G-III Apparel Group Ltd. reported fourth-quarter earnings that came in well ahead of Wall Street’s consensus target due to stringent cost controls and double-digit growth across wholesale operations. G-III officials revealed that its recently-acquired DKNY label had introduced its first women’s apparel collection tied the major sports leagues.
Said Morris Goldfarb, chairman and CEO, on a conference call with analysts, “I’m excited to share the news of our collaboration of DKNY Sport with the major sports leagues to launch DKNY’s first ever women’s cobranded product capsule this spring. This special co-branding opportunity with DKNY and the leagues expose us to a wider consumer audience. The distribution will include dkny.com, fanatics.com, the leagues’ e-commerce sites, Stadium Stores and Macy’s.”
G-III officials didn’t further discuss the and GIII Sports’ segment, which includes Touch by Alyssa Milano, Hands High, Starter jackets, GIII for Her and GIII Sports by Carl Banks.
In the quarter ended January 31, revenues improved 7.3 percent to $767 million. Net sales of the wholesale operation segment increased 13 percent in the quarter to $639 million from $566 million. DKNY and Tommy Hilfiger brands were the main drivers of the increase. Net sales of the retail operation segment for the quarter were $155 million, approximately 13 percent lower compared to last year sales of $178 million. Same-store sales decreased approximately 9 percent our Wilsons and 2.6 percent for G.H. Bass but gained 10 percent at DKNY stores.
Fourth quarter non-GAAP net income more than doubled to 55 cents a share from 26 cents a year ago and easily ahead of consensus estimates of 43 cents.
Net earnings in the quarter came to $24.1 million, or 48 cents a share, against a loss of $542,000, or 1 cent, a year ago. Non-recurring items largely reflected impairment charges for its retail operations in both periods and tax reform costs in the year-ago period.
Gross margins were reduced 240 basis points to 33.8 percent due to promotional pressures at its Retail segment and higher-than-anticipated markdown support required for its Wholesale operations.
SG&A expenses decreased to $202 million, or 26.3 percent of sales, in the quarter from $219 million, or 30.6 percent, in the same period last year. The decline was in part due an accounting change for revenue recognition reclassification but also reflects better leverage on growth at DKNY and Tommy Hilfiger.
In the year, sales grew 9.6 percent to $3.08 billion. Non-GAAP net income per diluted share increased 79 percent to $2.86 from $1.60 in the prior year. Adjusted EBITDA for the year increased to $269 million, an increase of 34 percent from the prior year. Net earnings came to $138.1 million, or $2.75 a share, against a profit of $62.1 million, or $1.25, a year ago.
Commenting on the company’s primary wholesale businesses, Goldfarb noted that net sales of Calvin Klein products were excess of $1 billion for the year. He said, “We were pleased with the performance of this business throughout the year. As for the fourth quarter, Calvin Klein performed well and was led by dresses and men’s and women’s outerwear.”
Tommy Hilfiger’s sales grew 45 percent last year after doubling the prior year. Annual net sales are now approximately $400 million. Said Goldfarb, “Tommy did well in the fourth quarter with net sales growing by about 40 percent, led by dresses, sportswear performance and outerwear. These results illustrate the powerful combination of our strong execution and expertise in design, merchandising, sourcing and selling combined with the marketing and brand management of our partners at PVH.”
Karl Lagerfeld saw sales growth of 20 percent in the fourth quarter, led by sportswear and handbags. For fiscal 2019, net sales for Lagerfeld grew more than 40 percent and are now in excess of $100 million.
The DKNY and Donna Karan business was integrated into G-III and lines were launched across a wide range of categories. Said Goldfarb, “We’re pleased to see that these businesses grew by over 50 percent, reaching $400 million in annual net sales for fiscal 2019. Our fourth quarter business growth was led by handbags, shoes, sportswear and outerwear. This past year was the first full-year of our brand repositioning and distribution and we’ve learned much about how we can continue to build this business going forward.”
The overall outerwear business “had another great season with broad-based performance led by Calvin Klein, Tommy Hilfiger, Levi’s, DKNY, Guess? and Karl Lagerfeld. We look forward to a good outerwear season this upcoming fall.”
On the retail segment, Goldfarb noted that the company in January hired Fran Della Badia, formerly from Coach, as president of its retail business to turnaround the business. The company closed 103 locations last year and ended with 308. An additional 43 locations are expected to close this year to leave G-III with a store fleet of approximately 265 doors. The 41 DKNY and Karl Lagerfeld stores are performing well. Said Goldfarb, “Our goal is to significantly reduce the losses in our retail business this year and we will take whatever steps are necessary to get there, including continued store closures, obtaining additional operating efficiencies and implementing further product design changes.”
Looking ahead, G-III is forecasting net sales this year of approximately $3.28 billion and net income between $162.0 and $167.0 million, or between $3.18 and $3.28 per share. Non-GAAP net income is expected to range between $167.0 million and $172.0 million, or between $3.25 and $3.35 per diluted share. Full-year adjusted is expected to range between $307.0 million and $313.0 million compared to adjusted EBITDA of $269.4 million in fiscal 2019.
For the first fiscal quarter ending April 30, sales are expected to be approximately $650.0 million and net income between $7.0 million and $12.0 million, or between 13 cents to 23 cents. This forecast compares to net sales of $611.7 million and net income of $9.9 million, or 20 per diluted share, reported in the year-ago first quarter of fiscal 2019. Non-GAAP net income is expected to land between 15 to 25 cents compared with 22 cents a year ago.
Image courtesy Fanatics