G-III Apparel Group, Ltd. — Form 10-K Summary
Period note: The supplied filing is for the fiscal year ended January 31, 2016, not 2014 Q4 as indicated in the request metadata. Fiscal-year figures below are in U.S. dollars; amounts are rounded to millions unless stated otherwise.
Business context and reporting period
G-III designs, sources, markets and retails apparel, footwear and accessories through licensed, proprietary and private-label brands. Its operations include wholesale and retail segments; wholesale accounted for 79.1% of fiscal 2016 net sales before intercompany eliminations. The company operated Wilsons Leather, G.H. Bass and Calvin Klein Performance stores, and Vilebrequin operated through owned and franchised locations.
The company changed to wholesale and retail segment reporting beginning in fiscal 2016. The fiscal year includes Vilebrequin and Karl Lagerfeld North America results through December 31, 2015, reflecting those businesses’ calendar-year reporting.
Key financial metrics
| Metric | Fiscal 2016 | Fiscal 2015 |
|---|---|---|
| Net sales | $2,344.1 million | $2,116.9 million |
| Gross profit / margin | $838.6 million / 35.8% | $757.3 million / 35.8% |
| Operating profit / margin | $184.5 million / 7.9% | $164.9 million / 7.8% |
| Net income attributable to G-III | $114.3 million | $110.4 million |
| Diluted EPS | $2.46 | $2.48 |
| Cash from operating activities | $64.2 million | $81.6 million |
| Cash and cash equivalents at year-end | $132.6 million | $128.4 million |
| Working capital at year-end | $657.6 million | $557.7 million |
| Debt at year-end | None | None |
Fiscal 2016 SG&A was $628.8 million, or 26.8% of sales, versus $572.0 million, or 27.0%, a year earlier. The company reported $42.2 million of capital expenditures and $67.7 million of net cash used in investing activities, including $25.5 million for its Karl Lagerfeld North America investment. Its $450 million secured credit facility runs through August 2017; $444.5 million was available at year-end, subject to borrowing-base terms. The company was in covenant compliance.
Material changes versus the prior comparable period
- Sales increased 10.7%. Wholesale segment sales rose to $1,949.6 million from $1,745.9 million; retail segment sales rose to $514.0 million from $499.3 million, before intercompany eliminations.
- Wholesale growth reflected, among other items, higher Calvin Klein, Ivanka Trump, Eliza J, team sports and private-label sales. Retail same-store sales increased 12.1% at G.H. Bass but decreased 7.6% at Wilsons Leather.
- Gross margin was unchanged at 35.8%. Wholesale gross margin improved to 30.9% from 30.1%; retail gross margin declined to 46.1% from 46.4%.
- Operating profit increased 11.9%, while net income attributable to G-III rose 3.6%. Diluted EPS declined to $2.46 from $2.48, alongside a higher weighted-average diluted share count.
- Operating cash flow fell to $64.2 million from $81.6 million, with working-capital use including a $59.9 million inventory increase and a $23.6 million increase in accounts receivable.
- Other income dropped to $1.3 million from $11.5 million. Fiscal 2015 included several nonrecurring gains and payments, including compensation related to terminated Calvin Klein store rights and gains related to Vilebrequin and a China joint venture.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no clear consolidated financial forecast. Management said available cash, operating cash generation and the credit facility were expected to meet operating and capital needs. It planned approximately five new Wilsons and five new G.H. Bass outlet stores in fiscal 2017, while also expecting openings and closures to leave aggregate Wilsons/Bass store count relatively constant.
- Weather and inventory: Unusually warm fall and winter weather in fiscal 2016 hurt outerwear sell-through and contributed to higher inventory, alongside a challenging retail environment late in the year. Inventory rose to $485.3 million from $426.2 million.
- Concentration and licensing: Licensed products generated 59.2% of fiscal 2016 sales. PVH-owned Calvin Klein and Tommy Hilfiger brands together represented approximately 40% of sales. Macy’s group accounted for 20.8%, and the ten largest customers for 63.5%. License termination, renewal and minimum-royalty obligations are material risks.
- Commitments: Future minimum operating lease obligations were $448.2 million and minimum license royalty/advertising payments were $642.8 million as of year-end. These are contractual commitments, not current debt balances.
- Seasonality: About 57% of fiscal 2016 sales occurred from July through November; the second half is expected to produce a disproportionate share of sales and most net income.
- Other risks: The company relies heavily on foreign manufacturers, has no long-term manufacturing contracts, and is exposed to fashion demand, customer consolidation, outlet traffic, weather, currency, import-cost and information-security risks. It reported no pending legal proceeding expected by management to have a material adverse effect.
- Controls and audit: Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and controls.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers the year ended January 31, 2016, rather than 2014 Q4.
- Track inventory quality, markdowns and cash conversion after the warm-weather-related inventory buildup and lower operating cash flow.
- Assess exposure to Macy’s, the ten largest customers, and PVH brands, as well as the renewal and performance terms of major licenses.
- Review the size and duration of lease and minimum royalty commitments, and the August 2017 credit-facility maturity and renewal plans.
- Verify the Karl Lagerfeld North America joint-venture investment date: the filing’s narrative and cash-flow disclosures indicate June 2015, while Note M states June 2016.