G III APPAREL GROUP LTD quarterly report, Q1 FY2024

G-III Apparel Group, Ltd. — Form 10-Q Summary

Reporting period: Three months ended April 30, 2024 (the first quarter of fiscal 2025), compared with the three months ended April 30, 2023. The filing is unaudited; results are seasonal. Amounts below are in U.S. dollars.

Business context and operating performance

G-III designs, sources and markets apparel and accessories through wholesale and retail operations, with a portfolio of licensed, proprietary and private-label brands. Wholesale sales accounted for most revenue. The filing includes calendar-quarter results through March 31, 2024 for certain subsidiaries, and retail-segment periods ended May 4, 2024 and April 29, 2023.

MetricQ1 FY2025Q1 FY2024Change
Net sales$609.7 million$606.6 millionUp 0.5%
Gross profit / margin$258.9 million / 42.5%$249.8 million / 41.2%Margin up 1.3 percentage points
Operating profit$13.5 million$15.3 millionDown 11.5%
Net income attributable to G-III$5.8 million$3.2 millionUp 79%
Diluted EPS$0.12$0.07Up $0.05
Operating cash flow$45.5 million$201.8 millionDown $156.3 million
Capital expenditures$12.7 million$5.0 millionUp $7.7 million

Wholesale sales rose to $597.8 million from $586.9 million; retail sales were $30.5 million versus $30.2 million. Wholesale growth reflected Karl Lagerfeld and DKNY, plus initial shipments of relaunched Donna Karan products, partly offset by lower Calvin Klein and Tommy Hilfiger licensed-product sales. Wholesale gross margin improved to 40.9% from 39.9%, supported by greater owned-brand mix and favorable product mix. Retail gross margin fell to 47.0% from 50.9%, primarily due to increased promotions; retail operations recorded an $8.4 million operating loss, compared with a $9.3 million loss.

Financial position, liquidity and debt

  • Cash and cash equivalents were $508.4 million at April 30, 2024, versus $289.7 million a year earlier and $507.8 million at January 31, 2024.
  • Current assets were $1.55 billion and current liabilities $408.1 million. Accounts receivable were $473.2 million and inventory was $479.7 million.
  • Notes payable totaled approximately $426.4 million, including $400 million of 7.875% senior secured notes due August 2025. The company had no borrowings under its existing ABL facility and reported more than $480 million of availability. It was in compliance with applicable debt covenants.
  • Cash exceeded notes payable by approximately $82 million, excluding lease liabilities. Operating lease liabilities totaled $224.5 million.
  • Quarter-end cash was nearly unchanged from January 31: operating cash flow of $45.5 million, investing outflow of $14.8 million and financing outflow of $27.3 million were partly offset by foreign-currency translation.

Material changes and management commentary

  • Gross profit increased despite nearly flat sales, but operating profit declined as SG&A rose to $236.6 million from $228.0 million. Management cited $10.6 million more advertising, mainly for the Donna Karan relaunch and DKNY, and $2.8 million more compensation, partly offset by lower warehouse and facility costs.
  • Net income benefited from net interest and financing charges falling to $5.4 million from $12.2 million. Management attributed the decline chiefly to increased investment income on cash and repayment of the $125 million LVMH note in fiscal 2024.
  • The effective tax rate increased to 29.3% from 23.1%; the prior-year rate benefited from discrete items.
  • Operating cash flow was lower year over year, reflecting seasonal working-capital movements and the timing of cash flows. Receivables and inventory reductions provided cash, while decreases in payables/accruals and customer refund liabilities used cash.
  • The company repurchased 1,029,504 shares for $28.4 million under its program during the quarter; 8,970,496 shares remained authorized for repurchase at April 30.

Outlook, subsequent events and risks

  • The filing provides no numerical fiscal 2025 earnings or sales guidance. Management cautions that the quarter is not necessarily indicative of full-year results because of seasonality.
  • In May 2024, G-III acquired a 12% interest in AWWG for €50 million ($53.6 million), using cash. AWWG is expected to act as agent for Karl Lagerfeld, DKNY and Donna Karan in Spain and Portugal, supporting the company’s international expansion plans.
  • On June 4, 2024, after quarter-end, the company replaced its $650 million ABL facility, scheduled to mature in 2025, with a five-year facility of up to $700 million maturing in June 2029, subject to a springing-maturity provision. Availability is subject to borrowing-base formulas.
  • Effective April 17, 2024, G-III acquired the remaining 25% of Fabco, making the DKNY and Donna Karan China joint venture wholly owned.
  • Management cited risks from reliance on important licenses and major customers, changing consumer demand, inflation and interest rates, foreign exchange, supply-chain disruption and increased shipping costs, international conflicts, and cybersecurity and privacy risks. Panama Canal and Red Sea disruptions and Asia port congestion had lengthened transit times; management anticipated moderate shipping-cost increases in North America and Europe during fiscal 2025.
  • Disclosure controls were concluded to be effective, with no material changes in internal controls reported. Management reported no material changes to the risk factors in the prior Form 10-K.

Key facts investors should verify

  • Whether wholesale growth in DKNY, Karl Lagerfeld and Donna Karan offsets declines in Calvin Klein and Tommy Hilfiger licensed products, and how license extensions or changes affect future revenue.
  • Whether improved wholesale margin can be sustained while retail promotions and the retail segment’s operating losses persist.
  • Cash-flow conversion and working-capital trends through the seasonal peak, including inventory, receivables and customer refund liabilities.
  • Plans to refinance or repay the $400 million senior secured notes due August 2025, and the availability and conditions of the new ABL facility.
  • Returns and strategic progress from the AWWG investment, and the financial effect of full ownership of Fabco.