Shares of G-III Apparel Group, Ltd. (GIII - Free Report) climbed roughly 9% during the trading session on Sep 9, thanks to a narrower-than-expected loss per share in second-quarter fiscal 2021. However, the top line missed the Zacks Consensus Estimate, and both sales and earnings compared unfavorably with the year-ago quarter’s respective figures. Results were significantly hurt by the ongoing effects of the pandemic. Although the quarter started with the majority of its partners and own-retail outlets closed, most of the stores have now reopened.
Management anticipates pandemic-related impacts to continue hurting results in the second half of fiscal 2021. It projects net sales to fall in the 28-33% range year over year during the aforementioned period. Owing to pandemic-induced uncertainties, the company did not issue any other guidance. As announced earlier, G-III Apparel remains on track with the restructuring of its retail operations. It will be closing down its entire 110 Wilsons Leather and 89 G.H Bass locations. The store liquidations are underway and the company estimates incurring a total charge of about $100 million, including cash charges of $65 million.
Nevertheless, management is encouraged about the ongoing DKNY and Karl Lagerfeld Paris stores and digital sites. During the reported quarter, the company, across its own DKNY and Karl Lagerfeld Paris sites, saw comparable-sales growth of over 60%. Moreover, it has been seeing accelerating demand for the Performance or athleisure wear category. Moving ahead, management estimates the athleisure wear and jeans category to be a major growth opportunity. Notably, shares of the company have gained 10.4% compared with the industry’s 5.1% rally in the past month.
Q2 in Detail
G-III Apparel reported loss per share of 31 cents, narrower than the Zacks Consensus Estimate of a loss of 76 cents. The company reported earnings of 23 cents per share in the same quarter a year ago. The reported figure includes net losses from the Wilsons Leather and G.H. Bass operations of 53 cents per share versus loss per share of 13 cents in the year-ago period.
Net sales plunged 53.8% year over year to $297.2 million. Moreover, the top line missed the Zacks Consensus Estimate of $340 million, marking the eighth-straight quarter of a sales miss. Soft top-line performance can be attributed to a decline in sales at both the wholesale and retail divisions.
Moreover, gross profit declined 41.9% year over year to $134.7 million. However, gross margin of 45.3% increased significantly from the prior-year tally of 36%, mainly driven by higher gross margin in the Wholesale segment, partly offset by contraction in the metric at the Retail unit.
However, SG&A expenses contracted 37.8% year over year to $122.1 million. We note that the company has brought back part of its furloughed staff in conjunction with store reopenings. Meanwhile, it permanently minimized its global wholesale headcount, which led to roughly $23 million of annualized savings.
Further, the company reported operating loss of $11.4 million against operating income of $26.9 million in the year-ago quarter.
Net sales at the Wholesale segment were $267 million, down roughly 55% year over year. However, the segment’s gross margin rose substantially to 46.3% from 32.8% in the year-ago quarter, benefiting from the reversal of the earlier-anticipated markdown accruals.
Net sales at the Retail segment totaled $35 million, down nearly 59% from the prior-year quarter’s reported figure. The metric included $20 million of sales for the Wilsons Leather and G.H Bass stores, compared to $54 million in the prior-year period. The segment’s gross margin also contracted to 32.5% from 46.5% in the year-ago quarter, thanks to the store liquidations for Wilsons Leather and G.H Bass outlets.
Other Financial Details
G-III Apparel ended second-quarter fiscal 2021 with cash and cash equivalents of $252.8 million and long-term debt of $408.7 million. Total stockholders’ equity was $1,237.7 million. Further, inventory declined nearly 32% to $574.8 million during fiscal second quarter.
The company’s net debt position at Jul 31, 2020, was $156 million versus $514 million in the year-ago period. It has extended the term of revolver, now expiring in December 2025 subject to some availability requirements. In August, management issued $400 million of 7.875% senior secured notes for paying off the previously outstanding $300 million term loan and raised cash by approximately $90 million. This Zacks Rank #4 (Sell) company also amended and extended the $650 million revolving credit line.
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