G-III Apparel Group, Ltd. — Form 10-Q Summary
Reporting period: The filing covers the fiscal quarter and nine months ended October 31, 2014 (fiscal 2015). Although the request metadata says “2013 Q3,” the filing itself reports 2014 results. Amounts below are in millions of dollars except per-share data.
Business context and financial performance
G-III designs, manufactures, markets and retails apparel, accessories and footwear through licensed products, proprietary and private-label products, and retail stores. Its reportable segments are licensed products, non-licensed products and retail operations. Results are seasonal; Vilebrequin’s results are reported on a calendar-year basis.
| Metric | Quarter ended Oct. 31, 2014 | Prior-year quarter | Nine months ended Oct. 31, 2014 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $812.3 | $668.7 | $1,602.5 | $1,245.5 |
| Gross profit / margin | $295.3 / 36.3% | $226.9 / 33.9% | $573.8 / 35.8% | $418.8 / 33.6% |
| Operating profit | $113.3 | $98.3 | $128.6 | $109.0 |
| Income attributable to G-III | $80.6 | $59.6 | $88.1 | $64.3 |
| Diluted earnings per share | $3.53 | $2.85 | $4.04 | $3.09 |
Quarterly sales rose about 21% year over year and nine-month sales rose about 29%. Gross margin improved in both comparisons. Operating profit and G-III-attributable income also increased; nine-month income includes $12.0 million of other income described below. Effective tax rates were 35.3% for the quarter and 35.5% for the nine months, versus 38.0% in each prior-year period.
Cash flow, debt and liquidity
- For the nine months, operating activities used $162.5 million of cash, compared with $136.2 million used in the prior-year period. The principal cash uses were increases of $294.5 million in receivables and $79.7 million in inventory, partly offset by earnings and higher payables and accrued expenses.
- Investing activities used $30.7 million, including $33.9 million of capital expenditures, primarily for stores, distribution-center expansion and systems. Financing activities provided $220.1 million.
- Cash at October 31, 2014 was $49.2 million. Notes payable were $153.9 million, all presented as current; the prior-year balance was $215.8 million. The company reported $285.9 million available under its $450 million senior secured credit facility, subject to borrowing-base limitations.
- The company raised $128.7 million net from a June 2014 common-stock offering. It reported compliance with credit-facility covenants. Open letters of credit were approximately $6.5 million.
Material changes, outlook and risks
- Growth reflected higher licensed and non-licensed sales and the addition of G.H. Bass, acquired in November 2013. Retail sales also benefited from Wilsons same-store sales growth of 6.4% in the quarter and 3.1% for the nine months.
- G.H. Bass contributed materially to retail growth and expenses, but retail gross margin declined year over year (44.7% versus 50.3% for the quarter; 45.5% versus 50.1% year to date) because Bass operated at a lower margin. Retail reported an operating loss of $1.3 million for the quarter and $19.0 million for the nine months, compared with operating profit in the prior-year periods.
- Quarter and year-to-date other income of $12.0 million comprised a $4.2 million reduction in estimated Vilebrequin contingent consideration, $3.5 million for early termination of certain Calvin Klein Performance store rights, a $2.4 million gain on sale of a joint-venture interest, and a $1.9 million gain on repurchase of Vilebrequin notes at a discount.
- Management said cash on hand, operating cash generation, offering proceeds and credit-facility availability should be sufficient for expected operating and capital needs. The filing provides no specific earnings or revenue guidance. It notes that acquisitions could require additional financing and that such financing may not be available on acceptable terms.
- Risks discussed include seasonality and working-capital needs, reliance on licensors and retail customers, consumer demand and fashion trends, competition, foreign sourcing and operations, and retail and acquisition risks. Management cited uncertain discretionary spending and retailer financial difficulties. No material changes to previously disclosed risk factors or material adverse pending legal proceedings were reported.
Important facts for investors to verify
- How much reported growth reflects G.H. Bass and other additions versus underlying or same-store growth.
- Whether seasonal receivables and inventory convert to cash after the fall shipping period; operating cash flow was significantly negative year to date.
- Whether retail operations can improve profitability, particularly given the reported year-to-date operating loss and lower Bass margins.
- How sustainable results are excluding the $12.0 million of unusual other income, and how Vilebrequin’s contingent consideration estimate may change.
- Actual borrowing availability under the borrowing-base facility, covenant headroom and financing needs if the company pursues acquisitions.
- Exposure to licensed brands, customer credit risk, and shifts in consumer demand and fashion preferences.