G-III Apparel Group Ltd. reported net sales for the fiscal year ended January 31, 2017 were up 1.8 percent to $2.39 billion from $2.34 billion in the prior year. Growth over the prior year was primarily the result of increases in the company’s wholesale non-outerwear business and net sales from the Donna Karan International (DKI) business in the last two months of the fiscal year and was offset, in part, by softer demand for outerwear and a decline in net sales in the company’s retail businesses.
The company reported GAAP net income for the fiscal year ended January 31, 2017 of $51.9 million, or $1.10 per diluted share, compared to $114.3 million, or $2.46 per diluted share, in the prior year.
On an adjusted basis, for fiscal 2017, excluding (i) professional fees of $7.8 million related to the acquisition of DKI, (ii) non-cash imputed interest expense of $1 million related to the note issued to seller as part of the consideration for the acquisition of DKI, (iii) severance of $3.9 million (all related to the acquisition of DKI) and (iv) asset impairments of $10.5 million (related to the retail operations segment), equal to 32 cents per diluted share, and, for fiscal 2016, excluding items that resulted in other income of $1.1 million, equal to 2 cents per diluted share, non-GAAP net income per diluted share for the full fiscal 2017 year decreased to $1.42 from $2.44 in the prior fiscal year.
Included in both GAAP and non-GAAP results for fiscal 2017 are operating losses of $9.2 million and additional interest expense of $7.5 million related to the operation and ownership of DKI, equal to an aggregate of 24 cents per diluted share. The acquisition of DKI was completed on December 1, 2016.
For the fourth quarter ended January 31, 2017, net sales increased by 14.4 percent to $603 million from $527 million in the fourth quarter last year. The year-over-year increase in net sales in the fourth quarter reflects strength in the company’s non-outerwear wholesale business, including new product launches, as well as the inclusion of approximately $29 million of net sales from the DKI business in the last two months of the quarter. These increases were partially offset by declines in net sales of the company’s retail businesses.
The company reported a fourth quarter net loss of $20.1 million, or 42 cents per share, compared to net income of $8 million, or 16 cents per diluted share, in the fourth quarter last year.
On an adjusted basis, for the fourth quarter of fiscal 2017, excluding (i) professional fees of $5.2 million, (ii) non-cash imputed interest expense of $1 million, (iii) severance of $3.9 million (all related to the acquisition of DKI) and (iv) asset impairments of $10.5 million (related to the retail operations segment) equal to 26 cents per share, non-GAAP net loss was 16 cents per share for the fourth quarter of fiscal 2017 compared to non-GAAP net income per diluted share of 17 cents in the fourth quarter last year.
Included in both GAAP and non-GAAP results for the fourth quarter of fiscal 2017 are losses of $9.2 million and additional interest expense of $7.5 million related to the operation and ownership of DKI, equal to an aggregate of 21 cents per share.
Morris Goldfarb, Chairman and Chief Executive Officer of G-III Apparel Group, Ltd., commented, “Fiscal 2017 was another important year for our company. We completed the acquisition of Donna Karan which made us the owner of two of the world’s most iconic and recognizable power brands in Donna Karan and DKNY. This acquisition further bolsters our value proposition and strengthens our position as an all-season diversified apparel company with a broad portfolio of brands offered in multiple channels of retail distribution. Our non-outerwear wholesale business performed well in the face of significant headwinds as the traditional retail environment has become increasingly disrupted as a result of evolving consumer buying behavior and continued penetration of e-commerce. We expect to initiate a number of new product launches in the coming year as we seek to offer superior value in the marketplace.”
Goldfarb continued, “While our near-term financial outlook reflects the dilutive impact of our recent acquisition of Donna Karan, we believe the mid-year re-launch of the DKNY and Donna Karan brands will have a positive impact in the second half of the year. We are confident that we have one of the most desirable portfolios of brands in the industry and that DKNY and Donna Karan will quickly take their place alongside Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld as the cornerstone brands for the growth of our business.”
Outlook
G-III Apparel Group today issued guidance for the fiscal year ending January 31, 2018. For fiscal 2018, the company is forecasting 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 is forecasting DKI transitional expenses of $9 million and non-cash imputed interest expense of $6 million in its forecasted results. On an adjusted basis, excluding transitional expenses and imputed interest expense, the company is anticipating non-GAAP net income between approximately $49 million and $54 million, or between 99 cents and $1.09 per diluted share.
The forecasted GAAP and non-GAAP results reflect expected operational losses of $31 million and additional interest expense of $36 million, or an aggregate of 85 cents 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 projecting full-year adjusted EBITDA for fiscal 2018 between $162 million and $171 million compared to adjusted EBITDA of $148.1 million in fiscal 2017. This adjusted EBITDA guidance includes a full-year loss of approximately $20 million associated with the Donna Karan business.
For the first fiscal quarter ending April 30, 2017, the company is forecasting net sales of approximately $500 million and a net loss between $20 million and $25 million, or between 41 cents and 51 cents per share. This forecast compares to net sales of $457 million and net income of $2.8 million, or 6 cents per diluted share, reported in the first quarter of fiscal 2017.
The first quarter forecast assumes DKI transitional expenses of $3 million and non-cash imputed interest expense of $1.4 million. On an adjusted basis, excluding transitional and imputed interest expense, the company is forecasting a non-GAAP net loss between 35 cents and 45 cents per share.
The forecasted GAAP and non-GAAP results for the first quarter of fiscal 2018 reflect expected operational losses of $26 million and additional interest expense of $9 million, or an aggregate of 45 cents 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 DKI.
The company anticipates that it will incur losses from the Donna Karan operations during the first half of fiscal 2018 that will be partially offset by growth in operating profitability beginning in the third quarter as the company begins shipments and re-launches DKNY and Donna Karan products. The company anticipates the impact of operational losses and additional interest in the second quarter of fiscal 2018 will approximate the first quarter impact.
G-III’s owned brands include Donna Karan, DKNY, Vilebrequin, Eliza J, Andrew Marc, Marc New York, Bass, 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, Bass, Vilebrequin and Calvin Klein Performance names.
