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G-III Apparel Tops, Outlook up

COLM GIII

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New York-based G-III Apparel Group, Ltd. (GIII - Snapshot Report) reported adjusted earnings of 13 cents per share in the second quarter of fiscal 2013, breezing past the Zacks Consensus Estimate of 7 cents. Reported results were also above the company’s guided range of 4 cents to 8 cents.

On a GAAP basis, including expenses associated with the acquisition of Vilebrequin, the company recorded earnings of 7 cents per share, a penny below the year-ago earnings of 8 cents per share.

G-III Apparel’s net sales surged 9.4% year over year in the quarter to $251.5 million, driven by double-digit comps growth in the category of dresses, sportswear, suits, handbags, team sports, and specialty retail operations.

Quarter Highlights

The significant growth in net sales was chiefly aided by improved performance of wholesale licensed apparel (up 13.0% year-over-year) and retail operations (up 16.0%), partially offset by a dip of 4.7% in the wholesale non-licensed segment.

The robust wholesale licensed apparel sales were driven by higher sales of Calvin Klein products as well as increased sales of new Kensie sportswear line. Retail sales surged on the back of unit growth as well as comp store uptick of 13.0% in the quarter.

During the quarter, G-III Apparel’s gross margin expanded 130 basis points (bps) to 29.8%, due to a decline in cost of sales as a percentage of revenue. Margins at wholesale license segment and wholesale non-licensed segment enhanced 70 bps to 26.2% and 90 bps to 24.7%, respectively. Moreover, gross margin at retail operations improved 290 bps to 48.0%.

Financials

At the end of the quarter, G-III Apparel had cash of $22.7 million and shareholders’ equity of $364.2 million, compared with $8.7 million and $309.7 million in the year-ago quarter, respectively. The company also has no long-term debt on its balance sheet. As of July 31, 2012, short-term revolving debt was $87 million compared to $142 million a year ago.

Outlook

For the third quarter of 2013, G-III expects earnings per share in the range of $2.25 to $2.35 and net sales between $510 million and $570 million.

Based on strong second quarter results, the company raised its outlook for 2013. G-III now anticipates earnings per share in the range of $2.68–$2.78, up from the previous forecast of $2.62 to $2.72 and expects net sales to be $1.41 billion versus the earlier projection of $1.35 billion. On an adjusted basis, the company expects earnings per share in the range of $2.74 to $2.84.

Our Take

G-III remains optimistic regarding the second half of 2013 based on impressive booking for the key fall season, expansion through unit growth, strong demand for its core products and new business initiatives. Management also remains positive regarding the acquisition of the leading luxury resort brand, Vilebrequin.

The acquisition might not be accretive until next year, but based on the company’s pricing power, it is likely to support the development of a high margin multi-category business as well as expand G-III’s business in the domestic and international markets such as China and Japan. Moreover, based on better-than-expected second quarter results and increased outlook, we expect estimates to go up in the coming days. The Zacks Consensus Estimates for 2013 and 2014 are pegged at $2.87 and $3.16, respectively.

G-III, engaged in apparel business, currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock. G-III peers include Columbia Sportswear Company (COLM - Snapshot Report) and Nike Inc . (NKE)
 

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