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G-III ‘Power Brands’ Bolster Results, But Retail Woes Temper Outlook

In a Nutshell: G-III Apparel Group, owner of the Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard brands, posted increases in fourth quarter and full year net sales, while narrowing its fourth quarter loss and improving net income for the year.

G-III, which also has fashion licenses under such brands as the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Kenneth Cole, Cole Haan, Guess, Vince Camuto, Levi’s and Dockers, issued guidance for the fiscal year ending Jan. 31, 2019. G-III said that guidance includes the impact of exclusion of anticipated sales of about $100 million to Bon-Ton Stores Inc., which recently filed for bankruptcy; the impact of the new accounting standards related to revenue recognition that require expenditures for co-operative advertising to be reclassified from selling, general and administrative expenses to a reduction in net sales resulting in a decrease in net sales growth and gross margin percentage of about 1 percent, and an anticipated effective income tax rate of 27 percent based on new tax codes.

For the first fiscal quarter ending April 30, the company is forecasting net sales of about $570 million and a net loss between $2 million and $7 million. This forecast compares to net sales of $529 million and a net loss of $10.4 million reported in the first quarter of fiscal 2018.

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For fiscal 2019, the company is forecasting net sales of about $2.94 billion and net income between $97 million and $102 million. G-III is projecting full-year adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2019 between $218 million and $227 million compared to adjusted EBITDA of $201.3 million in fiscal 2018.

Separate from financials, the company also said on a conference call with analysts that it is “going fur-free” with Donna Karan and DKNY starting with the Fall 2019 season.

Sales: For the fourth quarter ended Jan. 31, G-III reported net sales increased 18.5% to $715 million from $603 million in the fourth quarter last year. This includes net sales of about $85 million related to operating the DKI business in the quarter compared to approximately $28 million in sales from the two months of the prior year that it owned this business. The remainder of the year-over-year increase in net sales in the fourth quarter reflects strength in the company’s wholesale business, including new product launches. These increases were partially offset by declines in net sales of the G-III’s legacy retail businesses.

Net sales for the 2018 fiscal year increased 17.6% to $2.81 billion from $2.39 billion in the prior year. This includes net sales of about $258 million related to operating DKNY and Donna Karan in fiscal year 2018 compared to $28 million in net sales from the two months of the prior year it owned this businesses.

Earnings: G-III reported a fourth quarter net loss of $542,000 compared to a net loss of $20.1 million in the fourth quarter last year. For the 12 months, the company reported net income of $62.1 million compared to $51.9 million in the prior year.

CEO’s Take: Morris Goldfarb, G-III’s chairman and CEO, said, “We are pleased to have finished with better results than last year, particularly as a result of our power brands: Calvin Klein, Tommy Hilfiger, DKNY, Donna Karan and Karl Lagerfeld Paris. The strength of these businesses is enabling us to grow profitably despite the pressures of a persistently challenging environment. We are focused on improving the results of our specialty retail operations. In that regard, we continue to implement our strategy to improve productivity and streamline operations. We believe that significant growth in our wholesale businesses should continue to propel us to higher sales and profits over the next several years.”