G-III Apparel Lifts Outlook On Q2 Beat

G-III Apparel Group Ltd. raised its outlook for the year after reporting sales and earnings in the second quarter exceeded guidance.

For the quarter ended July 31, 2017, G-III reported that net sales increased by 21.6 percent to $538 million, up from $442.3 million in the year-ago period. This increase includes approximately $45 million of net sales of our DKNY and Donna Karan products. The company reported a net loss for the second quarter of $8.6 million, or (18 cents) per share, compared to a net loss of $1.3 million, or (3 cents) per share, in the year ago period.

The company noted that the year-ago second quarter net loss did not include any results from the Donna Karan acquisition, but did include approximately $3 million, equal to 4 cents per share, net of taxes, of professional fees related to the acquisition. The company increased its prior guidance for fiscal 2018, noting excellent wholesale net sales across all major brands in the second quarter and a strong order book for the upcoming fall and holiday seasons.

On an adjusted basis, excluding, (a) for the second quarter of fiscal 2018 (i) severance of $700,000 related to the acquisition of Donna Karan International (“DKI”), equal to 1 cent per share, and (ii) non-cash imputed interest expense of $1.4 million related to the note issued to the seller as part of the consideration for the acquisition of DKI, equal to 2 cents per share, and (b) for the second quarter of fiscal 2017, professional fees of $3 million related to the acquisition of DKI, equal to 4 cents per share, non-GAAP net loss per share for the second quarter of fiscal 2018 was (15 cents) compared to non-GAAP net income per share of 1 cent in the prior year’s comparable period.

Included in both GAAP and non-GAAP results for the second quarter of fiscal 2018 are operating losses of $13.8 million and additional cash interest expense of $7.2 million related to the operation and ownership of DKI, equal to an aggregate of 27 cents per share. The acquisition of DKI was completed on December 1, 2016.

Previously, the company had forecast net sales of approximately $520 million and a net loss between $15 million and $20 million, or between (30 cents) and (40 cents) per share.

Morris Goldfarb, G-III’s Chairman and Chief Executive Officer, said, “The brand portfolio we have created through acquisition and partnership is powerful. This great portfolio is enabling us to perform well despite significant headwinds in the marketplace. We are fortunate to have developed a diverse business, anchored by Calvin Klein and supported by other brands including Tommy Hilfiger and Karl Lagerfeld Paris. And now, Donna Karan and DKNY, both global power brands, will help us capture additional opportunities. We are positioned to provide exciting new assortments to a range of retailers and to demonstrate leadership in our industry at a critical time. We expect to generate growth in sales and achieve higher levels of profitability as we move forward.”

Mr. Goldfarb concluded, “In our own retail operations, we expect to improve performance through store rationalization, better merchandising and expense reductions. We believe we can mitigate the pressure on our retail results while reaping the benefits of an exciting new phase of wholesale growth as we look forward to a successful second half of the year. We anticipate achieving our operational and financial objectives and fulfilling our ongoing mission to offer brand and product solutions to an industry affected by disruption and change.”

Outlook
The company today increased its prior guidance for the full fiscal year ending January 31, 2018. The company is now forecasting revenues of approximately $2.80 billion and net income between $56 million and $60 million or between $1.11 and $1.21 per diluted share. The company previously forecasted net sales of $2.76 billion and net income between $52 million and $57 million, or between $1.04 and $1.14 per diluted share.

The company’s forecast includes Donna Karan-related transitional expenses of approximately $8 million and non-cash imputed interest expense of approximately $6 million. On an adjusted basis, excluding transitional and imputed interest expenses, the company now anticipates non-GAAP net income of between approximately $64 million and $69 million, or between $1.28 and $1.38 per diluted share. The company’s previous forecast was for non-GAAP net income of between approximately $60 and $65 million, or between $1.20 and $1.30 per diluted share.

The forecasted GAAP and non-GAAP results reflect expected operating losses of approximately $23 million and additional interest expense of approximately $23 million, equal to an aggregate of 57 cents per diluted share, associated with the Donna Karan business. The per share forecasts above include the impact of the issuance of approximately 2.6 million shares of new G-III common stock to the seller of DKI on December 1, 2016.

The company is now forecasting projected full-year adjusted EBITDA for fiscal 2018 between $180 million and $188 million compared to adjusted EBITDA of $148.1 million in fiscal 2017 and compared to its previous forecast of adjusted EBITDA of between $178 million and $186 million. This adjusted EBITDA guidance includes a forecasted full-year operating loss of approximately $12 million associated with the Donna Karan business.

For the third fiscal quarter ending October 31, 2017, the company is forecasting net sales of approximately $1.03 billion and net income between $69 million and $73 million, or between $1.36 and $1.46 per diluted share. This forecast compares to net sales of $883 million and net income of $70.6 million, or $1.50 per diluted share, reported for the third quarter of fiscal 2017.

The third quarter forecast assumes Donna Karan related transitional expenses of approximately $6 million and non-cash imputed interest expense of $1.4 million. On an adjusted basis, excluding transitional and imputed interest expenses, the company is forecasting third quarter non-GAAP net income between $73 million and $78 million, or between $1.45 and $1.55 per diluted share. The company reported net income of $70.6 million, or $1.50 per diluted share, for the fiscal quarter ended October 31, 2016.

G-III is a leading manufacturer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. 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 our 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 more than 100 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.