G-III Apparel Lifts Guidance On Robust Q1 Revenues

G-III Apparel Group said that for the first quarter ended April 30, 2017, net sales increased 16 percent to a first quarter record of $529.0 million compared to $457.4 million in the year-ago period. The company reported a net loss for the first quarter of $10.4 million, or 21 cents per share, compared to net income of $2.8 million, or 6 cents per diluted share, in the prior year’s comparable period.

On an adjusted basis, for the first quarter of fiscal 2018, excluding (i) professional fees and severance of $1.1 million related to the acquisition of Donna Karan International (“DKI”) and (ii) non-cash imputed interest expense of $1.4 million related to the note issued to seller as part of the consideration for the acquisition of DKI, equal to 3 cents per share, non-GAAP net loss per share for the first quarter of fiscal 2018 was $(0.18) compared to net income per share of 6 cents in the prior year’s comparable period.

Included in both GAAP and non-GAAP results for the first quarter of fiscal 2018 are operating losses of $14.8 million and additional cash interest expense of $7.3 million related to the operation and ownership of DKI, equal to an aggregate of $0.29 per share. The acquisition of DKI was completed on December 1, 2016.

Morris Goldfarb, G-III’s chairman and chief executive officer, said, “Our wholesale business continues its strong growth and demonstrates the power of our brand portfolio to transcend a difficult market environment and retain a leadership position as one of the most high-performing vendors for our retail customers. Offsetting our strong wholesale performance were the previously forecasted losses with respect to our own retail stores and the development of the Donna Karan business.”

Goldfarb continued, “We are reducing operating costs in our retail business, closing and repurposing stores and enhancing our store product offerings, all which are intended to help us significantly reduce the losses in our retail operations.”

Goldfarb concluded, “We are approaching an inflection point for the Donna Karan business where our efforts are expected to yield profitable results for this business in the second half of this fiscal year. Overall, we believe that we are in a renewed position to drive higher levels of growth, investment returns and value to customers, consumers and shareholders.”

Outlook

The company today increased its prior guidance for the full fiscal 2018 year ending January 31, 2018. The company now expects net sales of approximately $2.76 billion and net income between $52 million and $57 million, or between $1.04 and $1.14 per diluted share. The company previously forecasted net sales of approximately $2.73 billion and net income between $40 million and $45 million, or between 80 cents and 90 cents per diluted share.

The company’s forecast includes Donna Karan-related transitional expenses of $7 million and non-cash imputed interest expense of $6 million. On an adjusted basis, excluding transitional expenses and imputed interest expense, the company is forecasting non-GAAP net income between approximately $60 million and $65 million, or between $1.20 and $1.30 per diluted share. The company’s previous forecast was for non-GAAP net income between approximately $49 million and $54 million, or between $0.99 and $1.09 per diluted share.

The forecasted GAAP and non-GAAP results reflect expected operating losses of $21 million and additional interest expense of $28 million, equal to an aggregate of $0.62 per diluted share, associated with the Donna Karan business. The forecast also includes the full year impact of the issuance of approximately 2.6 million shares of new G-III common stock to the seller of DKI.

The company is now forecasting projected full-year adjusted EBITDA for fiscal 2018 between $178 million and $186 million compared to adjusted EBITDA of $148.1 million in fiscal 2017 and compared to its previous forecast of adjusted EBITDA between $162 million and $171 million. This adjusted EBITDA guidance includes a forecasted full-year operating loss of approximately $11 million associated with the Donna Karan business.

The company continues to anticipate that it will incur losses from the Donna Karan operations during the first half of fiscal 2018 that will be partially offset by operating profitability beginning in the third quarter as the company commences shipments of DKNY and Donna Karan products produced by G-III in connection with the launch of the DKNY and Donna Karan brands.

For the second fiscal quarter ending July 31, 2018, the company is forecasting net sales of approximately $520 million and a net loss between $15 million and $20 million, or between ($0.30) and ($0.40) per share. This forecast compares to net sales of $442 million and a net loss of $1.3 million, or ($0.03) per share, reported for the second quarter of fiscal 2017.

The second quarter forecast assumes Donna Karan related transitional expenses of $3.0 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 a second quarter non-GAAP net loss between $12 million and $17 million, or between $(0.24) and $(0.34) per share. The company’s results for the fiscal quarter ending July 31, 2016 included $3.0 million of professional fees in connection with its acquisition of Donna Karan. On an adjusted basis, excluding the professional fees, the company reported non-GAAP net income of $461,000, or $0.01 per diluted share, in the fiscal quarter ended July 31, 2016.

The forecasted GAAP and non-GAAP results for the second quarter of fiscal 2018 reflect expected operating losses of approximately $17 million and additional cash interest expense of approximately $10 million, equal to an aggregate of $0.35 per share, associated with the Donna Karan business. The forecast also includes the full impact of the issuance of approximately 2.6 million shares of new G-III common stock to the seller of the Donna Karan business.

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, Kenneth Cole, Cole Haan, Guess?, Vince Camuto, Ivanka Trump, Kensie, Jessica Simpson, 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.