G-III Apparel Group turned a profit in the third quarter after a net loss in the prior thee-month period while sales also showed “sequential improvement.”
In a Nutshell: G-III Apparel Group Ltd., which owns brands include DKNY, Donna Karan, Vilebrequin, G.H. Bass, Eliza J, Jessica Howard, Andrew Marc and Marc New York, said Tuesday it expects net sales to decline approximately 30 percent in the fourth quarter of its fiscal year compared to the same period last year.
As the developments associated with the Covid-19 pandemic continue to be fluid and there is significant uncertainty related to its impact, G-III said it is not providing any additional guidance. The company noted it is in the process of restructuring its retail operations segment, which includes permanently closing 110 Wilsons Leather and 89 G.H. Bass stores. It remains on track to complete the closing of these stores by the end of fiscal 2021.
Morris Goldfarb, G-III’s chairman and CEO, said on a conference call with analysts that DKNY and Karl Lagerfeld Paris stores are performing better than expected. He noted that G-III now operates 39 DKNY and 13 Karl Lagerfeld Paris locations and “although the stores are still traffic challenged, we’ve seen good increases in conversion, our product is resonating with the consumers. This spring, we expect to launch Karl Lagerfeld Paris in approximately 75 new Macy’s doors.”
He noted that the company said it is tightly managing inventory levels, which ended the third quarter down 29 percent compared to the prior-year period.
Sales: Net sales for the third quarter ended Oct. 31 decreased 26.7 percent to $826.6 million from $1.13 billion in the same period last year. This was an improvement over the 53.8 percent net sales decline for the second quarter ended July 31.
Goldfarb said third quarter sales were driven by athleisure, the newly launched jeans lines for Calvin Klein, Tommy Hilfiger and DKNY, and casual footwear and outerwear.
“Our Calvin Klein, Tommy Hilfiger, and DKNY jeans collections are focused on casual and comfortable fashion and…a wide variety of woven and knit tops and relaxed bottoms, leggings and pants,” he said. “We expect these lines to contribute to our growth and profitability and feel confident that each of these jeans lines can grow to be a $250 million business. Importantly, these lines have enabled us to become an important player in the denim space in a very short period of time.”
For the quarter, digital sales penetration for the company’s department store partners approached approximately 40 percent up from last year. Goldfarb said own digital sites had a comparable sales increase in excess of 40 percent.
Net sales in the quarter for the Wilsons Leather and G.H. Bass stores’ portion of the retail operations segment were $38.2 million compared to $59.8 million in the same period last year.
Earnings: G-III reported net income for the third quarter fell 34.8 percent to $63.2 million, or $1.29 per diluted share, compared to net income $95.4 million, or $1.97 per diluted share, in the prior-year’s comparable period. This compared a net loss for the second quarter of $15 million, or 31 cents per share.
Net income per diluted share includes non-cash interest expense of $1.4 million related to the acquisition of Donna Karan International in this quarter and in the third quarter last year and a $6.5 million write-off in this quarter of deferred financing costs primarily related to the company’s prior term loan facility that was refinanced in August. The aggregate effect of these charges was equal to 11 cents per diluted share in the third quarter of this year and 2 cents per diluted share in the third quarter of fiscal 2020.
Included in the results for the quarter were net losses from the Wilsons Leather and G.H. Bass store operations of $12 million, or 25 cents per diluted share, compared to $4.1 million, or 8 cents per diluted share, in the prior year’s comparable period. The results for the period also include the impact of the pandemic and the liquidation of the Wilsons Leather and G.H. Bass stores.
CEO’s Take: Goldfarb said: “Our results reflect a significant sequential improvement in the third quarter, as we effectively developed product lines that aligned with the shift in consumer demand toward casual, comfortable and functional clothing. We believe our product assortments for our portfolio of global brands are responsive to today’s market trends as we continue to gain market share. We ended the quarter with a strong financial position, with approximately $800 million of cash and availability under our revolving credit facility. We are well positioned to complete the year in line with our expectations.”
“In anticipation of the colder weather and the outdoor lifestyle of consumers, we saw a better demand for outerwear this quarter,” Goldfarb told analysts. “For the fall and holiday season, our outerwear collections featured expanded offerings of transitional mid-weight styles, featuring puffer jackets and layered pieces consisting of various stretch fabrics, as well as wafers. We believe our outerwear business is well positioned and consumers maintain an active lifestyle for the foreseeable future.”