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Why Is G-III Apparel (GIII) Up 8.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for G-III Apparel Group (GIII - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is G-III Apparel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

G-III Apparel Posts Narrower-Than-Expected Q2 Loss

G-III Apparel posted 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.

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.

Segmental Performance

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 $405 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. The company also amended and extended the $650 million revolving credit line.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -27.24% due to these changes.

VGM Scores

Currently, G-III Apparel has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, G-III Apparel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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