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G-III Could be on the Hunt Again for Another Acquisition

G-III Apparel Group Ltd.’s Q4 easily bested Wall Street’s EPS expectations, but the company also became a firm with $3 billion in annual volume and indications are that it might be looking for an acquisition again.

In a Nutshell: G-III’s annual volume of $3.08 billion for the year ended Jan. 31 hit a major milestone, and gave it bragging rights to profits of $138.1 million that was fueled by its five global power brands. Those brands are DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld.

The company’s owned brands include Donna Karan, DKNY, Vilebrequin, Andrew Marc, and Jessica Howard, among others. It also has the fashion licenses for brands like Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, and Vince Camuto, among others.

Morris Goldfarb, chairman and chief executive officer, said, “This was also a transformative year for our company as it was the first full year in which products for DKNY and Donna Karan were created and developed by us.”

G-III had approached LVMH Moët Hennessy Louis Vuitton regarding an acquisition of Donna Karan International, and in December 2016 completed its $650 million deal for the company.

With the integration of the Donna Karan brands fully completed, as well as having cycled through the first full year of product developed internally for the brands, what’s next for G-III? Maybe another acquisition.

“In addition, the strength of our balance sheet allows us to capitalize on the right acquisition opportunity,” Goldfarb said.

Big apparel companies like G-III are pitched potential targets all the time. For them, it’s just a question of which one to pursue and when. And G-III would be doing it at a time when the latest quarterly results suggest a company that has its financial house in order.

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For the three months ended Jan. 31, G-III ended the fourth quarter in the black, versus the year-ago loss. Gross profit in the quarter of $258.9 million was flat to last year, but what benefited the quarter’s bottom line was a nearly 8 percent decline in selling, general and administrative expenses to $201.8 million, and a 6.4 percent decrease in asset impairments to $2.8 million from $7.9 million a year ago.

Sales: Net sales rose 7.3 percent to $766.8 million from $714.9 million. Sales for the three-month period just missed Wall Street’s consensus estimates of $767.9 million.

Earnings: Net income was $24.1 million, or 48 cents a diluted share, against a net loss of $542,000, or 1 cent, a year ago. On an adjusted basis, diluted earnings per share was 55 cents for the quarter.

Wall Street was expecting diluted EPS of 42 cents on sales of $767.9 million.

For the first quarter ending April 30, the company guided sales to around $650 million, net income at between $7.0 million and $12.0 million, and diluted EPS at between 13 cents and 23 cents.

For the fiscal year ending Jan. 31, 2020, the forecast was net sales at $3.28 billion, net income between $162.0 million to $1.67.0 million, and diluted EPS between $3.18 and $3.28.

CEO’s Take: Goldfarb said, “In this ever-changing retail landscape, our consistent execution positions us to be a global provider of fashion product. With the current power brands we have today, we believe we can continue to achieve significant organic growth opportunities over the next several years.”