G-III Apparel Group, Ltd. — Form 10-K Summary
Period: Fiscal year ended January 31, 2015. The supplied filing is for fiscal 2015, not 2013 Q4; it also includes unaudited quarterly data. Financial amounts below are in U.S. dollars.
Business context
G-III designs, sources and markets apparel, footwear and accessories through licensed brands, proprietary brands and private labels, and operates retail stores. Its three reporting segments are licensed products, non-licensed products and retail operations. The fiscal 2015 results include G.H. Bass for the full year following its November 2013 acquisition; Vilebrequin results are reported through December 31, 2014.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $2,116.9 million | $1,718.2 million |
| Gross profit / margin | $757.3 million / 35.8% | $585.0 million / 34.0% |
| Operating profit / margin | $164.9 million / 7.8% | $130.8 million / 7.6% |
| Net income attributable to G-III | $110.4 million | $77.4 million |
| Diluted earnings per share | $4.97 | $3.71 |
| Cash from operating activities | $81.6 million | $84.6 million |
| Capital expenditures | $42.6 million | $29.3 million |
| Cash and cash equivalents at year-end | $128.4 million | $22.1 million |
| Working capital at year-end | $557.7 million | $345.0 million |
Sales increased approximately 23% and attributable net income approximately 43% year over year. The company reported $11.5 million of other income, including gains relating to Vilebrequin contingent consideration and notes, and termination/sale of Calvin Klein Performance interests. Excluding these items, the filing does not provide a single adjusted earnings measure.
At January 31, 2015, the company had no borrowings outstanding and reported $411.3 million available under its asset-based credit facility, which has a stated maximum of $450 million and runs through August 2017. It was in compliance with its covenants. The prior-year balance sheet included $48.8 million of short-term borrowings and $20.6 million of long-term notes payable; the latter were Vilebrequin acquisition notes, repurchased during FY2015. FY2015 operating cash flow reflected higher inventories and receivables, partly offset by growth in payables and accrued expenses.
Material changes and quarterly information
- Licensed-product sales rose to $1,293.3 million from $1,145.2 million; non-licensed sales rose to $452.6 million from $342.7 million; retail sales rose to $499.3 million from $298.0 million. Retail growth chiefly reflected the inclusion of G.H. Bass, while licensed growth included Calvin Klein and newer product lines.
- Gross margin improved overall. Segment gross margins were 28.7% for licensed products, 34.2% for non-licensed products and 46.4% for retail operations. Retail margin declined from 49.5%, primarily because Bass had a lower gross margin than the other retail businesses.
- SG&A increased to $572.0 million and 27.0% of sales, from $440.5 million and 25.6%. The company cited Bass-related costs, higher personnel and facility costs, and capacity-related third-party warehousing.
- Fiscal fourth-quarter net sales were $514.3 million versus $472.8 million in the prior-year quarter; net income attributable to G-III was $22.2 million versus $13.1 million.
- In June 2014, G-III issued 1.725 million shares and received net proceeds of $128.7 million. Stockholders’ equity increased to $761.3 million from $522.0 million.
Outlook, risks and contingencies
- No specific consolidated revenue or earnings guidance is stated in the supplied filing text. Management expected to open approximately nine Wilsons Leather and nine G.H. Bass outlet stores in fiscal 2016; Bass women’s apparel was planned for Fall 2015, with Genesco-licensed Bass footwear shipments expected for Spring 2016.
- Management describes the business as highly seasonal: July through November represented 56% of FY2015 sales, and the second half is expected to contribute a disproportionate share of sales and most annual net income.
- Key risks include dependence on licenses (57.6% of sales), especially Calvin Klein; customer concentration (top ten customers were 58.4% of sales and Macy’s/Bloomingdale’s 18.7%); fashion and inventory risk; foreign manufacturing and currency exposure; weather sensitivity; and competition and outlet-store traffic.
- Contractual obligations totaled approximately $902.0 million, including $425.6 million of operating lease obligations and $465.4 million of minimum royalty and advertising payments. These are scheduled commitments, not all current debt.
- The company reported no legal proceedings it believed would have a material adverse effect. Management and Ernst & Young reported effective internal control over financial reporting, and the auditor issued unqualified opinions. One SEC staff comment regarding segment reporting remained open at the filing date.
Most important facts for investors to verify
- How much FY2015 earnings growth was recurring versus driven by the $11.5 million of other income and acquisition-related changes.
- Whether Bass and other retail operations can improve profitability given the lower retail gross margin and higher operating costs.
- Whether customer and licensor concentration, particularly Macy’s and Calvin Klein, changes materially.
- Inventory quality, working-capital requirements and seasonal borrowing needs, given the year-over-year increases in inventory and receivables.
- Execution of planned store openings, Bass product expansion and the Genesco footwear license, alongside the substantial lease and minimum royalty commitments.