G-III Apparel Group, Ltd. reported sales grew 6.2 percent but earnings missed expectations due to logistical challenges.
Sales of 1.08 billion were above the guidance of $1.07 billion. Non-GAAP income of $1.35 was below guidance in the range of $1.80 and $1.90.
Morris Goldfarb, G-III’s chairman and chief executive officer, said, “For the third quarter we met our top-line expectations delivering net sales of $1.08 billion up more than 6 percent compared to the prior year, as we continued to make progress on our strategic priorities. Our higher inventory levels are due to our accelerated production calendar, which was in anticipation of longer supply chain lead times. Our inventory is comprised of current purchases and guided by our order book. During the quarter, the higher inventory levels caused logistical challenges within our distribution centers. This resulted in significant one-time charges in the third quarter, that were above our expectations, which adversely impacted our bottom line by approximately $0.40 per diluted share. For the fourth quarter of fiscal year 2023, our order book is strong and we are well positioned to meet the demand of our retailers for the Holiday season.”
Goldfarb continued, “Calvin Klein and Tommy Hilfiger have been an important part of our business. Today we announced staggered extensions by category beginning January 2024 and continuing through December 2027. We do not expect a significant reduction in net sales, net income and cash generation from these businesses for the next three years. We believe these extensions will allow us time to accelerate our long-term strategy.”
Goldfarb concluded, “We have been actively pursuing a number of near-term growth initiatives across our current owned and licensed brands, as well as private label, including category, geographic and digital expansion. We are also directing resources toward new growth areas, including further leaning into building our own brands, broadening our European business, developing new licensing opportunities and continuing to acquire new businesses. Our team remains steadfast in its focus on executing our strategy for long-term value creation.”
Net sales for the third quarter ended October 31, 2022 increased 6.2 percent to $1.08 billion from $1.02 billion in the prior year’s quarter. The company reported net income for the third quarter of $61.1 million, or $1.26 per diluted share, compared to $106.7 million, or $2.16 per diluted share, in the prior year’s quarter.
Non-GAAP net income per diluted share was $1.35 for the third quarter of this year compared to $2.18 in the same period last year. Non-GAAP net income per diluted share for the current quarter excludes asset impairments of $0.3 million, which is net of gains on lease terminations; expenses of $3.8 million related to the Karl Lagerfeld transaction which include incentive compensation, professional fees and amortization of inventory valuation adjustments and for both quarters exclude non-cash imputed interest expense related to the note issued to the seller (the “Seller Note”) as part of the consideration for the acquisition of Donna Karan International in the amount of $1.8 million in this quarter compared to $1.6 million in the third quarter last year. The aggregate effect of these exclusions was equal to $0.09 per diluted share in the third quarter of this year and $0.02 per diluted share in the third quarter of fiscal 2022.
The company updated its guidance for the fiscal year ending January 31, 2023. The company’s fiscal year 2023 guidance anticipates the expected impact from current levels of inflationary pressure on consumers and incremental costs associated with the supply chain conditions, including the timing of receipts of goods.
For fiscal 2023, the company expects net sales of approximately $3.15 billion and net income between $147 million and $152 million, or between $3.00 and $3.10 per diluted share. Its previous guidance called for sales of $3.15 billion and net income between $182 million and $187 million, or between $3.69 and $3.79 per diluted share
This compares to net sales of $2.77 billion and net income of $200.6 million, or $4.05 per diluted share, last year. This guidance is inclusive of approximately $130.0 million in net sales and net income of approximately $0.10 per diluted share in connection with the operations of the Karl Lagerfeld business for the seven months in this fiscal year subsequent to Karl Lagerfeld becoming a wholly-owned subsidiary of the company.
The company is anticipating non-GAAP net income for fiscal 2023 between $142 million and $147 million, or between $2.90 and $3.00 per diluted share. Prior guidance called for non-GAAP net income between $177.0 million and $182.0 million, or between $3.60 and $3.70 per diluted share.
Non-GAAP results for fiscal 2023 exclude a gain of $30.9 million in the fair value of the company’s minority ownership in Karl Lagerfeld that it held prior to the company becoming the sole owner of the Karl Lagerfeld entities; expenses of $17.2 million related to the Karl Lagerfeld transaction which includes incentive compensation, professional fees, foreign currency losses and amortization of inventory valuation adjustments; non-cash imputed interest expense of approximately $6.9 million related to the Seller Note; and asset impairments of $0.3 million, which is net of gains on lease terminations. The aggregate effect of these exclusions is equal to a reduction in net income of $0.10 per diluted share. This guidance compares to non-GAAP net income of $207.9 million, or $4.20 per diluted share, for fiscal 2022. Non-GAAP results for fiscal 2022 exclude non-cash imputed interest expense of $6.4 million related to the Seller Note; expenses of $2.1 million related to the Karl Lagerfeld transaction; and asset impairments of $1.5 million, which is net of gains on lease terminations, primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores. The aggregate effect of these exclusions was equal to $0.15 per diluted share in fiscal 2022.
The company is projecting full-year adjusted EBITDA for fiscal 2023 between $265 million and $270 million compared to adjusted EBITDA of $350.2 million in fiscal 2022. Previously, guidance called for adjusted EBITDA between $318.0 million and $323.0 million compared to adjusted EBITDA of $350.2 million in fiscal 2022.
G-III’s portfolio of more than 30 licensed and proprietary brands is anchored by five power brands: DKNY, Donna Karan, Karl Lagerfeld, Calvin Klein, and Tommy Hilfiger. G-III’s owned brands include DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H. Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York, and Sonia Rykiel. G-III has fashion licenses under the Calvin Klein, Tommy Hilfiger, Kenneth Cole, Cole Haan, Guess?, Vince Camuto, Levi’s, and Dockers brands. Through its team sports business, G-III has licenses with the NFL, NBA, MLB, NHL, and over 150 U.S. colleges and universities.
Photo courtesy Karl Lagerfeld