G-III Apparel’s Q4 Sales Jump 18.5 Percent

G-III Apparel Group Ltd. reported sales for the fourth quarter ended January 31, 2018 jumped 18.5 percent to $715 million from $603 million in the fourth quarter last year.

This includes net sales of approximately $85 million related to operating its DKI business in the quarter compared to approximately $28 million in sales from the two months of the prior year that the company owned this business. The remainder of the year-over-year increase in net sales in the fourth quarter reflects strength in the company’s wholesale business, including new product launches. These increases were partially offset by declines in net sales of the company’s legacy retail businesses.

The company reported a fourth quarter GAAP net loss of $542,000, or $(0.01) per share, compared to a net loss of $20.1 million, or $(0.42) per share, in the fourth quarter last year. Non-GAAP net income per diluted share was 26 cents per share for the fourth quarter 2018 compared to a net loss of 16 cents per share in the same period prior year.

Non-GAAP net income per diluted share excludes (i) professional fees related to the acquisition of DKI of $230,000 in fourth quarter 2018 and $5.2 million in fourth quarter 2017, (ii) non-cash imputed interest expense related to the note issued to seller as part of the consideration for the acquisition of DKI of $1.4 million in fourth quarter 2018 and $1.0 million in fourth quarter 2017, (iii) transitional expenses related to the acquisition of DKI of $56,000 in fourth quarter 2018 and $3.9 million in fourth quarter 2017, (iv) asset impairments primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores of $7.9 million in fourth quarter 2018 and $10.5 million in fourth quarter 2017 and (v) income tax charges of $7.5 million related to the one-time effect of the enactment of the Tax Cuts and Jobs Act in fourth quarter 2018. These income tax charges primarily relate to reduction of deferred tax assets and taxes due on foreign earnings. The aggregate effect of these exclusions was equal to $0.27 per diluted share in fourth quarter 2018 and $0.26 per diluted share in fourth quarter 2017.

For the year, net sales for the fiscal year ended January 31, 2018 increased 17.6 percent to $2.81 billion from $2.39 billion in the prior year. This includes net sales of approximately $258 million related to operating our DKNY and Donna Karan business (“DKI”) in fiscal year 2018 compared to $28 million in net sales from the two months of the prior year that the company owned this business.

The company reported GAAP net income for the fiscal year ended January 31, 2018 of $62.1 million, or $1.25 per diluted share, compared to $51.9 million, or $1.10 per diluted share, in the prior year. Non-GAAP net income per diluted share was $1.60 for the full fiscal 2018 year compared to $1.42 in the prior fiscal year.

When it reported third-quarter results on December 5, G-III Apparel said it expected sales for the full year of  approximately $2.80 billion, net earnings between $1.33 and $1.43 per share and non-GAAP net income between $1.42 and $1.52 per share.

Non-GAAP net income per diluted share excludes (i) professional fees related to the acquisition of DKI of $736,000 in fiscal 2018 and $7.8 million in fiscal 2017, (ii) non-cash imputed interest expense related to the note issued to seller as part of the consideration for the acquisition of DKI of $5.7 million in fiscal 2018 and $1.0 million in fiscal 2017, (iii) transitional expenses related to the acquisition of DKI of $1.3 million in fiscal 2018 and $3.9 million in fiscal 2017, (iv) asset impairments primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores of $7.9 million in fiscal 2018 and $10.5 million in fiscal 2017 and (v) income tax charges of $7.5 million related to the one-time effect of the enactment of the Tax Cuts and Jobs Act in fiscal 2018. These charges primarily relate to reduction of deferred tax assets and taxes due on foreign earnings. The aggregate effect of these exclusions was equal to 35 cents per diluted share in fiscal 2018 and 32 cents per diluted share in fiscal 2017.

Morris Goldfarb, G-III’s chairman and chief executive officer, said, “We are pleased to have finished with better results than last year, particularly as a result of our power brands: Calvin Klein, Tommy Hilfiger, DKNY, Donna Karan and Karl Lagerfeld Paris. The strength of these businesses is enabling us to grow profitably despite the pressures of a persistently challenging environment.”

Goldfarb concluded, “We are focused on improving the results of our specialty retail operations. In that regard, we continue to implement our strategy to improve productivity and streamline operations. We believe that significant growth in our wholesale businesses should continue to propel us to higher sales and profits over the next several years.”

Outlook

G-III Apparel Group today issued guidance for the fiscal year ending January 31, 2019. Both GAAP and non-GAAP guidance for fiscal 2019 includes the impact of the following items: (i) exclusion of sales related to Bon-Ton Stores, Inc., who recently filed for bankruptcy, which were anticipated to be approximately $100 million based on sales to Bon-Ton in fiscal 2018; this has an estimated unfavorable impact on fiscal 2019 net income per diluted share of approximately $0.30; (ii) the impact of the new accounting standards related to revenue recognition which require expenditures for co-operative advertising to be reclassified from selling, general and administrative expenses to a reduction in net sales, resulting in a decrease in net sales growth and gross margin percentage of approximately 1 percent, with an offsetting reduction in selling, general and administrative expenses and (iii) an anticipated effective income tax rate of 27 percent.

For fiscal 2019, the company is forecasting net sales of approximately $2.94 billion and net income between $97 million and $102 million, or between $1.90 and $2.00 per diluted share.

The company is anticipating non-GAAP net income for fiscal year 2019 between $101 million and $106 million, or between $1.98 and $2.08 per diluted share. Non-GAAP guidance excludes non-cash imputed interest expense of approximately $5.7 million, or 8 cents per diluted share, related to the note issued to the seller as part of the consideration for the DKI acquisition.

The company is projecting full-year adjusted EBITDA for fiscal 2019 between $218 million and $227 million compared to adjusted EBITDA of $201.3 million in fiscal 2018.

For the first fiscal quarter ending April 30, 2018, the company is forecasting net sales of approximately $570 million and a net loss between $2.0 million and $7.0 million, or 4 to 14 cents per share. This forecast compares to net sales of $529 million and a net loss of $10.4 million, or 21 cents per share, reported in the first quarter of fiscal 2018. Non-GAAP guidance excludes non-cash imputed interest expense of approximately $1.4 million, or 2 cents per share, related to the note issued to the seller as part of the consideration for the DKI acquisition. On an adjusted basis, excluding non-cash imputed interest, the company is forecasting a non-GAAP net loss between 2 cents and 12 cents per share. This compares to a net loss of 18 cents in first quarter of fiscal year 2018, which excluded professional fees and transitional expenses of $1.1 million related to the acquisition of DKI and non-cash imputed interest expense of $1.4 million, equal to 3 cents per share.

G-III’s owned brands include Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. G-III has fashion licenses under the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Kenneth Cole, Cole Haan, Guess?, Vince Camuto, Ivanka Trump, Kensie, Levi’s and Dockers brands. Through their team sports business, G-III has licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Hands High, Touch by Alyssa Milano and over 150 U.S. colleges and universities. G-III also operates retail stores under the DKNY, Wilsons Leather, G. H. Bass, Vilebrequin, Calvin Klein Performance and Karl Lagerfeld Paris names.