G-III Apparel (GIII) - 2022 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended July 31, 2021, detailing balance sheets, operations, equity, and cash flows, reflecting a significant performance recovery and a shift from net loss to net income driven by strong net sales Condensed Consolidated Balance Sheets The balance sheet as of July 31, 2021, indicates a stronger financial position with significant increases in cash, total assets, and stockholders' equity, alongside a rise in total liabilities primarily due to notes payable Key Balance Sheet Items (in thousands) | Account | July 31, 2021 | July 31, 2020 | January 31, 2021 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $509,988 | $252,798 | $351,934 | | Accounts receivable, net | $385,047 | $276,502 | $492,698 | | Inventories | $499,337 | $574,767 | $416,503 | | Total current assets | $1,461,830 | $1,173,725 | $1,344,040 | | Total assets | $2,553,586 | $2,269,814 | $2,436,386 | | Liabilities & Equity | | | | | Total current liabilities | $485,541 | $472,420 | $402,002 | | Notes payable, net | $512,017 | $405,003 | $507,950 | | Total liabilities | $1,172,014 | $1,032,065 | $1,099,181 | | Total stockholders' equity | $1,380,612 | $1,237,749 | $1,336,241 | Condensed Consolidated Statements of Operations and Comprehensive Income The company achieved a significant profitability turnaround for the three and six months ended July 31, 2021, with substantial year-over-year net sales growth leading to a $19.1 million net income for the quarter, recovering from a prior-year net loss Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $483,081 | $297,212 | $1,002,991 | $702,343 | | Gross profit | $192,878 | $134,693 | $388,347 | $259,094 | | Operating profit (loss) | $38,940 | $(11,402) | $85,762 | $(54,675) | | Net income (loss) | $19,106 | $(14,976) | $45,485 | $(54,271) | | Diluted EPS | $0.39 | $(0.31) | $0.92 | $(1.13) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for the six months ended July 31, 2021, significantly increased to $193.8 million, driven by higher net income and favorable working capital, while investing activities used $32.5 million for a minority e-commerce investment Cash Flow Summary for Six Months Ended July 31 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $193,826 | $59,805 | | Net cash used in investing activities | $(32,526) | $(13,069) | | Net cash (used in) provided by financing activities | $(2,628) | $6,934 | | Net increase in cash and cash equivalents | $158,054 | $55,426 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and financial items, including a change in retail inventory method, retail operations restructuring, segment performance, debt structure with new senior secured notes, and an ongoing Canadian customs duty examination - Effective February 1, 2021, the company changed its accounting method for retail inventories to the weighted average cost method to better match costs with revenue and align valuation methods[19][21] - In fiscal 2021, the company restructured its retail operations, including closing all Wilsons Leather, G.H. Bass, and Calvin Klein Performance stores[22] - In August 2020, the company issued $400 million of 7.875% Senior Secured Notes due 2025 to repay its prior term loan and for general corporate purposes[49] - The company is appealing a CBSA decision on imported goods valuation in Canada, having secured a bond for CAD$26.9 million for potential duties and interest, and is vigorously contesting the findings[82][83][86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant year-over-year financial improvement driven by easing COVID-19 restrictions and increased consumer spending, analyzing wholesale and retail segment performance, digital shift, supply chain challenges, and strong liquidity Overview G-III manages over 30 licensed and proprietary brands, including five global power brands, distributing products through various channels, and strategically restructured its retail operations in fiscal 2021 by closing underperforming stores to enhance profitability - The company's business centers on a portfolio of over 30 brands, focusing on five global power brands: DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger, and Karl Lagerfeld Paris[94][101] - In fiscal 2021, the company restructured its retail operations by closing its Wilsons Leather, G.H. Bass, and Calvin Klein Performance stores to improve segment profitability[97] Trends Affecting Our Business Key business trends include increased consumer demand in H1 FY2022 amid easing COVID-19 restrictions, persistent uncertainty from virus variants, a shift to digital sales, and significant global supply chain disruptions causing higher freight costs and shipping delays - The COVID-19 pandemic continues to create uncertainty, despite increased consumer demand in the first half of fiscal 2022, with variants like Delta potentially leading to renewed restrictions[107][109][110] - The company is actively responding to the industry's shift to digital sales by investing in its own e-commerce platforms and partnering with online retailers[112] - Significant supply chain challenges, including container shortages and port congestion, are causing increased freight costs and delays in product receipts, expected to persist through the second half of fiscal 2022[118][119] Results of Operations The company reported a strong recovery for the three months ended July 31, 2021, with net sales increasing to $483.1 million driven by wholesale rebound, while retail sales declined due to store closures, resulting in a $38.9 million operating profit Net Sales by Segment - Three Months Ended July 31 (in millions) | Segment | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Wholesale Operations | $467.0 | $266.8 | +75.0% | | Retail Operations | $27.3 | $34.5 | -20.9% | | Total Net Sales | $483.1 | $297.2 | +62.5% | - The increase in wholesale sales was primarily driven by growth in Calvin Klein, DKNY/Donna Karan, Karl Lagerfeld Paris, and Tommy Hilfiger licensed products, reflecting recovery from prior-year pandemic-related store closures[121] - The decrease in retail sales resulted directly from a significant reduction in store count (from 247 to 50) following the restructuring and closure of Wilsons, G.H. Bass, and Calvin Klein Performance stores[122] - Gross profit percentage for the retail segment improved significantly to 51.9% from 32.5% in the prior year, which was negatively impacted by store closures, promotional activity, and inventory liquidation[125] Liquidity and Capital Resources The company maintains strong liquidity with $510.0 million in cash and $400 million available under its credit facility, supported by $193.8 million cash from operations and a debt structure including $400 million Senior Secured Notes and a $125 million LVMH Note - As of July 31, 2021, the company held $510.0 million in cash and cash equivalents and approximately $400 million in availability under its revolving credit facility[144] - The company's debt structure primarily comprises $400 million in 7.875% Senior Secured Notes due 2025 and a $125 million junior lien secured note payable to LVMH due in 2023[145][163] - Cash from operating activities for the six months ended July 31, 2021, was $193.8 million, a significant increase from $59.8 million in the prior year, driven by higher net income and favorable working capital changes[173] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's quantitative and qualitative disclosures about market risk compared to its Annual Report on Form 10-K for the fiscal year ended January 31, 2021 - There were no material changes to the company's market risk disclosures during the quarter[180] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of July 31, 2021, with no material changes in internal control over financial reporting during the last fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of July 31, 2021[181] - No material changes were made to the company's internal control over financial reporting during the quarter[182] Part II - Other Information Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2021 - There have been no material changes in the company's risk factors from those set forth in the Annual Report on Form 10-K for the year ended January 31, 2021[184] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to Sarbanes-Oxley Act and Interactive Data Files (XBRL) - The exhibits include required certifications from the Chief Executive Officer and Chief Financial Officer, as well as iXBRL data files[190]