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Why Is G-III Apparel (GIII) Down 17% Since Last Earnings Report?

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A month has gone by since the last earnings report for G-III Apparel Group (GIII - Free Report) . Shares have lost about 17% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is G-III Apparel due for a breakout? 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 Tops Q3 Earnings, Lags Sales Estimates

G-III Apparel Group, Ltd. posted third-quarter fiscal 2019 results, wherein the top and the bottom line improved year on year. Also, earnings beat the Zacks Consensus Estimate. This marks the company’s seventh straight bottom-line beat. The quarterly results were backed by sturdy performance of the wholesale business. Further, management raised view for fiscal 2019.

However, the company’s retail segment was unimpressive in the quarter, due to sales declines across major stores and lower store count.

Results in Detail

Adjusted earnings came in at $1.88 per share, which surpassed the consensus mark of $1.82. The bottom line improved 12.6% from the year-ago quarter’s figure of $1.67.

Further, net sales of $1,073 million grew 4.7% year over year. Sales mainly benefited from stellar show in the wholesale operations, which gained from impressive brand performances. However, the top line missed the Zacks Consensus Estimate of $1079 million.

Moving on, gross profit declined 2.3% to reach $382.1 million. Further, gross margin of 35.6% contracted 260 basis points (bps), due to dismal gross margins in the retail and wholesale segments.

In the quarter under review, SG&A expenses declined 4.4% to nearly $232 million. The improvement was primarily driven by the adoption of a new revenue standard.

Further, operating profit amounted to $140 million, marking a 0.1% decline from the prior-year’s figure.

Segment Performances

Net sales in the wholesale segment came in at $1.01 billion, up almost 4%. The Tommy Hilfiger and DKNY brands were primary growth drivers. However, bankruptcy of Bon-Ton stores negatively impacted the performance of Calvin Klein brand.

Retail segment net sales came in at $111 million, down 7% from the prior-year quarter’s figure. The segment witnessed sales decline across Wilsons and G.H. Bass stores, partially offset by higher sales in DKNY stores. Decline in the number of stores operated by the company also weighed upon the segment’s performance.

Other Financial Details

GIII-Apparel exited the third quarter of fiscal 2019 with cash and cash equivalents of $66.1 million and long-term debt of $694.3 million. Total stockholders’ equity came in at $1,181 million.

Guidance & Management Plans

Led by sturdy results in the third quarter, management raised view for fiscal 2019. The company now expects net sales close to $3.08 billion compared with the previous view of approximately $3.06 billion. Also, management expects earnings in the range of $2.67-$2.77 per share compared with the prior projection of $2.52-$2.62. The bottom line estimate excludes imputed interest expense related with the Donna Karan International acquisition.

Management is optimistic about the momentum in the wholesale businesses. We expect this unit to continue performing well in the upcoming quarters. Additionally, to improve retail business, the company is reviewing growth opportunities and focusing on minimizing losses. It is also on track with rationalizing retail store portfolio. In this respect, the company has already shuttered 71 stores of its targeted 105 closures. Apart from these, GIII-Apparel is on track with bolstering brands across channels.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 22.53% due to these changes.

VGM Scores

At this time, G-III Apparel has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

G-III Apparel has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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