Filing and reporting period
G-III Apparel Group, Ltd. filed this unaudited Form 10-Q for the quarter ended July 31, 2015 (fiscal 2016 second quarter), with six-month results also presented. This differs from the request metadata identifying “2014 Q2”; the filing itself reports 2015 periods.
The company designs, markets and sells apparel, footwear and accessories through wholesale and retail operations. Its retail businesses include Wilsons Leather, G.H. Bass, Vilebrequin and Calvin Klein Performance. The company reorganized segment reporting into wholesale and retail operations beginning in fiscal 2016. All per-share data reflects a two-for-one stock split effective May 1, 2015.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Three months ended July 31, 2015 | Three months ended July 31, 2014 | Six months ended July 31, 2015 | Six months ended July 31, 2014 |
|---|---|---|---|---|
| Net sales | $473.9 | $424.0 | $906.8 | $790.2 |
| Gross profit | $168.3 | $148.4 | $322.8 | $278.5 |
| Gross margin | 35.5% | 35.0% | 35.6% | 35.2% |
| Operating profit | $20.9 | $11.8 | $32.7 | $15.3 |
| Net income attributable to G-III | $12.5 | $6.2 | $19.2 | $7.5 |
| Diluted earnings per share | $0.27 | $0.14 | $0.42 | $0.18 |
- Second-quarter sales rose 11.8%; G-III attributed wholesale growth largely to Calvin Klein, Ivanka Trump, Andrew Marc and Vince Camuto products. Retail sales increased, led by G.H. Bass comparable-store sales growth of 23.8%; Wilsons comparable sales were approximately unchanged.
- For the six-month period, sales increased 14.8%. G.H. Bass comparable-store sales rose 20.8%, while Wilsons comparable sales were approximately unchanged.
- Quarterly wholesale gross margin eased to 29.7% from 30.2%; retail gross margin improved to 46.8% from 45.3%, primarily reflecting better G.H. Bass performance. Six-month segment margins were broadly similar year over year.
- SG&A rose to $141.5 million for the quarter and $278.5 million for six months. Management cited higher personnel, advertising and product-development costs for the quarter; six-month increases also included warehouse facility costs. Interest expense declined with lower average borrowings.
Cash flow, balance sheet and liquidity
- Cash and equivalents were $18.8 million at July 31, 2015, versus $21.5 million a year earlier and $128.4 million at January 31, 2015.
- Operating activities used $77.8 million in the first six months, compared with $106.6 million used in the prior-year period. Seasonal inventory buildup used $179.7 million and receivables increased by $40.7 million, partly offset by a $120.6 million increase in accounts payable, accrued expenses and other liabilities.
- Investing activities used $42.1 million, including $25.5 million for the Karl Lagerfeld North America joint venture investment and $16.6 million in capital expenditures. Financing activities provided $12.6 million. Cash declined by $109.5 million from the fiscal-year opening balance.
- Inventory was $605.2 million, up from $534.2 million a year earlier and $426.2 million at January 31, 2015. Total assets were $1.189 billion; total liabilities were $404.3 million.
- Revolving credit borrowings were $5.5 million, versus $45.0 million a year earlier; there was no long-term borrowing at July 31, 2015. The company reported $326.6 million available under its $450 million asset-based facility, which runs through August 2017, and said it was in covenant compliance. Open letters of credit were approximately $11.1 million.
Material changes, outlook and risks
- In June 2015, G-III paid $25.0 million for a 49% interest in Karl Lagerfeld North America BV, which holds specified Karl Lagerfeld brand rights in the U.S. and Canada and a license for Mexico. G-III also became the joint venture’s first licensee; it expected product shipments to retailers in the second half of the year.
- Management said cash on hand, operating cash generation and funds available under the credit agreement were expected to be sufficient for operating and capital needs. It noted that acquisitions could require additional financing, which might not be available on acceptable terms.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management cautioned that the business is seasonal and interim results are not necessarily indicative of full-year results; peak facility borrowings generally occur in the third fiscal quarter.
- Disclosed risks include dependence on licensed brands and licensors, fashion and consumer demand, customer concentration and retailer financial distress, foreign sourcing and operations, product cost and availability, competition, retail execution, and acquisition and financing risks. Management reported no material changes to previously disclosed risk factors, market-risk disclosures or critical accounting policies, and concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the reporting period: the filing is for the quarter ended July 31, 2015, not 2014 Q2.
- Track seasonal inventory, receivables and payables, and cash conversion as the fall shipping season progresses.
- Assess whether G.H. Bass sales momentum and improved retail margins continue, while monitoring wholesale margin trends and rising operating expenses.
- Verify the commercial performance, timing of shipments and financial contribution of the Karl Lagerfeld investment and licensed products.
- Review the company’s credit-facility availability, borrowing-base limits and covenant compliance as seasonal funding needs increase.