Shares of G-lll Apparel Group Rise With Positive Expectations for the Future
G-lll Apparel Group Ltd. is still showing signs of the coronavirus but Wall Street rallied around the manufacturer and retailer nonetheless.
The firm, parent to the DKNY and Donna Karan brands, among others, revealed quarterly and full-year earnings Thursday morning before the market opened, falling short on both top and bottom lines. Yet company shares still closed up 3.38 percent to $32.44 a piece Thursday thanks to improved sales expectations for the current quarter.
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“Our entrepreneurial culture, with a merchant-led focus, proved to be invaluable as we responded to the casual trend by designing the right merchandise for our retail partners,” Morris Goldfarb, G-III’s chairman and chief executive officer, said in a statement. “We further elevated our position as a key supplier of choice for a broad range of apparel and accessories. We ended fiscal year 2021 with continued improvement in our wholesale operations and completed the restructuring of our retail operations.
“We enter fiscal year 2022 in a good inventory position, which is weighted toward casual product that remains in high demand,” the CEO continued. “As the year progresses, we believe there will be an increasing desire for dressier apparel and accessories. We are working closely with our retail and vendor partners to be in a position to bring these products to market in a timely manner. Our strong financial position and liquidity enables us to continue to fund our operations, as well as consider acquisitions.”
Total revenues for the company — which also includes Vilebrequin, Eliza J, Jessica Howard, Andrew Marc and Marc New York in the greater portfolio, in addition to fashion licenses under the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Kenneth Cole, Cole Haan, Guess, Vince Camuto, Levi’s and Dockers brands — fell to about $526 million during the three-month period ending Jan. 31, down from nearly $755 million the year before. That’s a 30 percent reduction. The company logged $14.6 million in profits during the quarter as a result, compared with $25.2 million a year earlier.
For the full year, revenues decreased 35 percent to just over $2 billion, compared with $3.16 billion a year earlier. Net income for the year was $23.5 million, down from nearly $144 million the prior year.
The company also incurred roughly $55.7 million in fees from permanently closing all of its Wilsons Leather and G.H. Bass stores (nearly 200) during the 2021 fiscal year.
Other headwinds include persistent declines in store traffic and the European business, which Goldfarb described on Thursday morning’s conference call with analysts as “the worst piece of our business.”
“Q4 was not good; Q1 is worse than Q4,” he said. “Countries were totally shut down. But again, fortunately for us, it’s a tiny piece of our business.”
G-III is not providing forward-looking guidance, but expects net sales for the current quarter to be around $460 million, compared with just over $405 million in the first quarter of fiscal year 2021.
In fact, Goldfarb said the firm has already begun to see a return to dressier fashions, including dresses and “career wear,” as vaccines continue to roll out around the world. At the same time, Goldfarb said he expects G-III’s jeans category to grow to a $250 million business, while the company continues to home in on the athleisure segment.
“I think there will be a large spike up in demand for what you would call dressy clothing,” Goldfarb told WWD. “We see it coming. We’ve seen it coming for the last few weeks. There seems to be a pent up demand in some of the classifications we were worried about. So there is hope.
“Casual is in replenishment [mode]. That’s a given,” he continued. “We were important [in athleisure] pre-pandemic. We took some of the skills and fabrications that we found successful in one or two of the brands that we’ve had and we’ve transitioned the knowledge, the fabrics, the vendors and the accounts into three or four brands. The jeans category lends itself perfectly to casual and comfortable fashion and enables us to negotiate some prime placement in our retailers’ sales floor, as well as our digital sight.
“We’re known for finding solutions in troubled times,” Goldfarb said. “When the bomber jacket died, we found that we could be a wool company. When the coat business became too seasonal because the Easter season was no longer an important season, we decided that we could become a dress company. And then, we decided we could become a woman’s suit company, and a footwear company. And the skill set that we have, both here and abroad, gives us the opportunity to say yes to almost anything we believe is appropriate for our company. And we can bring it to market in the truest form and become dominant in it.”
Other opportunities include taking advantage of current real estate vacancies caused by the pandemic to negotiate new store leases, as well as the possibility of future acquisitions.
“We might look for a brand with a stronger digital presence,” Goldfarb said. “That’s not off the table for us at all. We look for talented people. And today we look at geography. Historically, we would not have had a huge interest in a European company. Today, maybe.
“I’m not sure I need another department store brand to hang in the same areas that we do with our brands,” he added. “I think we would look to diversify distribution.”
One example is the Karl Lagerfeld Paris collection, which recently launched in select Macy’s stores.
But some critics think the company’s dependency on department stores could prove to be a continued headwind.
“G-lll has solid brands, but a business model highly reliant on wholesale (88 percent of sales). Hence, it depends on third-party brick-and-mortar to reach consumers,” Jay Sole, an analyst at UBS, wrote in a note. “The company has a high exposure to a challenged department stores channel ([roughly] 45 percent of sales). G-lll is also downsizing its retail division as this remains unprofitable. Thus, it will reduce its ability to reach consumers by itself.”
But Goldfarb said brick-and-mortar — including department stores — is still an important part of the retail equation.
“They work hand-in-hand,” he said. “Most department store groups have a digital presence that is being cultivated and is profitable. The presence of brick-and-mortar is enhancing the digital side.”
Macy’s, Goldfarb pointed out, has a $7 billion digital business. And the firm predicted its digital sales will reach $10 billion in three years.
“People referenced Macy’s sometimes as a dinosaur, because they’re brick-and-mortar and [people think] they don’t move forward,” Goldfarb said. “But they’re as futuristic as Amazon is.
“Technology gets valued on progress, not profits,” he continued. “Progress might be customer acquisition or new technology, and then brick-and-mortar gets valued on a low multiple of profits. But the companies that come through this pandemic with sufficient cash flow will find more solutions and better solutions than they ever did before.”
G-lll ended the quarter with nearly $352 million in cash and cash equivalents and more than $512 million in long-term debt. Company shares are up more than 326 percent year-over-year.
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