G-III Apparel Lowers Full-Year Guidance Due To Tariffs

G-III Apparel Group, Ltd. reported a modest increase in earnings on an adjusted basis in the second quarter ended July 31 although guidance was reduced for the year due to tariffs.

Net sales for the second quarter increased 3.1 percent to $643.9 million from $624.7 million in the same period last year. Sales were below guidance calling for revenue of approximately $660.0 million.

The company reported GAAP net income for the second quarter of $11.1 million, or 23 cents per diluted share, compared to $10.1 million, or 20 cents, in the prior year’s comparable period. Results were in line with guidance calling for net earnings in the range of $8.0 million and $13.0 million, or between 15 to 25 cents per share.

Non-GAAP net income per diluted share was 23 cents for the second quarter of this year compared to 22 cents in the same period last year. Guidance was expected between 17 and 27 cents per share.

Non-GAAP net income per diluted share excludes (i) non-cash imputed interest expense of $1.3 million in this quarter related to the note issued to seller as part of the consideration for the acquisition of Donna Karan International compared to $1.2 million in the second quarter last year and (ii) a $1.4 million gain on lease terminations in the current quarter. There was no aggregate effect of these exclusions in the second quarter of this year and an effect of $0.02 per diluted share in the same period last year.

Morris Goldfarb, G-III’s chairman and chief executive officer, said, “We are pleased to report second quarter results that met our expectations and were fueled by continued outperformance in our wholesale business enabling us to navigate the ever-changing retail landscape. Our well-developed supply chain has enabled us to significantly expand our sourcing base throughout the world; we still see substantial opportunities for continued diversification. These capabilities, along with long-standing strong vendor relationships, have helped us mitigate some of the tariff headwinds. However, based on the additional tariffs that were just implemented, we feel it is prudent to revise our guidance to a more conservative posture for the remainder of this fiscal year.”

Goldfarb concluded, “Our formula for success includes having a portfolio of brands that are in demand and deliver high quality, well-designed, competitively priced products that elevate our position as a supplier-of-choice. Through solid execution, we remain poised to drive significant long-term sales and profit growth.”

Outlook

G-III Apparel Group today issued revised guidance for the fiscal year ending January 31, 2020 that incorporates the expected impact of the additional tariffs implemented effective September 1, 2019 and expected to be implemented later this year. Prior guidance issued last quarter incorporated the effect of tariffs in effect at that time.

For fiscal 2020, the company is now forecasting net sales of approximately $3.30 billion and net income between $154 million and $159 million, or between $3.10 and $3.20 per diluted share. This compares to net sales of approximately $3.08 billion and net income of $138.1 million, or $2.75 per diluted share for fiscal 2019.

The company is anticipating non-GAAP net income for fiscal 2020 between $156 million and $161 million, or between $3.15 and $3.25 per diluted share. Non-GAAP guidance excludes (i) non-cash imputed interest expense of approximately $5.4 million related to the Seller Note and (ii) a $2.2 million gain on lease terminations. The aggregate effect of these exclusions is equal to $0.05 per diluted share. This guidance compares to non-GAAP net income of $143.9 million, or $2.86 per diluted share, for fiscal 2019. Non-GAAP results for fiscal 2019 exclude non-cash imputed interest expense of $5.0 million related to the Seller Note and asset impairments primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores of $2.8 million. The aggregate effect of these exclusions was equal to $0.11 in fiscal 2019.

The company is projecting full-year adjusted EBITDA for fiscal 2020 between $295 million and $300 million compared to adjusted EBITDA of $269.4 million in fiscal 2019.

Previously, G-III’s full-year guidance called for net sales of approximately $3.28 billion; net income between $163 million and $168 million, or $3.19 and $3.29 per share; non-GAAP net income between $167 million and $172 million, or $3.25 and $3.35; and adjusted EBITDA between $307 million and $313 million.

For the third fiscal quarter ending October 31, 2019, the company is forecasting net sales of approximately $1.17 billion and net income between $90.0 million and $95.0 million, or between $1.85 and $1.95 per diluted share. This forecast compares to net sales of $1.07 billion and net income of $94.0 million, or $1.86 per diluted share, reported in the third quarter of fiscal 2019. Non-GAAP guidance excludes non-cash imputed interest expense related to the Seller Note of approximately $1.4 million, or $0.02 per share, in the third quarter of fiscal 2020 and $1.2 million, or $0.02 per share, in the third quarter of last year. On an adjusted basis, excluding non-cash imputed interest, the company is forecasting non-GAAP net income between $1.87 and $1.97 per diluted share. This compares to non-GAAP net income of $1.88 per diluted share in third quarter of last year.