit-facility borrowings were $63.0 million; the Vilebrequin promissory notes were $20.5 million. Management reported total outstanding borrowings of $83.5 million and $160.9 million available under the facility. An additional $5.1 million was due to a noncontrolling shareholder.
- Operating cash use improved from $14.2 million to $3.3 million. Working-capital movements included a $50.8 million decrease in accounts payable, accrued expenses and other liabilities, partially offset by inventory and receivables reductions. Financing provided $15.1 million, including $14.1 million of net credit-facility borrowings.
Outlook, risks and notable items
The filing provides no specific revenue or earnings guidance. Management said cash on hand, expected operating cash generation and credit availability should be sufficient for anticipated operating and capital needs, while noting that acquisitions could require additional financing and that such financing may not be available on acceptable terms. The company’s business is seasonal, and management cautioned that interim results are not necessarily indicative of the full year.
Risks discussed include reliance on licensed brands and licensors, consumer acceptance and fashion trends, customer concentration and retailer financial health, foreign sourcing and international operations, input and transportation costs, competition, retail execution, acquisitions, and the need for financing. Management reported compliance with credit-agreement covenants, effective disclosure controls, and no material changes to previously disclosed risk factors or market-risk disclosures. The China/Hong Kong joint venture reported a $0.4 million loss for the quarter.
Important facts for investors to verify
- Confirm the reporting period: the filing covers the quarter ended April 30, 2014, notwithstanding the request metadata’s “2013 Q1.”
- Assess how much of sales growth and the expanded retail footprint is attributable to the G.H. Bass acquisition, and whether the acquired stores can sustain margins.
- Monitor seasonal inventory, working-capital cash use, borrowing levels and remaining availability under the asset-based credit facility.
- Evaluate whether growth in SG&A and retail markdowns outpaces gross-profit improvement, and track performance of the licensed and non-licensed segments.
- Review the company’s annual report risk factors and credit-agreement covenants for fuller detail; this filing does not quantify a forward earnings outlook.