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Is G-III Apparel Gaining on Plans of Retail Restructuring?

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Shares of G-III Apparel Group, Ltd. (GIII - Free Report) , which have plunged 57.1% year to date, are now tracking up the charts. Impressively, the stock has climbed 46.7% in a month, crushing its industry’s 14.5% growth despite soft first-quarter fiscal 2021 results released on Jun 4. Nevertheless, the company’s shares are gaining on announcement of restructuring of its retail business, which has been dismal over the recent quarters.

Delving Deeper

During the fiscal first quarter, the company reported a wider-than-expected loss per share, breaking its 12-quarter-long earnings beat trend. Also, it missed sales estimates for the seventh consecutive time. Moreover, sales plunged 36.1% year over year owing to a decline at the wholesale and retail divisions. Margins were also dismal in the quarter. Management did not provide any guidance for fiscal 2021 owing to uncertainties tied to the coronavirus pandemic.

Weakness in underlying brands has been badly hitting G-III Apparel’s retail business. In the first quarter of fiscal 2021, the retail segment’s net sales fell nearly 59% from the prior-year quarter’s reported figure. Closure of stores due to the coronavirus pandemic mainly hurt the segment’s performance in the quarter.

Also, the segment’s gross margin contracted 930 basis points to 35.9%. The dismal performance of the segment has been marring the company’s overall top-line results.


 

As mentioned earlier, G-III Apparel has announced restructuring of its retail unit, which is believed to cut losses from underperforming locations and make the segment profitable. This restructuring includes shutting down of 110 Wilsons Leather and 89 G.H. Bass outlets. Notably, the liquidation of such stores will start immediately or as outlets reopen.

Moreover, it anticipates incurring a total charge of nearly $100 million in relation to the restructuring. Management estimates the cash portion of this charge to be roughly $65 million.

Post restructuring, the retail unit will initially comprise 41 DKNY and 13 Karl Lagerfeld Paris outlets. Also, it will have e-commerce sites for Donna Karan, Andrew Marc, Karl Lagerfeld Paris, DKNY, Wilsons Leather and G.H. Bass. Impressively, management has completed a comprehensive review of the retail unit and has entered into lease termination agreements for most of such stores.

Additionally, management is optimistic about the wholesale segment. This will be buoyed by growth in its five global power brands, including DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. DKNY and Donna Karan brands have been performing well and emerged as an important growth drivers. Notably, the DKNY and Donna Karan brands registered sales growth of about 25% in fiscal 2020, generating more than $450-million sales annually. Meanwhile, G-III Apparel’s robust strategies, including acquisitions and licensing of well-known brands, to expand product portfolio bode well.

Encouragingly, G-III Apparel currently has a Zacks Rank #3 (Hold).

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