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G-III Apparel (GIII) Stock Up on Q4 Earnings Beat, Strong View

Zacks Equity Research

G-III Apparel Group, Ltd. GIII posted fourth-quarter fiscal 2019 results, wherein top and bottom lines improved year over year. Moreover, earnings beat estimates, marking the company’s eighth straight bottom-line beat. Quarterly results benefited from the sturdy performance of the wholesale business. Further, management provided an encouraging view for the first quarter and fiscal 2020.

Backed by strong results, shares of the company rallied more than 11% on Mar 21. In the past three months, this Zacks Rank #3 (Hold) company has gained 51%, outperforming the industry’s growth of 25.8%.

Results in Detail

Adjusted earnings were 55 cents per share, surpassing the Zacks Consensus Estimate of 44 cents. The bottom line also improved significantly from the year-ago quarter’s 26 cents. Earning gains reflect strong top-line growth, decline in SG&A expenses and lower asset impairment charges.

Net sales of $766.8 million grew 7.3% year over year. Sales mainly benefited from stellar wholesale operations’ results, which gained from impressive brand performances. However, the top line missed the Zacks Consensus Estimate of $768.2 million, marking two straight quarters of sales miss.

G-III Apparel Group, LTD. Price, Consensus and EPS Surprise


G-III Apparel Group, LTD. Price, Consensus and EPS Surprise | G-III Apparel Group, LTD. Quote

Gross profit was almost in line with estimates at $258.9 million. Meanwhile, gross margin of 33.8% contracted 240 basis points (bps). This was due to dismal gross margins in retail and wholesale segments.

SG&A expenses declined almost 8% to nearly $201.8 million. This improvement was primarily driven by the adoption of a new revenue standard.

Backed by lower SG&A expenses, operating profit of $44.4 million reflected more than double-digit growth from the prior-year figure of $21.5 million.

Segmental Performance

Net sales in the Wholesale segment were $639 million, up almost 13%. Tommy Hilfiger and DKNY brands were primary growth drivers.

Net sales for the Retail segment were $155 million, down roughly 13% from the prior-year quarter. The segment witnessed a sales decline across Wilsons and G.H. Bass stores, partially offset by higher sales in DKNY stores. A decline in the number of stores operated by the company also weighed upon the segment’s performance.

Other Financial Details

GIII-Apparel ended fiscal 2019 with cash and cash equivalents of $70.1 million, and long-term debt of $389.6 million. Total stockholders’ equity was $1,189 million.

Guidance & Management Plans

Management is impressed with performance of the company’s five global power brands — DKNY, Donna Karen, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. This aided the company to close fiscal 2019 on a strong note, with annual sales of more than $3 billion.

Backed by this momentum, management provided encouraging view for fiscal 2020. The company estimates net sales of nearly $3.28 billion in fiscal 2020 compared with $3.08 billion in fiscal 2019. The company foresees adjusted EBITDA of $307-$313.0 million and adjusted earnings per of $3.25-$3.35. The Zacks Consensus Estimate for earnings currently stands at $3.07.

For first-quarter fiscal 2020, the company anticipates net sales of around $650 million and adjusted earnings per share of 15-25 cents.

Moreover, management remains optimistic about the momentum in the wholesale business, which should aid growth in the upcoming quarters. Additionally, it is reviewing growth opportunities and focusing on minimizing losses to improve performance at the retail business. It is also on track to rationalize the retail store portfolio, with the closing of 103 stores in fiscal 2019. Further, the company plans to shutter 43 stores in fiscal 2020. Apart from these, GIII-Apparel is on track to expand brands across channels.

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