G-III Apparel Group, Ltd. — Form 10-K Summary
Period clarification: The supplied filing is for the fiscal year ended January 31, 2021, not 2019 Q4 as indicated in the request metadata. Comparisons below are primarily with the fiscal year ended January 31, 2020.
Business context
G-III designs, sources and markets apparel, footwear and accessories through wholesale and retail operations. Its portfolio includes more than 30 licensed and proprietary brands, anchored by DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris. The company sells through retailers, digital partners and its own stores and online channels.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2,055.1 million | $3,160.5 million |
| Gross profit / margin | $744.4 million / 36.2% | $1,117.9 million / 35.4% |
| Operating profit / margin | $82.8 million / 4.0% | $227.7 million / 7.3% |
| Net income attributable to G-III | $23.5 million | $143.8 million |
| Diluted EPS | $0.48 | $2.94 |
| Cash from operating activities | $74.8 million | $209.0 million |
- Sales declined approximately 35.0%. Wholesale sales fell to $1,916.8 million from $2,862.9 million; retail sales fell to $170.4 million from $385.9 million.
- Wholesale gross margin improved to 35.9% from 32.7%, partly due to reversal of markdown accruals. Retail gross margin declined to 33.6% from 46.7%, reflecting COVID-related disruption, promotions and liquidation activity.
- Cash and cash equivalents were $351.9 million at year-end, versus $197.4 million a year earlier. Working capital was $942.0 million. The company reported more than $450 million of availability under its revolving credit facility and no borrowings under that facility at year-end.
- Operating cash flow was $74.8 million; investing activities used $20.1 million, principally for capital spending. Financing activities provided $94.8 million, primarily reflecting the new notes issuance and repayment of the prior term loan.
- Year-end debt carrying value was approximately $512.4 million, including $400 million of 7.875% senior secured notes due 2025 and the LVMH note with $125 million face principal due in 2023, plus smaller subsidiary borrowings. The ABL facility permits up to $650 million of borrowings, subject to availability. The company said it was in compliance with debt covenants.
Material changes versus the prior comparable period
- COVID-19-related store closures, restrictions, lower traffic and reduced consumer demand materially reduced sales and earnings. First- and second-quarter results included losses; the third and fourth quarters were profitable.
- G-III commenced a retail restructuring in June 2020 and completed closures of 110 Wilsons Leather stores, 89 G.H. Bass stores and four Calvin Klein Performance stores. Retail operations recorded a $126.8 million operating loss, compared with $74.6 million in FY2020.
- The restructuring generated approximately $100 million of charges, of which about $65 million was cash. Management’s continuing retail plan focuses on DKNY and Karl Lagerfeld Paris stores and digital channels.
- The company refinanced its term loan with $400 million of 7.875% senior secured notes and replaced its revolving credit agreement with a five-year, $650 million ABL facility. Interest and financing charges increased to $50.4 million from $44.4 million, including a $6.5 million debt-extinguishment charge.
- Sales of licensed products represented 64.5% of net sales, up from 59.4%. Calvin Klein and Tommy Hilfiger together represented approximately 53.5% of net sales.
- G-III increased its ownership of Fabco, its DKNY/Donna Karan China joint venture, from 49% to 75% effective December 1, 2020, and began consolidating it.
Outlook, risks and unusual items
- Management expects COVID-19 to continue adversely affecting FY2022 sales, earnings and cash flows. It did not provide a full-year FY2022 forecast; the supplied filing text does not provide a clear numerical first-quarter forecast.
- Key risks include continued pandemic disruption, promotional pressure and inventory markdowns, retailer financial distress and credit losses, customer concentration, and dependence on licensors. Macy’s accounted for 20.9% of FY2021 sales; the ten largest customers accounted for 73.3%.
- Retail operations remain a significant loss-making area. The restructuring’s success depends on improving planning, allocation and gross margins while reducing overhead; further impairment or restructuring charges remain possible.
- Licensing creates renewal and termination exposure. Minimum royalty and advertising commitments totaled approximately $345.1 million. The filing lists the Karl Lagerfeld Paris license and NBA license as ending in 2021, subject to their respective terms.
- A Canadian customs valuation dispute remains under appeal. A CAD $26.9 million bond (reported as approximately $20.9 million) secures claimed duties and interest; an adverse outcome could require additional charges and increase future import costs.
- Goodwill, trademarks and other intangibles totaled $741.8 million, approximately 30% of assets. The company reported no impairment in its FY2021 tests, but pandemic-related uncertainty may prompt future impairment reviews.
- The company reported a $2.7 million gain associated with the Fabco ownership change and recorded a bargain purchase gain. It also used CARES Act provisions to carry back a tax loss; the effective tax rate was 34.2%, versus 21.0% in FY2020.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers FY2021, not 2019 Q4.
- Track sales recovery, margins, operating cash generation and customer refund liabilities as pandemic effects and retailer conditions evolve.
- Assess whether the reduced retail footprint can narrow operating losses and whether further closures or impairments are needed.
- Review debt service, ABL borrowing availability, covenant compliance and the LVMH note’s 2023 maturity; confirm the senior notes’ stated 2025 maturity against the detailed debt disclosures.
- Monitor license renewals, particularly the agreements identified as expiring in 2021, and G-III’s reliance on PVH-owned brands.
- Follow the Canadian customs appeal and any resulting duty, interest or ongoing cost exposure.