G-III Apparel (US:GIII)2023-12-05 16:00Part I - Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended October 31, 2023, showing improved financial health and operational efficiency Condensed Consolidated Balance Sheets Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Oct 31, 2023 (in thousands) | Oct 31, 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $197,391 | $150,719 | ▲ 30.9% | | Inventories | $591,530 | $900,987 | ▼ 34.3% | | Goodwill | $0 | $303,668 | ▼ 100% | | Total Assets | $2,749,333 | $3,290,221 | ▼ 16.4% | | Total Liabilities | $1,247,520 | $1,667,922 | ▼ 25.2% | | Total Stockholders' Equity | $1,503,220 | $1,622,258 | ▼ 7.3% | - Inventories decreased significantly to $591.5 million as of October 31, 2023, from $901.0 million a year prior, indicating improved inventory management9 - Goodwill was fully impaired and written down to zero as of October 31, 2023, from $303.7 million as of October 31, 2022947 Condensed Consolidated Statements of Operations Q3 Performance (Three Months Ended Oct 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,067,110 | $1,078,299 | ▼ 1.0% | | Gross Profit | $433,413 | $344,627 | ▲ 25.8% | | Operating Profit | $190,288 | $97,214 | ▲ 95.7% | | Net Income Attributable to G-III | $127,640 | $61,103 | ▲ 108.9% | | Diluted EPS | $2.74 | $1.26 | ▲ 117.5% | Year-to-Date Performance (Nine Months Ended Oct 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,333,460 | $2,372,300 | ▼ 1.6% | | Gross Profit | $959,866 | $819,592 | ▲ 17.1% | | Operating Profit | $237,038 | $183,008 | ▲ 29.5% | | Net Income Attributable to G-III | $147,314 | $128,056 | ▲ 15.0% | | Diluted EPS | $3.13 | $2.62 | ▲ 19.5% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended Oct 31) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $226,271 | ($415,330) | Significant Improvement | | Net cash used in investing activities | ($19,305) | ($211,125) | ▼ 90.9% | | Net cash (used in) provided by financing activities | ($199,084) | $322,174 | Reversal from borrowing to repayment | - The significant improvement in operating cash flow was primarily driven by a $117.8 million decrease in inventories, compared to a $355.3 million increase in the prior-year period14178 - Investing activities in the prior year included $168.6 million for the acquisition of Karl Lagerfeld Holding B.V. (KLH)14 Notes to Condensed Consolidated Financial Statements - The company acquired the remaining 81% interest in Karl Lagerfeld Holding B.V. (KLH) on May 31, 2022, for approximately $207.6 million, with the goodwill of $84.3 million recognized from this acquisition fully impaired in fiscal 2023414447 - Total debt decreased to $465.1 million as of Oct 31, 2023, from $889.8 million a year prior, with the company repaying $75.0 million of the LVMH Note on June 1, 2023, and the remaining $50.0 million on December 1, 20235270 - The company's business is divided into two reportable segments: Wholesale Operations and Retail Operations, with Wholesale Operations generating $1.05 billion in net sales and Retail Operations generating $32.7 million for Q3 20237980 - In August 2023, the Board of Directors increased the share repurchase program authorization to 10,000,000 shares, and for the nine months ended October 31, 2023, the company repurchased 1,598,568 shares for $26.1 million177 Management's Discussion and Analysis (MD&A) Management analyzes the company's financial performance, highlighting improved gross margin and net income, strategic brand initiatives, and strong liquidity with reduced debt Overview and Recent Developments - The company is focused on repositioning and expanding the Donna Karan brand for a Spring 2024 launch, aiming to create a modern system of dressing for a woman's full lifestyle needs102 - G-III has recently entered into several long-term license agreements to expand its brand portfolio103105108 - Nautica: A long-term license for North America, with first deliveries expected in January 2024, starting with women's jeanswear103104 - Halston: A 25-year global master license, with first deliveries expected in Fall 2024105106 - Champion: A 5-year license for men's and women's outerwear in North America, with first deliveries for the Fall 2024 season108109 Results of Operations Q3 2023 vs Q3 2022 Performance Analysis | Metric | Q3 2023 | Q3 2022 | Key Drivers | | :--- | :--- | :--- | :--- | | Net Sales | $1.07B | $1.08B | Decrease in Calvin Klein/Tommy Hilfiger sales, partially offset by growth in DKNY/Karl Lagerfeld | | Gross Margin | 40.6% | 32.0% | Absence of $26.7 million in prior-year demurrage charges and lower freight costs | | SG&A Expenses | $236.3 million | $239.9 million | Decrease of $9.0 million in third-party warehouse expenses due to lower inventory | Nine Months 2023 vs 2022 Performance Analysis | Metric | 9M 2023 | 9M 2022 | Key Drivers | | :--- | :--- | :--- | :--- | | Net Sales | $2.33B | $2.37B | Decrease in Calvin Klein/Tommy Hilfiger sales, partially offset by full-period consolidation of Karl Lagerfeld ($110.2 million) | | Gross Margin | 41.1% | 34.5% | Absence of $30.8 million in prior-year demurrage charges and lower freight costs | | SG&A Expenses | $703.5 million | $616.4 million | Increase of $72.8 million from full-period consolidation of KLH | Liquidity and Capital Resources - As of October 31, 2023, the company had $197.4 million in cash and cash equivalents and approximately $645 million in availability under its revolving credit facility152 - Operating activities generated $226.3 million in cash during the first nine months of fiscal 2024, a significant turnaround from a use of $415.3 million in the prior-year period, primarily due to a $117.8 million reduction in inventory178179 - The company fully repaid its $125 million LVMH Note, with a $75 million payment on June 1, 2023, and the final $50 million payment on December 1, 2023150169 - Under its share repurchase program, the company acquired 1.6 million shares for $26.1 million during the nine months ended October 31, 2023, with the program authorization increased to 10 million shares in August 2023177181 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk disclosures since the last Annual Report on Form 10-K - There are no material changes to the market risk disclosures from the Annual Report on Form 10-K for the year ended January 31, 2023186 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with ongoing integration of internal controls for the acquired KLH business - The CEO and CFO concluded that the company's disclosure controls and procedures are effective187 - The integration of internal controls for the acquired Karl Lagerfeld (KLH) business is in process and will be included in the annual assessment for fiscal year 2024189 Part II - Other Information Risk Factors The company reports no material changes to its risk factors from those previously disclosed in its Annual Report on Form 10-K - As of October 31, 2023, there have been no material changes in risk factors from those set forth in the Annual Report for the year ended January 31, 2023191 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, which saw an increased authorization but no public repurchases during the quarter - In August 2023, the Board of Directors increased the authorization for the company's share repurchase program to 10,000,000 shares194 - No shares were repurchased under the publicly announced program during the three-month period ended October 31, 2023193