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.
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