UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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incorporation or organization) |
| Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of December 1, 2022, there were
TABLE OF CONTENTS
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, | October 31, | January 31, | |||||||
2022 | 2021 | 2022 | |||||||
| (Unaudited) |
| (Unaudited) |
| |||||
(In thousands, except per share amounts) | |||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | | $ | | $ | | |||
Accounts receivable, net of allowance for doubtful accounts of $ | | | | ||||||
Inventories | | | | ||||||
Prepaid income taxes | | | | ||||||
Prepaid expenses and other current assets | | | | ||||||
Total current assets | | | | ||||||
Investments in unconsolidated affiliates | | | | ||||||
Property and equipment, net | | | | ||||||
Operating lease assets | | | | ||||||
Other assets, net | | | | ||||||
Other intangibles, net | | | | ||||||
Deferred income tax assets, net | | | | ||||||
Trademarks | | | | ||||||
Goodwill | | | | ||||||
Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities | |||||||||
Current portion of notes payable | $ | | $ | | $ | | |||
Accounts payable | | | | ||||||
Accrued expenses | | | | ||||||
Customer refund liabilities | | | | ||||||
Current operating lease liabilities | | | | ||||||
Income tax payable | | | | ||||||
Other current liabilities | | | | ||||||
Total current liabilities | | | | ||||||
Notes payable, net of discount and unamortized issuance costs | | | | ||||||
Deferred income tax liabilities, net | | | | ||||||
Noncurrent operating lease liabilities | | | | ||||||
Other noncurrent liabilities | | | | ||||||
Total liabilities | | | | ||||||
Redeemable noncontrolling interests | | | | ||||||
Stockholders' Equity | |||||||||
Preferred stock; | |||||||||
Common stock - $ | | | | ||||||
Additional paid-in capital | | | | ||||||
Accumulated other comprehensive loss | ( | ( | ( | ||||||
Retained earnings | | | | ||||||
Common stock held in treasury, at cost - | ( | ( | ( | ||||||
Total stockholders' equity | | | | ||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | | $ | | $ | | |||
The accompanying notes are an integral part of these statements.
3
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(Unaudited) | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of goods sold | | | | | ||||||||
Gross profit | | | | | ||||||||
Selling, general and administrative expenses | | | | | ||||||||
Depreciation and amortization | | | | | ||||||||
Asset impairment, net of gain on lease terminations | | — | | — | ||||||||
Operating profit | | | | | ||||||||
Other (loss) income | ( | | | | ||||||||
Interest and financing charges, net | ( | ( | ( | ( | ||||||||
Income before income taxes | | | | | ||||||||
Income tax expense | | | | | ||||||||
Net income | | | | | ||||||||
Less: Loss attributable to noncontrolling interests | ( | ( | ( | ( | ||||||||
Net income attributable to G-III Apparel Group, Ltd. | $ | | $ | | $ | | $ | | ||||
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.: | ||||||||||||
Basic: | ||||||||||||
Net income per common share | $ | | $ | | $ | | $ | | ||||
Weighted average number of shares outstanding | | | | | ||||||||
Diluted: | ||||||||||||
Net income per common share | $ | | $ | | $ | | $ | | ||||
Weighted average number of shares outstanding | | | | | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income: | ||||||||||||
Foreign currency translation adjustments | ( | ( | ( | ( | ||||||||
Other comprehensive loss: | ( | ( | ( | ( | ||||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
Comprehensive loss attributable to noncontrolling interests: | ||||||||||||
Net loss | ( | ( | ( | ( | ||||||||
Foreign currency translation adjustments | ( | — | ( | | ||||||||
Comprehensive loss attributable to noncontrolling interests | ( | ( | ( | ( | ||||||||
Comprehensive income attributable to G-III Apparel Group, Ltd. | $ | | $ | | $ | | $ | | ||||
The accompanying notes are an integral part of these statements.
4
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated | Common | |||||||||||||||||
Additional | Other | Stock | ||||||||||||||||
Common | Paid-In | Comprehensive | Retained | Held In | ||||||||||||||
| Stock |
| Capital |
| Loss |
| Earnings |
| Treasury |
| Total | |||||||
(Unaudited) | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
Balance as of July 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Other comprehensive loss, net | — | — | ( | — | — | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of October 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Balance as of July 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Taxes paid for net share settlements | — | | — | — | — | | ||||||||||||
Other comprehensive loss, net | — | — | ( | — | — | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of October 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Balance as of January 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Taxes paid for net share settlements | — | ( | — | — | — | ( | ||||||||||||
Other comprehensive loss, net | — | — | ( | — | — | ( | ||||||||||||
Repurchases of common stock | — | — | — | — | ( | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of October 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Balance as of January 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Taxes paid for net share settlements | — | ( | — | — | — | ( | ||||||||||||
Cumulative effect of change in accounting principle | — | — | — | ( | — | ( | ||||||||||||
Other comprehensive loss, net | — | — | ( | — | — | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of October 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these statements.
5
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31, | ||||||
| 2022 |
| 2021 | |||
(Unaudited, in thousands) | ||||||
Cash flows from operating activities | ||||||
Net income attributable to G-III Apparel Group, Ltd. | $ | | $ | | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||
Depreciation and amortization | | | ||||
Loss on disposal of fixed assets | | | ||||
Non-cash operating lease costs | | | ||||
Gain on lease terminations | ( | — | ||||
Asset impairment | | — | ||||
Dividend received from unconsolidated affiliate | — | | ||||
Equity gain in unconsolidated affiliates | ( | ( | ||||
Change in fair value of equity securities | | ( | ||||
Share-based compensation | | | ||||
Deferred financing charges and debt discount amortization | | | ||||
Deferred income taxes | ( | | ||||
Non-cash gain on fair value of prior minority ownership of Karl Lagerfeld | ( | — | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable, net | ( | ( | ||||
Inventories | ( | ( | ||||
Income taxes, net | | | ||||
Prepaid expenses and other current assets | | | ||||
Other assets, net | ( | | ||||
Customer refund liabilities | | ( | ||||
Operating lease liabilities | ( | ( | ||||
Accounts payable, accrued expenses and other liabilities | ( | | ||||
Net cash used in operating activities | ( | ( | ||||
Cash flows from investing activities | ||||||
Operating lease assets initial direct costs | ( | — | ||||
Investment in e-commerce retailer | ( | ( | ||||
Investment in equity securities | ( | — | ||||
Sale of equity securities | | — | ||||
Capital expenditures | ( | ( | ||||
Acquisition of KLH, net of cash acquired | ( | — | ||||
Acquisition of other foreign business, net of cash acquired | ( | — | ||||
Investment in brand acquisition | — | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash flows from financing activities | ||||||
Repayment of borrowings - revolving facility | ( | — | ||||
Proceeds from borrowings - revolving facility | | — | ||||
Repayment of borrowings - foreign facilities | ( | ( | ||||
Proceeds from borrowings - foreign facilities | | | ||||
Purchase of treasury shares | ( | — | ||||
Taxes paid for net share settlements | ( | ( | ||||
Net cash provided by (used in) financing activities | | ( | ||||
Foreign currency translation adjustments | ( | ( | ||||
Net decrease in cash and cash equivalents | ( | ( | ||||
Cash and cash equivalents at beginning of period | | | ||||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information | ||||||
Cash payments: | ||||||
Interest, net | $ | | $ | | ||
Income tax payments, net | $ | | $ | | ||
Stock received from licensing agreement | $ | — | $ | | ||
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
As used in these financial statements, the term “Company” or “G-III” refers to G-III Apparel Group, Ltd. and its subsidiaries. The Company designs, sources and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage. The Company also operates retail stores and licenses its proprietary brands for several product categories.
The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that was
Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, Fabco Holding B.V. (“Fabco”) and Sonia Rykiel, which the Company purchased in October 2021, report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of Vilebrequin, KLH, Fabco and Sonia Rykiel are included in the financial statements for the quarter ended or ending closest to the Company’s fiscal quarter end. For example, with respect to the Company’s results for the nine-month period ended October 31, 2022, the results of Vilebrequin, Fabco and Sonia Rykiel are included for the nine-month period ended September 30, 2022. For the three and nine month periods ended September 30, 2022, the results of KLH, which includes KLNA, are included for the period from July 1, 2022 through September 30, 2022 and June 1, 2022 through September 30, 2022, respectively. The results of the Company’s previous
The results for the three and nine months ended October 31, 2022 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the effects of the COVID-19 pandemic on the Company’s business. The accompanying financial statements included herein are unaudited. All adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been reflected.
The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the Securities and Exchange Commission (the “SEC”).
Assets and liabilities of the Company’s foreign operations, where the functional currency is not the U.S. dollar (reporting currency), are translated from the foreign currency into U.S. dollars at period-end rates, while income and expenses are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.
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Note 2 – Allowance for Doubtful Accounts
The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business. The Company considers its trade receivables to consist of
The Company’s accounts receivable and allowance for doubtful accounts as of October 31, 2022, October 31, 2021 and January 31, 2022 were:
October 31, 2022 | |||||||||
| Wholesale |
| Retail |
| Total | ||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | | |||
October 31, 2021 | |||||||||
Wholesale |
| Retail |
| Total | |||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | | |||
January 31, 2022 | |||||||||
Wholesale |
| Retail |
| Total | |||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | | |||
The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debt is recorded against amounts due from that customer to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the end of the reporting period for financial statements, assessments of collectability based on historical trends and an evaluation of the impact of economic conditions. The Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.
The allowance for doubtful accounts for retail trade receivables is estimated at the credit card chargeback rate applied to the previous 90 days of credit card sales. In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.
8
The Company had the following activity in its allowance for credit losses:
| Wholesale |
| Retail |
| Total | ||||
(In thousands) | |||||||||
Balance as of January 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | ( | | ( | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of October 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Balance as of January 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | ( | ( | ( | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of October 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Balance as of January 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | ( | ( | ( | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of January 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Note 3 – Inventories
Wholesale inventories, which comprise a significant portion of the Company’s inventory, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Retail and Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value. Substantially all of the Company’s inventories consist of finished goods.
The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, was $
Inventory held on consignment by the Company’s customers totaled $
Note 4 – Fair Value of Financial Instruments
Generally Accepted Accounting Principles establish a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
| ● | Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable. |
| ● | Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement. |
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The following table summarizes the carrying values and the estimated fair values of the Company’s debt instruments:
Carrying Value | Fair Value | |||||||||||||||||||
| October 31, | October 31, | January 31, |
| October 31, | October 31, | January 31, | |||||||||||||
Financial Instrument | Level | 2022 | 2021 | 2022 | 2022 | 2021 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||||||
Secured Notes | 1 | $ | | $ | | $ | | $ | | $ | | $ |
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