G-III Apparel (GIII 46.71, +2.65, +6.0%) taps three-month
highs as investors look favorably upon the company’s second quarter earnings
beat and upbeat guidance for the full fiscal year 2019.
The parent company of such brands as DKNY, Donna Karan, G.H.
Bass, and Marc New York reported Q2 earnings per share (EPS) of $0.22 with
revenue growth of 16.1% compared to last year to $624.7 mln. Inventories were
up about 3.6% compared to last year to $678.57 mln.
Non-GAAP net income per diluted share and net loss per share
excluded (i) non-cash imputed interest expense related to the note issued to
seller as part of the consideration for the acquisition of Donna Karan
International of $1.2 mln in this quarter and $1.4 mln in the second quarter of
last year and (ii) transitional expenses associated with the DKI acquisition of
$700,000 in the second quarter of last year. The aggregate effect of these
exclusions was equal to $0.02 per diluted share in the second quarter this year
and $0.03 per share in the second quarter last year.
Wilsons Leather delivered a 2.5% positive comp as both men’s
and women’s outerwear were strong sellers for the quarter. The company’s G.H.
Bass retail stores reported a 2.8% comp decline in the quarter as the company
continues to execute on product shifting to a higher penetration of apparel.
The company highlighted that this shift should be completely rolled out for the
fall holiday season. The company now expects to achieve a reduction of losses
in the Bass and Wilsons businesses of about $10 mln as compared to last year.
As for the company’s other brands, DKNY stores reported a
25% comp sales increase in the quarter. Calvin Klein performed well, led by
strength in dresses and suit separates. Tommy Hilfiger saw sales growth of 60%
in the quarter, led by gains in sportswear and dresses. The Karl Laderfeld
business reported net sales up approximately 30% in Q2 with healthy increases
in sportswear, dresses, and shoes.
Lastly, the e-commerce direct to consumer business reported
growth of 20% for the quarter as the company continues to hire personnel to
address the segment.
As to gross margins, G-III reported a gross margin
percentage of 37.1% for Q2, down about 60 basis points from last year. The
gross margin percentage in G-III's wholesale operation segment was up 100 basis
points to 33.4% owing to increased licensing income and more favorable product
mix. The gross margin percentage in the company's retail operation segment was
down approximately 190 basis points to 46.6% as the company noted that, similar
to the first quarter, gross margins for its DKNY stores were lower. The prior
year gross margins for Donna Karan reflect the reversal of valuation reserves
from the acquisition accounting. The gross margin percentage for its Wilsons
and G.H. Bass stores was higher than last year.
As to the guidance, G-III increased its prior guidance for
the full fiscal year ending January 31, 2019. The company now expects net sales
of approximately $3.06 bln and non-GAAP net income between $2.52-2.62, up from
$2.97 bln and $2.27-2.37, respectively. Further, the company is projecting
full-year adjusted EBITDA for fiscal 2019 between $250-260 mln compared to its
previous forecast of adjusted EBITDA between $236-246 mln.
For the third quarter G-III is forecasting net sales of
approximately $1.08 bln and non-GAAP net income between $1.72-1.82 per diluted
share. Regarding G-III's retail performance for the third quarter, the company
is anticipating positive low single digit comp increases for both Wilsons and
Bass, and mid-single-digit positive comp increases for both chains in the
fourth quarter. G-III's forecasted second half sales growth rate is impacted
this year by the closure of Bon-Ton.
A bit choppy these past few months, GIII bumped up against
the 50-day simple moving average (45.07) yesterday in a failed attempt to break
higher ahead of earnings. The stock approached multi-year highs this morning
but failed to break through early June levels. GIII still holds a nearly 28%
advance YTD vs the S&P 500’s 7.8% gains since the start of the year.