G-III Apparel Group, Ltd. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended October 31, 2021, not 2020 Q3 as indicated in the request metadata. Financial amounts below are in U.S. dollars; millions are used unless stated otherwise. The interim financial statements are unaudited.
Business context and reporting period
G-III designs, sources, markets, licenses and sells apparel and accessories through wholesale, retail and digital channels. Its portfolio includes owned and licensed brands, including DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris. The filing covers the three and nine months ended October 31, 2021, compared with the same periods in 2020; the company notes that results are seasonal and affected by COVID-19.
Financial performance and position
| Metric | Three months ended October 31 | Nine months ended October 31 |
|---|---|---|
| Net sales | $1,015.4 vs. $826.6 million; up 22.8% | $2,018.4 vs. $1,528.9 million; up 32.0% |
| Gross profit / margin | $347.5 million / 34.2%, vs. $297.8 million / 36.0% | $735.9 million / 36.5%, vs. $556.8 million / 36.4% |
| Operating profit | $158.1 vs. $110.1 million | $243.9 vs. $55.4 million |
| Net income attributable to G-III | $106.7 vs. $63.2 million | $152.2 vs. $8.9 million |
| Diluted earnings per share | $2.16 vs. $1.29 | $3.07 vs. $0.18 |
Quarterly wholesale sales increased to $1,013.4 million, while retail sales fell to $26.2 million from $58.0 million, primarily following store closures. Wholesale operating profit was $166.0 million; retail operating loss narrowed to $7.9 million from $25.6 million. In the quarter, wholesale gross margin declined to 33.0% from 35.5%; retail gross margin rose to 49.8% from 33.9%.
For the nine months, operating cash flow was negative $15.4 million, compared with negative $127.6 million in 2020. Investing cash use was $51.3 million, including a $25.0 million minority investment in an e-commerce retailer and $13.3 million for a brand acquisition. Financing cash use was $4.5 million. Cash declined by $72.4 million from January 31, 2021 to $279.6 million at October 31, 2021.
At October 31, 2021, current assets were $1,627.5 million and current liabilities were $547.0 million. The company reported approximately $626 million available under its revolving facility and no borrowings drawn on it. Notes payable, net of discounts and issuance costs, totaled $517.5 million including the current portion; principal obligations included $400 million of 7.875% senior secured notes due 2025 and a $125 million LVMH note. Total reported liabilities were $1,241.0 million. The company said it was in compliance with debt covenants.
Material changes, outlook and risks
- Results improved substantially against the prior-year pandemic-affected comparison, as customer stores reopened and apparel demand recovered. Quarterly gross margin nevertheless fell year over year, with management citing higher freight costs; nine-month margin was broadly stable.
- The retail restructuring closed Wilsons Leather, G.H. Bass and Calvin Klein Performance stores during fiscal 2021. Store count fell from 202 to 56 year over year; management’s stated aim is to reduce retail losses and move the segment toward profitability.
- Management said it expected improved results to continue through the remainder of fiscal 2022, while emphasizing that COVID-19 effects remained uncertain. No numerical financial forecast is provided in the supplied filing text.
- Supply-chain congestion, container shortages, higher freight rates, trucking constraints and delayed deliveries continued in the quarter. A significant amount of ordered goods was delayed into the fourth fiscal quarter. Management anticipated elevated freight costs and delivery delays at least through the first half of fiscal 2023; it reported no customer order cancellations to date and had implemented selected price increases.
- Other risks include renewed COVID-19 restrictions, inflation and uncertain consumer response to price increases, retailer credit exposure, dependence on licensing relationships, foreign sourcing and currency exposure, and risks associated with debt and brand impairment.
- In October 2021, G-III acquired Sonia Rykiel for a purchase price described as not material. Its results were expected to enter consolidation in the fourth quarter of fiscal 2022; the purchase accounting remained preliminary. The company also entered a DKNY and Donna Karan fragrance license agreement effective July 1, 2022, with an initial term through December 31, 2032.
- A Canadian customs valuation dispute remains under appeal. The company disclosed cumulative deferred additional duties of CAD$14.4 million (US$11.6 million) through October 31, 2021 and said it intends to contest the CBSA decision. The filing does not state a clear final financial exposure.
- The company changed its retail inventory costing method prospectively from February 1, 2021; the cumulative adjustment reduced inventory and retained earnings by $0.3 million and was not material to the reported periods.
Important facts for investors to verify
- Confirm the reporting-period mismatch: the filing is for October 31, 2021, despite the request’s 2020 Q3 label.
- Assess whether sales recovery and profitability persist beyond the pandemic-affected comparison periods, particularly in wholesale and the restructured retail segment.
- Track freight, sourcing and delivery constraints, including whether delayed shipments affect sales, margins or customer orders and whether price increases offset added costs.
- Review working-capital needs: receivables rose to $844.4 million and inventories to $449.0 million from January 31, 2021, while operating cash flow remained negative for the nine-month period.
- Monitor debt service and refinancing considerations, including the 7.875% secured notes and the LVMH note maturities in 2023, as well as the ABL facility’s springing maturity provision tied to the LVMH note.
- Follow the Canadian customs appeal and Sonia Rykiel purchase accounting, including any later changes to the estimated exposure or acquired asset values.