G III APPAREL GROUP LTD annual report, FY2012

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

MetricFiscal 2013Fiscal 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

  1. Confirm the intended period: the supplied filing covers fiscal 2013 ended January 31, 2013, rather than 2011 Q4.
  2. Track licensed-brand concentration, especially Calvin Klein, and upcoming license expirations, renewal conditions and minimum royalty commitments.
  3. Assess whether Vilebrequin meets growth objectives and whether integration, store expansion, contingent payments and single-manufacturer dependence affect returns.
  4. Monitor inventory, receivables, seasonal borrowing needs, borrowing-base availability and compliance with credit-facility covenants.
  5. Evaluate customer concentration, gross-margin durability and the impact of planned store openings and capital spending on cash generation.