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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023

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: 0-18183

 G-III APPAREL GROUP, LTD.

(Exact name of registrant as specified in its charter) 

 

Delaware

    

41-1590959

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

512 Seventh Avenue, New York, New York

 

10018

(Address of principal executive offices)

 

(Zip Code)

(212) 403-0500

(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

Common Stock, $0.01 par value per share

GIII

The Nasdaq Stock Market

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.  Yes      No 

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.)  Yes      No 

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

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     No 

As of September 5, 2023, there were 45,721,002 shares of issuer’s common stock, par value $0.1 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

    

Page No.

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets –July 31, 2023 (Unaudited), July 31, 2022 (Unaudited) and January 31, 2023

3

Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three and Six Months Ended July 31, 2023 and 2022 (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity –July 31, 2023 and July 31, 2022 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows - For the Six Months Ended July 31, 2023 and 2022 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

7

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.          Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

July 31,

July 31,

January 31,

2023

2022

2023

    

(Unaudited)

    

(Unaudited)

    

(In thousands, except per share amounts)

ASSETS

Current assets

Cash and cash equivalents

$

197,735

$

150,977

$

191,652

Accounts receivable, net of allowance for doubtful accounts of $18,491, $18,067 and $18,297, respectively

519,361

488,523

674,963

Inventories

804,858

1,040,814

709,345

Prepaid income taxes

8,588

1,142

5,886

Prepaid expenses and other current assets

72,143

83,954

70,654

Total current assets

1,602,685

1,765,410

1,652,500

Investments in unconsolidated affiliates

27,089

26,117

24,467

Property and equipment, net

53,791

54,421

53,742

Operating lease assets

229,723

209,000

239,665

Other assets, net

56,051

55,462

52,644

Other intangibles, net

33,613

35,427

34,842

Deferred income tax assets, net

26,432

9,405

26,389

Trademarks

632,669

622,182

628,156

Goodwill

304,930

Total assets

$

2,662,053

$

3,082,354

$

2,712,405

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of notes payable

$

62,732

$

80,109

$

135,518

Accounts payable

294,287

438,167

169,508

Accrued expenses

146,933

130,806

115,586

Customer refund liabilities

56,223

56,384

89,760

Current operating lease liabilities

54,563

49,734

52,917

Income tax payable

8,844

12,642

14,875

Other current liabilities

430

1,544

905

Total current liabilities

624,012

769,386

579,069

Notes payable, net of discount and unamortized issuance costs

403,304

495,668

483,840

Deferred income tax liabilities, net

45,858

36,447

44,783

Noncurrent operating lease liabilities

192,981

179,247

204,974

Other noncurrent liabilities

14,929

17,396

15,141

Total liabilities

1,281,084

1,498,144

1,327,807

Redeemable noncontrolling interests

(1,146)

209

(850)

Stockholders' Equity

Preferred stock; 1,000 shares authorized; no shares issued

Common stock - $0.01 par value; 120,000 shares authorized; 49,396, 49,396 and 49,396 shares issued, respectively

264

264

264

Additional paid-in capital

448,762

461,621

468,712

Accumulated other comprehensive loss

(4,603)

(16,226)

(11,653)

Retained earnings

1,003,618

1,183,958

983,944

Common stock held in treasury, at cost - 3,675, 1,909 and 2,680 shares, respectively

(65,926)

(45,616)

(55,819)

Total stockholders' equity

1,382,115

1,584,001

1,385,448

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

2,662,053

$

3,082,354

$

2,712,405

The accompanying notes are an integral part of these statements.

3

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended July 31,

Six Months Ended July 31,

2023

    

2022

    

2023

    

2022

(Unaudited)

(In thousands, except per share amounts)

Net sales

$

659,761

$

605,244

$

1,266,350

$

1,294,001

Cost of goods sold

383,108

376,318

739,897

819,036

Gross profit

276,653

228,926

526,453

474,965

Selling, general and administrative expenses

239,207

191,012

467,168

376,420

Depreciation and amortization

5,959

6,656

12,535

12,751

Operating profit

31,487

31,258

46,750

85,794

Other income

192

30,325

1,165

27,618

Interest and financing charges, net

(9,492)

(12,550)

(21,642)

(24,753)

Income before income taxes

22,187

49,033

26,273

88,659

Income tax expense

5,951

12,968

6,896

21,968

Net income

16,236

36,065

19,377

66,691

Less: Loss attributable to noncontrolling interests

(202)

(254)

(297)

(262)

Net income attributable to G-III Apparel Group, Ltd.

$

16,438

$

36,319

$

19,674

$

66,953

NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:

Basic:

Net income per common share

$

0.36

$

0.76

$

0.43

$

1.39

Weighted average number of shares outstanding

45,714

47,999

45,996

48,007

Diluted:

Net income per common share

$

0.35

$

0.74

$

0.42

$

1.36

Weighted average number of shares outstanding

46,570

49,019

46,992

49,061

Net income

$

16,236

$

36,065

$

19,377

$

66,691

Other comprehensive income (loss):

Foreign currency translation adjustments

2,359

2,493

7,074

(1,637)

Other comprehensive income (loss)

2,359

2,493

7,074

(1,637)

Comprehensive income

$

18,595

$

38,558

$

26,451

$

65,054

Comprehensive loss attributable to noncontrolling interests:

Net loss

(202)

(254)

(297)

(262)

Foreign currency translation adjustments

(26)

(62)

(24)

(60)

Comprehensive loss attributable to noncontrolling interests

(228)

(316)

(321)

(322)

Comprehensive income attributable to G-III Apparel Group, Ltd.

$

18,367

$

38,242

$

26,130

$

64,732

The accompanying notes are an integral part of these statements.

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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 April 30, 2023

$

264

$

472,474

$

(6,936)

$

987,180

$

(72,535)

$

1,380,447

Equity awards vested, net

(15,940)

15,940

Share-based compensation expense

3,001

3,001

Taxes paid for net share settlements

(10,773)

(10,773)

Other comprehensive income, net

2,333

2,333

Repurchases of common stock

(9,331)

(9,331)

Net income attributable to G-III Apparel Group, Ltd.

16,438

16,438

Balance as of July 31, 2023

$

264

$

448,762

$

(4,603)

$

1,003,618

$

(65,926)

$

1,382,115

Balance as of April 30, 2022

$

264

$

460,999

$

(18,657)

$

1,147,639

$

(31,953)

$

1,558,292

Equity awards vested, net

(2,959)

2,959

Share-based compensation expense

4,696

4,696

Taxes paid for net share settlements

(1,115)

(1,115)

Other comprehensive income, net

2,431

2,431

Repurchases of common stock

(16,622)

(16,622)

Net income attributable to G-III Apparel Group, Ltd.

36,319

36,319

Balance as of July 31, 2022

$

264

$

461,621

$

(16,226)

$

1,183,958

$

(45,616)

$

1,584,001

Balance as of January 31, 2023

$

264

$

468,712

$

(11,653)

$

983,944

$

(55,819)

$

1,385,448

Equity awards vested, net

(15,993)

15,993

Share-based compensation expense

6,838

6,838

Taxes paid for net share settlements

(10,795)

(10,795)

Other comprehensive income, net

7,050

7,050

Repurchases of common stock

(26,100)

(26,100)

Net income attributable to G-III Apparel Group, Ltd.

19,674

19,674

Balance as of July 31, 2023

$

264

$

448,762

$

(4,603)

$

1,003,618

$

(65,926)

$

1,382,115

Balance as of January 31, 2022

$

264

$

456,329

$

(14,529)

$

1,117,005

$

(39,157)

$

1,519,912

Equity awards vested, net

(10,163)

10,163

Share-based compensation expense

25,245

25,245

Taxes paid for net share settlements

(9,790)

(9,790)

Other comprehensive loss, net

(1,697)

(1,697)

Repurchases of common stock

(16,622)

(16,622)

Net income attributable to G-III Apparel Group, Ltd.

66,953

66,953

Balance as of July 31, 2022

$

264

$

461,621

$

(16,226)

$

1,183,958

$

(45,616)

$

1,584,001

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended July 31,

    

2023

    

2022

(Unaudited, in thousands)

Cash flows from operating activities

Net income attributable to G-III Apparel Group, Ltd.

$

19,674

$

66,953

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

12,535

12,751

Loss on disposal of fixed assets

319

33

Non-cash operating lease costs

29,815

24,233

Equity gain (loss) in unconsolidated affiliates

978

(980)

Change in fair value of equity securities

(1,009)

1,718

Share-based compensation

6,838

25,245

Deferred financing charges and debt discount amortization

4,549

5,057

Deferred income taxes

1,031

(226)

Non-cash gain on fair value of prior minority ownership of Karl Lagerfeld

(30,925)

Changes in operating assets and liabilities:

Accounts receivable, net

155,602

145,134

Inventories

(95,513)

(496,351)

Income taxes, net

(8,733)

15,009

Prepaid expenses and other current assets

(321)

(5,767)

Other assets, net

(3,883)

(307)

Customer refund liabilities

(33,537)

(30,404)

Operating lease liabilities

(30,242)

(23,547)

Accounts payable, accrued expenses and other liabilities

154,376

182,480

Net cash provided by (used in) operating activities

212,479

(109,894)

Cash flows from investing activities

Operating lease assets initial direct costs

(52)

(87)

Investment in e-commerce retailer

(25,000)

Investment in equity interest of private company

(3,600)

Investment in equity securities

(22,378)

Capital expenditures

(11,117)

(8,526)

Acquisition of KLH, net of cash acquired

(168,592)

Net cash used in investing activities

(14,769)

(224,583)

Cash flows from financing activities

Repayment of borrowings - revolving facility

(85,400)

(8,647)

Proceeds from borrowings - revolving facility

5,313

57,946

Repayment of borrowings - LVMH Note

(75,000)

Repayment of borrowings - foreign facilities

(75,116)

(600)

Proceeds from borrowings - foreign facilities

72,773

581

Purchase of treasury shares

(26,100)

(16,622)

Taxes paid for net share settlements

(10,795)

(9,790)

Net cash (used in) provided by financing activities

(194,325)

22,868

Foreign currency translation adjustments

2,698

(3,398)

Net increase (decrease) in cash and cash equivalents

6,083

(315,007)

Cash and cash equivalents at beginning of period

191,652

465,984

Cash and cash equivalents at end of period

$

197,735

$

150,977

Supplemental disclosures of cash flow information

Cash payments:

Interest, net

$

16,052

$

18,576

Income tax payments, net

$

6,278

$

6,733

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 under several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. Fabco Holding B.V. (“Fabco”) is a Dutch joint venture limited liability company that is 75% owned by the Company and is treated as a consolidated majority-owned subsidiary. Sonia Rykiel is a wholly-owned operating subsidiary. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that was 19% owned by the Company through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, the Company acquired the remaining 81% interest in KLH that it did not previously own and, as a result, KLH began being treated as a consolidated wholly-owned subsidiary. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that was 49% owned by the Company and 51% indirectly owned by KLH through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, KLNA became an indirect wholly-owned subsidiary of the Company as a result of the Company’s acquisition of the remaining 81% interest in KLH it did not previously own. All material intercompany balances and transactions have been eliminated. The results of KLH are included in the Company’s consolidated financial statements beginning May 31, 2022.

KLH, Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of KLH, Vilebrequin, 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 six-month period ended July 31, 2023, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2023. For the year ended January 31, 2023, the results of KLH, which includes KLNA, are included for the period from June 1, 2022 through December 31, 2022. The results of the Company’s previous 49% ownership interest in KLNA and 19% ownership interest in KLH are included for the period from January 1, 2022 through May 30, 2022. The Company’s retail operations segment reports on a 52/53 week fiscal year. For fiscal 2024 and 2023, the three and six-month periods for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on July 29, 2023 and July 30, 2022, respectively.

The results for the three and six months ended July 31, 2023 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of 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, 2023 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.

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 two portfolio segments: wholesale and retail trade

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receivables. Wholesale trade receivables result from credit the Company has extended to its wholesale customers based on pre-defined criteria and are generally due within 30 to 60 days. Retail trade receivables primarily relate to amounts due from third-party credit card processors for the settlement of debit and credit card transactions and are typically collected within 3 to 5 days.

The Company’s accounts receivable and allowance for doubtful accounts as of July 31, 2023, July 31, 2022 and January 31, 2023 were:

July 31, 2023

    

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

536,711

$

1,141

$

537,852

Allowance for doubtful accounts

(18,428)

(63)

(18,491)

Accounts receivable, net

$

518,283

$

1,078

$

519,361

July 31, 2022

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

505,635

$

955

$

506,590

Allowance for doubtful accounts

(18,001)

(66)

(18,067)

Accounts receivable, net

$

487,634

$

889

$

488,523

January 31, 2023

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

692,033

$

1,227

$

693,260

Allowance for doubtful accounts

(18,237)

(60)

(18,297)

Accounts receivable, net

$

673,796

$

1,167

$

674,963

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.

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The Company had the following activity in its allowance for credit losses:

    

Wholesale

    

Retail

    

Total

(In thousands)

Balance as of January 31, 2023

$

(18,237)

$

(60)

$

(18,297)

Provision for credit losses, net

(192)

(3)

(195)

Accounts written off as uncollectible

1

1

Balance as of July 31, 2023

$

(18,428)

$

(63)

$

(18,491)

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Provision for credit losses, net

(737)

18

(719)

Accounts written off as uncollectible

43

43

Balance as of July 31, 2022

$

(18,001)

$

(66)

$

(18,067)

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Provision for credit losses, net

(1,002)

24

(978)

Accounts written off as uncollectible

72

72

Balance as of January 31, 2023

$

(18,237)

$

(60)

$

(18,297)

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 $8.5 million, $9.3 million and $19.2 million as of July 31, 2023, July 31, 2022 and January 31, 2023, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Inventory held on consignment by the Company’s customers totaled $7.9 million, $5.7 million and $6.6 million at July 31, 2023, July 31, 2022 and January 31, 2023, respectively. The Company reflects this inventory on its condensed consolidated balance sheets.

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

    

July 31,

July 31,

January 31,

    

July 31,

July 31,

January 31,

Financial Instrument

Level

2023

2022

2023

2023

2022

2023

(In thousands)

Secured Notes

1

$

400,000

$

400,000

$

400,000

$

393,000

$

394,000

$

380,000

Revolving credit facility

2

51,614

80,087

51,614

80,087

Note issued to LVMH

3

49,105

117,665

121,202

48,391

114,796

119,426

Unsecured loans

2

9,913

7,969