G-III Apparel Group, Ltd. — Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended April 30, 2020, G-III’s first quarter of fiscal 2021—not 2019 Q1 as indicated in the request metadata. G-III designs, sources and markets apparel and accessories through wholesale and retail operations, with a portfolio of owned, licensed and private-label brands. The unaudited results are seasonal and were heavily affected by COVID-19.
Financial performance and position
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $405.1 | $633.6 |
| Gross profit / margin | $124.4 / 30.7% | $236.1 / 37.3% |
| Operating income (loss) | $(43.3) | $25.6 |
| Net income (loss) | $(39.3) | $12.0 |
| Diluted EPS | $(0.82) | $0.24 |
| Cash used in operating activities | $73.1 | $25.3 |
- Sales declined 36% year over year; gross margin fell 6.6 percentage points. Wholesale sales were $378.9 million versus $570.6 million, and retail sales were $33.9 million versus $81.9 million.
- Wholesale operating loss was $8.7 million, compared with $44.3 million of operating profit a year earlier. Retail operating loss widened to $34.6 million from $18.7 million.
- SG&A fell to $154.6 million from $201.9 million, mainly from furloughs, salary reductions and lower advertising and facility costs; a $9.7 million increase in bad-debt expense partly offset the reductions. Interest and financing charges were $10.4 million, broadly unchanged.
- Cash and cash equivalents were $616.2 million at April 30, 2020, versus $48.3 million a year earlier. The balance included a precautionary $500 million revolver draw in March. The company repaid that $500 million in May and June 2020.
- Debt principal totaled $929.5 million at April 30, including $500 million on the revolver, $300 million term loan and $125 million LVMH note; reported notes payable, net of discounts and issuance costs, were $900.7 million. Total current assets were $1,614.1 million and current liabilities were $406.5 million. The company reported compliance with debt covenants at quarter-end.
- Net loss included an income tax benefit of $16.4 million, versus tax expense of $2.6 million in the prior-year quarter. Operating cash outflow reflected the loss and decreases in payables, accrued expenses and customer refund liabilities, partly offset by collections and lower inventory.
Material changes, outlook and risks
- COVID-19 store closures and reduced consumer spending drove lower sales; most North American retail partners, including Macy’s, had closed stores by quarter-end. The company said it expects operations, sales, earnings and cash flows to be materially adversely affected for at least the balance of fiscal 2021. It did not provide a numerical earnings or sales forecast.
- Management cited cost controls, employee furloughs and salary reductions, reduced discretionary spending, deferred capital projects and lease payments, and efforts to cancel or curtail unsold-season production and negotiate extended payment terms. Management believed available cash and borrowing capacity would meet foreseeable liquidity needs, while noting that the pandemic’s duration and effects were uncertain.
- On June 5, 2020, G-III announced it would close all Wilsons Leather and G.H. Bass stores and all Calvin Klein Performance stores. It expects approximately $100 million in restructuring charges, about $65 million cash, with a significant portion expected in Q2 FY2021. Management expects the restructuring to reduce retail losses and ultimately make the segment profitable; execution, liquidation proceeds and final costs remain uncertain.
- COVID-related customer financial distress prompted a $9.7 million increase in the doubtful-account allowance. The company also warned of possible additional credit losses, excess-inventory reserves and impairment charges. No impairment was identified in its April 30 tests, but $370 million of indefinite-lived trademarks had limited fair-value headroom and were identified as at risk of future impairment.
- Other risks include supply-chain and sourcing disruption, uncertain consumer demand and store reopenings, debt covenant or refinancing pressure if cash flows deteriorate, tariffs and trade restrictions, and possible disruption to Hong Kong operations. A Canadian customs-duty assessment remains under appeal; a CAD$26.9 million bond guarantees the disputed amount.
Important facts for investors to verify
- Confirm the period: this is the quarter ended April 30, 2020 (Q1 FY2021), despite the request metadata saying 2019 Q1.
- Track post-quarter liquidity and debt after the $500 million revolver repayment, and review borrowing availability and covenant headroom.
- Assess the actual cost, cash timing and completion of the retail closures against the estimated $100 million charge and $65 million cash portion.
- Monitor wholesale customer collections, bankruptcies, receivable reserves, inventory levels and markdown exposure as stores reopen.
- Review future impairment testing for the $370 million of trademarks with limited valuation headroom, along with the status and potential financial effect of the Canadian customs appeal.