Shares of retailer G-III Apparel (GIII 23.21, +3.32 +16.7%) are surging today in reaction to the company’s beat and raise report from the morning session. Ahead of the bell, GIII reported Q1 earnings and revenues which beat market expectations and raised FY18 guidance on top of strong Q2 earnings guidance.
For a bit of background for those who may not be familiar, GIII owned brands include Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. GIII also 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.
The New York-based apparel firm reported a better than expected Q1 loss of $0.21 on better than expected revenues which rose about 15.7% to $529.04 million.
Management noted results were aided by operating cost reductions in the retail business in addition to a strong performance from the wholesale business. Offsetting the strong wholesale performance, however, was the previously forecasted losses in the owned retail stores and the development of the Donna Karan business. Moreover, GIII feels the Donna Karan business is at an inflection point and sees profitable results in the business in the second half of the fiscal year.
Comp sales at Bass and Wilsons were down about 10% for the quarter, as expected. Additionally, in Q1 GIII already eliminated $4 million of annual run rate expenses with another $8 million identified. By year end, GIII sees $12 million in run rate expense savings.
Additionally, GIII reduced their number of stores in the system. The company closed about 28 Bass and Wilsons locations out of the total 69 planned for the fiscal year. GIII highlighted the success the company has had repurposing DKNY and Karl Lagerfeld stores as the 15 locations which underwent such renovations last year are forecasted to display annual sales gains of more than 40%. In total with both closings and conversions, GIII expects a total reduction of 129 Bass and Wilsons locations bringing a store count for both brands to 223 from a present level of 353 locations.
Looking ahead, GIII sees wholesale up mid to high single digits for the year with outerwear up low-single digits this year with strength in the order book. At Bass and Wilsons, the company sees mid-single digit comp gains in the second half. On a more quantitative note, GIII sees Q2 earnings of ($0.34)-($0.24) per share on revenues of about $520 million. With this, GIII now sees FY18 EPS of $1.20-1.30 (from prior $0.99-1.09) on revenues which are not slated to come in at about $2.76 billion (from prior $2.73 billion). The updated forecast includes Donna Karan-related transitional expenses of $7 million and non-cash imputed interest expense of $6 million.
In all, the impressive Q1 performance on top of the full year guidance raise takes shares above the $25 level for the first time in about a month. The stock has been on a steady decline, like much of the retail space, for the better part of the past six months (-33.7% YTD).